SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
1.25
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2000 OR ---------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 OR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-19333
-------
Bion Environmental Technologies, Inc.
-------------------------------------
(Exact name of registrant as specified in its charter)
84-1176672
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7921 Southpark Plaza, Suite 200, Littleton, CO 80120
- ------------------------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
(303) 738-0845
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
The number of shares outstanding of registrant's classes of common stock, as of
May 8, 2000: Common Stock, No Par Value, 11,890,418
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE NO.
- ------ --------------------- --------
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
June 30, 1999 and
March 31, 2000 (Unaudited)..........................3
Unaudited Consolidated Statements of Operations:
For Nine Month Periods Ended
March 31, 1999 and
March 31, 2000......................................4
Unaudited Consolidated Statements of Operations:
For the Three Month Periods Ended
March 31, 1999 and
March 31, 2000......................................5
Unaudited Consolidated Statement of Changes in
Shareholders' Equity for the Period June 30, 1999
through March 31, 2000....................................6
Unaudited Consolidated Statements of Cash Flows:
For the Nine Month Periods Ended
March 31, 1999 and
March 31, 2000......................................7
Notes to Unaudited Consolidated Financial
Statements..................................................9-14
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..............................................15-17
PART II OTHER INFORMATION
ITEMS 1-6 ...................................................18-19
<PAGE>
PART I Financial Information
ITEM 1. Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------------ ------------
Unaudited
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents ............................. $ 3,298,849 $ 55,583
Accounts receivable (net of allowance
of $2,000) ........................................... 23,317 60,452
Contract receivables (net of
allowance of $10,000) ................................ 3,000 33,310
Work in Progress ...................................... -- --
Mortgage Receivables held for sale .................... -- 260,000
Prepaid assets, current portion ....................... 298,083 240,000
------------ ------------
Total current assets ........................ 3,623,249 649,345
------------ ------------
Property and equipment
Computers and equipment ............................... 324,513 316,967
Accumulated depreciation .............................. (187,566) (146,207)
------------ ------------
136,947 170,760
Other assets
Prepaid assets, long-term portion ..................... 317,500 446,735
Accrued Interest Receivable ........................... 10,000 --
Patents, net .......................................... 37,410 39,834
Deposits and other .................................... 15,768 10,557
------------ ------------
Total other assets .......................... 380,678 497,126
------------ ------------
Total assets .............................................. $ 4,140,874 $ 1,317,231
============ ============
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable ...................................... $ 19,376 $ 340,202
Accounts payable - related party ...................... -- 17,924
Note payable and accrued interest ..................... -- 190,065
Related party notes payable and
accrued interest ..................................... 22,346 20,524
Capital lease obligations ............................. 31,676 55,688
Accrued expenses ...................................... 23,404 31,740
Accrued payroll ....................................... -- 319,461
------------ ------------
Total current liabilities ................... 96,802 975,604
Long-term liabilities
Notes payable - private placement
(including related parties) .......................... 3,793,707 --
Related party notes payable and
accrued interest ..................................... 4,191,550 2,478,264
Related party note payable and
accrued interest for consulting services ............. 693,094 634,955
Capital lease obligations ............................. 22,555 37,196
------------ ------------
Total liabilities ........................... 8,797,708 4,126,019
------------ ------------
Commitments and contingencies
Shareholders' deficit
Common stock, no par value, 100,000,000
shares authorized, 11,850,418 and
10,092,795 shares issued and outstanding
at March 31, 2000 and June 30, 1999,
respectively, ........................................ 14,926,588 12,060,705
Common stock subscribed .............................. -- 60,000
Warrants issued for consulting ....................... (240,625) --
Non-recourse promissory note ......................... (500,000) --
Related party note payable discount .................. (403,939) --
Accumulated deficit .................................. (18,438,858) (14,929,493)
------------ ------------
Total Shareholders' deficit ................. (4,656,834) (2,808,788)
------------ ------------
Total liabilities and Shareholders' deficit ............... $ 4,140,874 $ 1,317,231
============ ============
</TABLE>
- 3 -
See notes to unaudited consolidated financial statements.
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Operations
Nine Months Ended
March 31,
------------------------------
2000 1999
------------ ------------
Soil sales ................................. $ 78,771 $ 50,109
System contract revenues ................... 16,000 66,696
------------ ------------
Total revenues ............................. 94,771 116,805
Contract costs ............................. 270,902 274,183
------------ ------------
Gross (loss) ............................... (176,131) (157,378)
General and administrative expenses ........ 2,526,853 1,602,591
Research and development ................... 295,298 183,171
------------ ------------
Loss from operations ....................... (2,998,282) (1,943,140)
Other income (expense)
Interest income ......................... 26,738 --
Interest expense ........................ (473,533) (59,569)
Other income (expense), net ............. (7,037) 677
Loss on sale of mortgage receivable ..... (57,250) --
------------ ------------
Net loss and comprehensive loss ............ $ (3,509,364) $ (2,002,032)
============ ============
Basic loss per common share ................ $ (.32) $ (.22)
============ ============
Weighted common shares outstanding ......... 10,963,021 8,976,796
============ ============
- 4 -
See notes to unaudited consolidated financial statements.
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Operations
Three Months Ended
March 31,
------------------------------
2000 1999
------------ ------------
Soil sales ................................. $ 23,509 $ 6,881
System contract revenues ................... -- 6,000
------------ ------------
Total revenues ............................. 23,509 12,881
Contract costs ............................. 109,707 63,435
------------ ------------
Gross (loss) ............................... (86,198) (50,554)
General and administrative expenses ........ 860,733 686,660
Research and development ................... 135,158 60,863
------------ ------------
Loss from operations ....................... (1,082,089) (798,077)
Other income (expense)
Interest income ......................... 22,266 --
Interest (expense) ...................... (226,154) (24,066)
Other income (expense), net ............. (7,898) 617
------------ ------------
Net loss and comprehensive loss ............ $ (1,293,875) $ (821,526)
============ ============
Basic loss per common share ................ $ (.11) $ (.09)
============ ============
Weighted common shares outstanding ......... 11,822,388 9,144,820
============ ============
- 5 -
See notes to unaudited consolidated financial statements.
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Non-recourse Common
Promissory Note Related Party Deferred
Common Stock Stock Payable Stockholders' Consulting Stockholders' Accumulated
Shares Amount Note Subscribed Discount Expense Deficit Total
----------- ----------- ------------ ------------ ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30,
1999 ................ 10,092,795 $12,060,705 $ -- $ 60,000 $ -- $ -- $(14,929,493) $(2,808,788)
Conversion of common
stock subscriptions
to notes payable .... -- -- -- (60,000) -- -- -- (60,000)
Issuance of common stock
for cash ............ 66,667 100,000 -- -- -- -- -- 100,000
Issuance of common stock
for services ........ 72,169 143,901 -- -- -- -- -- 143,901
Net (loss) for the three
months ended September 30,
1999 ................ -- -- -- -- -- -- (1,184,165) (1,184,165)
---------- ----------- --------- ---------- --------- --------- ------------ -----------
Balances at September 30,
1999 ................ 10,231,631 12,304,606 -- -- -- -- (16,113,658) (3,809,052)
Issuance of common stock
for cash ............ 210,500 318,250 -- -- -- -- -- 318,250
Issuance of common stock
for services ........ 106,853 205,830 -- -- -- -- -- 205,830
Issuance of warrants for
cash and non-recourse
promissory note ..... -- 1,000,000 (500,000) -- -- -- -- 500,000
Issuance of stock in
conversion of a note
payable ............. 60,000 127,605 -- -- -- -- -- 127,605
Issuance of a stock and
warrants in related
party note payable
and warrant exchange . 1,172,426 461,644 -- -- (461,644) -- -- --
Net (loss) for three
months ended December 31,
1999 ................. -- -- -- -- -- -- (1,031,324) (1,031,324)
---------- ----------- --------- ---------- --------- --------- ------------ -----------
Balances at December 31,
1999 ................. 11,781,410 14,417,935 (500,000) -- (461,644) -- (17,144,982) (3,688,691)
Issuance of common stock
for cash ............. 5,535 8,210 -- -- -- -- -- 8,210
Issuance of common stock
for services ......... 63,473 177,538 -- -- -- -- -- 177,538
Warrants issued for
consulting ........... -- 275,000 -- -- -- (275,000) -- --
Issuance of warrants
for cash ............. -- 47,905 -- -- -- -- -- 47,905
Interest expense ...... -- -- -- -- 57,705 -- -- 57,705
Deferred consulting
expense .............. -- -- -- -- -- 34,375 -- 34,375
Net (loss) for three
months ended March 31,
2000 ................. -- -- -- -- -- -- (1,293,876) (1,293,876)
---------- ----------- --------- ---------- --------- --------- ------------ -----------
Balances at March 31,
2000 ................. 11,850,418 $14,926,588 $(500,000) $ -- $(403,939) $(240,625) $(18,438,858) ($4,656,834)
========== =========== ========= ========== ========= ========= ============ ===========
</TABLE>
- 6 -
See notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended
March 31, March 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating
activities
Net loss ........................................... $(3,509,365) $(2,002,032)
Adjustments to reconcile net
loss to net cash used in
operating activities -
Depreciation and amortization ................... 43,783 42,061
Issuance of subscribed stock for services ....... (60,000) 34,500
Issuance of stock for services and interest ..... 527,269 189,063
Issuance of note payable for consulting services 180,000 --
Loss on sale of mortgage receivables ............ 57,250 --
Deferred consulting and interest expense ........... 92,080 --
Changes in assets and liabilities -
Receivables and work-in-progress ............. 67,445 20,684
Prepaid expenses and other ................... (114,059) 349
Accounts payable ............................. (338,750) 187,091
Accrued interest receivable ..................... (10,000) --
Accrued liabilities ...................... (327,797) 191,015
----------- -----------
Net cash used in operating
activities ........................... (3,392,144) (1,337,269)
----------- -----------
Cash flows from investing activities
Purchases of capital equipment .................... (7,546) (5,145)
----------- -----------
Net cash (used in) provided
by investing activities ................ (7,546) (5,145)
----------- -----------
Cash flows from financing activities
Payments on notes payable .......................... (199,388) (8,000)
Proceeds from sale of mortgages .................... 202,750 --
Proceeds from notes payable ........................ 5,703,882 545,000
Proceeds from stock and stock subscription issuances 426,460 809,424
Proceeds from exercise of options and warrants ..... -- 92,563
Proceeds from sale of warrants ..................... 547,905 --
Payments on capital lease obligations .............. (38,653) (52,943)
----------- -----------
Net cash provided by financing
activities ............................. 6,642,956 1,386,044
----------- -----------
Net increase in cash and cash equivalents ............. 3,243,266 43,630
Cash and cash equivalents at beginning of period ...... 55,583 19,104
----------- -----------
Cash and cash equivalents at end of period ............ $ 3,298,849 $ 62,734
=========== ===========
</TABLE>
- 7 -
See notes to unaudited consolidated financial statements.
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Cash Flows
Supplemental disclosure of cash flow information
Cash paid during the nine months for interest was $27,812 (2000) and
$9,457 (1999).
Supplemental disclosures of non-cash financing activities for the nine months
ended March 31, 2000 -
Converted $370,455 of accounts payable to notes payable.
Converted $78,333 in accrued expenses into a note payable.
Converted $387,692 in accrued interest into notes payable
Converted $60,000 stock subscriptions into a note payable.
Issued 2,500,000 warrants for $500,000 cash and a note receivable for
$500,000.
Issued 60,000 shares of Common Stock to two employees as loans and
received short-term notes for the value of the stock sales.
Exchanged convertible notes payable with related parties and issued
1,172,426 shares of Common Stock and additional Class Z Warrants in
exchange for outstanding Class X Warrants, valued at $461,644.
Supplemental disclosures of non-cash financing activities for the nine months
ended March 31, 1999-
Converted $4,500 of Common Stock subscribed into 1300 shares of
Common Stock.
Converted $77,710 of notes payable and interest into 12,862 shares of
Common Stock.
- 8 -
See notes to unaudited consolidated financial statements.
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 1 - Summary of Accounting Policies
- ---------------------------------------
The summary of the significant accounting policies of Bion Environmental
Technologies, Inc. ("Bion" or the "Company") is incorporated by reference to our
annual report on Form 10-KSB/A at June 30, 1999.
The accompanying unaudited financial statements and disclosures reflect all
adjustments (all of which are normal recurring adjustments) in the ordinary
course of business which in the opinion of management are necessary for a fair
presentation of the results of operations, financial positions, and cash flow.
The results of operations for the periods indicated are not necessarily
indicative of the results for a full year.
Note 2 - Continued Operations
- -----------------------------
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. We have not yet begun earning
significant revenue from our planned principal operations. Consequently, as of
March 31, 2000, we have incurred accumulated losses totaling $18,438,858,
resulting in an accumulated Shareholders' deficit of $4,656,834. Cash flows from
current operations are not sufficient to meet obligations. Management plans
include continuing efforts to obtain additional capital to fund operations until
system sales along with sales of BionSoil(TM) are sufficient to fund operations.
There can be no assurance that we will be able successful in attaining
profitable operations or raising sufficient capital. Since January 1, 2000 we
have spent significant funds on the development of the next generation of system
design, which will include system monitoring and controls and a clean water
recycle loop; an expanded research program for BionSoil(TM) (as a result there
will be only limited quantities for sale); and retained consultants to support
these (and other) efforts. These trends and the related expenditures will
continue through the end of the calendar year.
Note 3 - Capital Structure
- --------------------------
Because we have a relatively complex capital structure the following capital
structure details are set forth:
Common Stock
- ------------
As of May 8, 2000 we had 11,890,418 (1) shares of Bion Environmental
Technologies, Inc. common stock (the "Common Stock") issued and outstanding.
- 9 -
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 3 - Capital Structure (continued)
- -------------------------------------
Options
- -------
<TABLE>
<CAPTION>
Exercise
Price Shares Expiration
--------- --------- ----------------
<S> <C> <C> <C> <C>
Directors
$ 1.55 11,112 Vested 08/19/02
$ 2.04 11,112 Vested 08/19/02
$ 2.91 11,112 Vested 11/17/03
$ 1.61 10,000 Vested 08/04/04
---------
Total Directors 43,336
Employees (Vested) $ 2.25 474,000 (2)Vested 12/21/01
$ 2.50 40,000 (3)Vested 12/21/01
$ 2.50 19,445 Vested 08/01/00
$ 2.50 150,000 Vested 12/31/01
$ 2.50 55,000 Vested 12/31/02
$ 2.70 55,556 Vested 12/31/02
$ 3.04 1,112 Vested 01/28/01
$ 3.60 143,345 Vested 05/17/00-06/30/03
$ 3.72 1,112 Vested 08/31/00
$ 4.05 1,112 Vested 11/30/00
$ 5.40 34,620 Vested 05/17/00-12/31/01
$ 5.63 1,112 Vested 05/31/00
$ 7.20 91,762 Vested 12/31/01-12/31/02
$ 9.00 11,112 Vested 12/31/01
$ 13.50 50,104 Vested 6/30/02-12/31/02
---------
Total Employees (Vested) 1,129,392
Total Vested (Directors
and Employees) 1,172,728
</TABLE>
(1) Includes 43,666 shares not vested at May 8, 2000.
(2) Each holder has agreed to exercise these options with outstanding promissory
notes of Bion upon certain conditions.
(3) Holder has agreed to exercise using outstanding long term notes payable of
Bion upon certain conditions.
- 10 -
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 3 - Capital Structure (continued)
- --------------------------------------
Options (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Employees (Non-vested) Vesting Dates Expiration
$ 2.50 165,000 03/01/01-06/30/02 12/31/01-06/30/03
$ 3.60 224,694 12/20/00-04/01/03 12/31/02-06/30/03
$ 5.40 12,076 06/01/00-09/01/00 12/31/02
$ 7.20 245,666 12/20/00-04/01/03 12/31/01-06/30/03
$ 13.50 89,096 12/20/00-04/01/03 12/31/02
--------------
Total Non-Vested 736,532
==============
Total Vested and Non Vested 1,909,260
==============
</TABLE>
Warrants
- --------
As of May 8, 2000, we have the following warrants outstanding:
<TABLE>
<CAPTION>
Warrant Shares Expiration Date Exercise Price
- --------------------------- --------- --------------- --------------
<S> <C> <C> <C>
Class AA.01 ............... 15,000 (1) 5.40
Class D2P ................. 2,500,000 (2) 1.75
Class D2C ................. 2,500,000 (3) 2.50
Class G-5.1 ............... 1,115 (4) 2.70
Class G-5.2 ............... 919 (5) 2.70
Class G-6 ................. 3,148 (6) 5.40
Class G-8 ................. 27,779 (7) 5.40
Class H-1 ................. 11,112 (8) 4.50
Class H-2 ................. 16,112 (9) 2.70
Class H-9 ................. 11,112 (10) 9.00
Class H-9.1 ............... 11,112 (11) 11.25
Class H-9.2 ............... 11,112 (12) 7.20
Class H-9.3 ............... 11,112 (13) 13.50
Class H-9.4 ............... 11,112 (14) 5.40
Class H-10 ................ 18,519 (15) 3.60
*Class H-16 ............... 38,000 (16) 2.25
Class I-1 ................. 4,167 (17) 5.40
****Class J-1 ............. 1,401,000 (18) 2.375
**Class X ................. 1,116,012 (19) 8.00
***Class Z ................ 6,323,884 (20) 13.50
---------- -----
14,032,327 $ 1.75-13.50
========== =============
</TABLE>
- 11 -
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 3 - Capital Structure (continued)
- -------------------------------------
Warrants (continued)
- -------------------
* Holder has agreed to exercise by cancellation of promissory note of Bion
on certain conditions.
** Holders of approximately 415,199 Class X Warrants have agreed to
participate in a future registered exchange offer subject to terms and
conditions.
*** Holders of approximately 5,937,823 Class Z Warrants have agreed to
participate in a future registered exchange offer subject to certain
terms and conditions.
**** Does not include the Warrants that will be issued to various placement
agents.
1. Class AA.01 Warrants may be exercised to purchase 15,000 shares of Common
Stock for approximately a 28 month period beginning August 12, 1999 and
ending December 31, 2001.
2. Class D2P Warrants may be exercised to purchase 2,500,000 shares of Common
Stock for a 60 month period beginning December 23, 1999 and ending
December 31, 2004.
3. Class D2C Warrants may be exercised to purchase 2,500,000 shares of Common
Stock for a 54 month period beginning January 1, 2000 and ending
June 30, 2004.
4. Class G-5.1 Warrants may be exercised to purchase 1,115 shares of Common
Stock for a 60 month period beginning January 22, 1996 and ending
January 21, 2001.
5. Class G-5.2 Warrants may be exercised to purchase 919 shares of Common Stock
for a 60 month period beginning September 13, 1996 and ending September
12, 2001.
6. Class G-6 Warrants may be exercised to purchase 3,148 shares of Common Stock
for a 60 month period beginning April 21, 1997 and ending April 20, 2002.
7. Class G-8 Warrants may be exercised to purchase 27,779 shares of Common Stock
for a 37 month period beginning June 5, 1997 and ending June 30, 2000.
8. Class H-1 Warrants may be exercised to purchase 11,112 shares of Common Stock
for a 60 month period beginning August 21, 1996 and ending August 20, 2001.
9. Class H-2 Warrants may be exercised to purchase 16,112 shares of Common Stock
for a 60 month period beginning August 21, 1996 and ending August 20, 2001.
10. Class H-9 Warrants may be exercised to purchase 11,112 shares of Common
Stock for a 47 month period beginning February 1, 1997 and ending December
31, 2001.
11. Class H-9.1 Warrants may be exercised to purchase 11,112 shares of Common
Stock for a 47 month period beginning February 1, 1997 and ending December
31, 2001.
- 12 -
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 3 - Capital Structure (continued)
- -------------------------------------
Warrants (continued)
- -------------------
12. Class H-9.2 Warrants may be exercised to purchase 11,112 shares of Common
Stock for a 47 month period beginning February 1, 1997 and ending December
31, 2001.
13. Class H-9.3 Warrants may be exercised to purchase 11,112 shares of Common
Stock for a 47 month period beginning February 1, 1997 and ending December
31, 2001.
14. Class H-9.4 Warrants may be exercised to purchase 11,112 shares of Common
Stock for a 47 month period beginning February 1, 1997 and ending December
31, 2001.
15. Class H-10 Warrants may be exercised to purchase 18,519 shares of Common
Stock for a 50 month period beginning November 2, 1998 and ending December
31, 2002.
16. Class H16 Warrants may be exercised to purchase 38,000 shares of Common
Stock for a 24 month period beginning January 1, 2000 and ending December
31, 2002.
17. Class I-1 Warrants may be exercised to purchase 4,167 shares of Common
Stock for approximately a 42 month period beginning June 9, 1998 and ending
December 31, 2001.
18. Class J-1 Warrants may be exercised to purchase 1,401,000 shares of Common
Stock for a 57 month period beginning March 31, 2000 and ending December
31, 2004.
19. Class X Warrants may be exercised to purchase 1,116,012 shares of Common
Stock for a 24 month period beginning January 1, 2000 and ending December
31, 2001.
20. Class Z Warrants may be exercised to purchase 6,323,884 shares of Common
Stock for a 24 month period beginning January 1, 2000 and ending December
31, 2001.
At May 8, 2000, there were warrants exercisable to purchase 14,032,327 shares of
Common Stock.
Convertible Notes
- -----------------
The following notes can be converted, in whole or in part, at the holders'
option into shares of Common Stock at a price of $1.80 per share.
<TABLE>
<CAPTION>
Underlying Shares of Stock Shares: if Held
-------------------------- ---------------
Note Amount (at 03/31/00) To Maturity
---------- -----------
<S> <C> <C> <C>
LTLK ........................ $1,186,653 659,252 915,497
LTLK ........................ $ 287,560 159,756 221,852
Defined Benefit
Plan
Dublin Holding, ............. $1,708,876 949,376 1,316,192
Ltd .......................
H. Northrop ................. $ 339,323 188,513 224,460
---------- ---------- ----------
TOTAL ....................... $3,522,412 1,956,897 2,678,001
</TABLE>
- 13 -
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 3 - Capital Structure (continued)
- --------------------------------------
Convertible Notes (continued)
- -----------------------------
Holders of the above convertible notes have agreed to convert under certain
conditions. See our Forms 8-K and 8-K/A-1 dated December 11, 1999.
We have $1,544,046 in long term notes due on December 31, 2001 (including
the H. Northrop note above). Holders of $1,204,723 of the long term notes have
agreed to exercise outstanding options/warrants under certain conditions. These
notes are held by seven individuals, including Jon Northrop and Jere Northrop.
See Forms 8-K and 8-K/A-1 dated December 11, 1999. A total of $3,183,089 in
long-term convertible notes are due on December 31, 2002. (See above.)
Note 4 - Accounting on Material Agreements
- ------------------------------------------
In connection with our agreements with D2 Co. LLC ("D2"), as reported in our
Forms 8-K and 8-K/A-1 dated December 11, 1999, we issued 2,500,000 warrants for
$1,000,000, receiving $500,000 cash and a $500,000 non-recourse promissory note.
The promissory note has been recorded as a reduction to equity until payment is
received on the related warrants.
We have also issued 2,500,000 warrants as part of the payment for services to be
rendered by D2 under the related agreements. We will record the value of the
warrants issued and recognize the expense over the three-year life of the
agreement. The warrants have been valued at $275,000 ($.11/share).
In connection with the exchange of related party convertible notes payable and
warrants for new convertible notes payable, Common Stock and warrants, we have
recorded $461,644 as a discount on the new related party notes payable. Due to
the involvement of related parties, we have presented the discount as a contra
to Shareholders' deficit. The amounts recorded reflect the difference in fair
values of the equity instruments exchanged. The discount is being amortized over
the life of the debt as additional interest expense. See our Forms 8-K and
8-K/A-1 dated December 11, 1999.
Note 5 - Subsequent Events
- --------------------------
During the month of April 2000, we closed an additional thirteen units in our
private offering for $325,000 in long-term convertible bridge debt and $13,520
in equity for the purchase of 97,500 warrants. The total private offering
consisted of $4,095,000 of long-term convertible bridge debt and $61,425 in
equity for the purchase of 1,213,500 warrants. See our Form 8-K dated April
13, 2000.
During the month of May 2000, we negotiated a settlement of the $94,182.84
account payable for legal fees that were deferred until December 31, 2001 for
40,000 shares of restricted Common Stock.
In accordance with the agreement between LoTayLingKyur, Inc. ("LTLK"), Mark A.
Smith (MAS) and Bion as reported in our Form 8-K dated December 11, 1999 (Item
10.4), LTLK and MAS have earned the fees specified. The balance of the
consulting fees ($420,000) that are listed as a prepaid will be expensed in the
next quarter.
- 14 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion of Financial Condition and Results of Operations
Financial Condition and Results of Operations
- ------------------------------------------------------------------------
The financial statements contained in this 10-QSB show more than $14,900,000 in
equity being invested in Bion as of March 31, 2000. We have a negative net worth
of $4,659,834, cumulative deficit of $18,438,858, limited current revenues, and
substantial current operating losses. (Note that the negative net worth is less
than the outstanding long-term debt to management and major shareholders, the
largest part of which is convertible into Bion's Common Stock. Bion may convert
notes held by LoTayLingKyur, Inc., LTLK Defined Benefit Plan, and Dublin Holding
Ltd. under specific conditions. In addition, management note holders (and family
entities) have agreed to use long-term notes owed by Bion to exercise
outstanding options and warrants of Bion under specific conditions. See our
Forms 8-K and 8-K/A-1 dated December 11, 1999. See also Footnote 3 to the
Financial Statements above.)
Our operations are not currently profitable; therefore, readers are further
cautioned that our continued existence is uncertain if we are not successful in
obtaining outside funding in an amount sufficient for us to meet our operating
expenses at our current level. Management plans to continue raising additional
capital to fund operations until sales of Bion systems and BionSoil are
sufficient to fund operations.
Bion NMS system and BionSoil sales require additional expenditures. Our system
sales require additional personnel and significant capital expenditures, which
will generally increase our overhead. BionSoil product sales and marketing may
require wholesaler and retailer distribution networks (which may require
permitting in some locations) and additional expenditures for personnel and
equipment to harvest, process, package, sell, and deliver our products. Although
management believes that there is a reasonable basis to remain optimistic, no
assumption can be made that we will be successful in attaining profitable
operations and/or raising sufficient capital to sustain operations. Since
January 1, 2000 we have spent significant funds on the development of the next
generation of system design, which will include system monitoring and controls
and a clean water recycle loop; an expanded research program for BionSoil(TM)
(as a result there will be only limited quantities for sale); and retained
consultants to support these (and other) efforts. These trends and the related
expenditures will continue through the end of the calendar year.
Liquidity and Capital Resources
- -------------------------------
Our Consolidated Balance Sheet shows Current Assets of $3,623,249 and Total
Assets of $4,140,874. Our Current and Total Liabilities as of March 31, 2000 are
$96,802 and $8,797,708 respectively. Total assets increased by $2,823,643 from
June 30, 1999. The change is primarily attributable to the increase in cash from
the private offering (See our Form 8-K dated April 13, 2000) and the sale of
warrants, partially offset by the loss on the sale of the mortgage receivable
(see our 10-KSB/A dated June 30, 1999) and prepaid consulting. Cash and cash
equivalents increased by $3,243,266 from June 30, 1999. The cash increase is the
result of a private offering that closed on April 13, 2000 (See Form 8-K dated
April 13, 2000). We received $3,817,905 of the total offering through March 31,
2000. Our current ratio (current assets:current liabilities) is 37.4:1 as of
March 31, 2000 as compared to 0.67:1 as of June 30, 1999.
- 15 -
<PAGE>
Total liabilities increased $4,671,689 in the nine month period ended March 31,
2000. Notes payable increased by $5,376,899, partially offset by a decrease in
accrued salaries and accounts payable of $319,461 and $338,750, respectively.
The increases in notes payable result from additional notes issued to related
parties or employees ($1,583,192)and will convert into stock if certain
conditions are met, and to the long-term convertible bridge debt ($3,793,707)
associated with the private offering (See our Form 8-K dated April 13, 2000).
Our Consolidated Statement of Changes in Shareholders' Equity reflects a total
of 1,757,623 shares of Common Stock being issued in the nine month period ended
March 31, 2000. We issued 282,702 shares of Common Stock for cash ($426,460) and
242,495 shares for services ($527,269). We also issued 1,172,426 shares in an
exchange of Class X Warrants for Common Stock and Class Z Warrants (see our
Forms 8-K and 8-K/A-1 dated December 11, 1999) and 60,000 shares to two
employees as loans and received short term notes for the value of the stock
sales. Of these 1,757,623 shares, we issued a total of 1,471,936 shares of
legended and restricted Common Stock and 285,687 shares of unrestricted stock.
We issued a note to an employee and, as part of the note, reclassified $60,000
of subscribed stock into the note payable. We also received $500,000 cash and a
$500,000 non-recourse promissory note for the issuance of 2,500,000 warrants to
purchase Common Stock at $1.75 per share as part of our agreement with D2 Co.
LLC (See Forms 8-K and 8-K/A-1 dated December 11, 1999.) Also, as part of this
agreement, we issued an additional 2,500,000 warrants to purchase Common Stock
at $2.50 per share for a 54 month period beginning January 1, 2000 valued at
$275,000 or $.11 per share (See Forms 8-K and 8-K/A-1 dated December 11, 1999).
Results of Operations
- ---------------------
Comparison of the Nine Months Ended March 31, 2000 with the Nine Months Ended
March 31, 1999
- -----------------------------------------------------------------------------
Revenue in the nine months ended March 31, 2000 was $94,771 compared to $116,805
for the corresponding nine month period in 1999, a decrease of $19,034. Contract
costs were lower in the fiscal year 2000 nine month period by $3,281 due to
decreased expenses associated with system design. This resulted in a gross loss
for the period ended March 31, 2000 of $176,131 as compared to a gross loss of
$157,378 for the same nine month period in 1999. System sales were lower in the
nine months ended March 31, 2000 due to hog industry and regulatory changes.
Since January 1, 2000 we have spent significant funds on the development of the
next generation of system design, which will include system monitoring and
controls and a clean water recycle loop; an expanded research program for
BionSoil(TM) (as a result there will be only limited quantities for sale); and
retained consultants to support these (and other) efforts. These trends will
continue through the end of the calendar year.
General and administrative expenses were higher by $924,262 due to an increase
in employee compensation ($233,000), professional expenses ($419,000), and
investor relation expenses ($274,000).
We recorded $473,533 in interest expense on our notes payable and $295,298 in
research and development costs. We also recorded a loss of $57,250 on the sale
of the mortgage receivables in the nine month period. As a result of the above,
we recorded a net loss of $3,509,364 in the nine month period ended March 31,
2000, compared to a net loss of $2,002,032 for the nine month period ended March
31, 1999.
Comparison of the Three Months Ended March 31, 2000 with the Three Months Ended
March 31, 1999
- --------------------------------------------------------------------------------
Revenue in the three months ended March 31, 2000 was $23,509 compared to $12,881
for the corresponding three month period in 1999, an increase of $10,628. Since
January 1, 2000 we have spent significant funds on the development of the next
generation of system design, which will include system monitoring and controls
and a clean water recycle loop; an expanded research program for BionSoil(TM)
(as a result there will be only limited quantities for sale); and retained
consultants to support these (and other) efforts. These trends and the related
expenditures will continue through the end of the calendar year.
- 16 -
<PAGE>
Contract costs were higher in the 2000 three month period by $46,272 due to
increased expenses associated with system operations and New York BionSoil
processing. This resulted in a gross loss for the quarter ended March 31, 2000
of $86,198 as compared to a gross loss of $50,554 for the same three month
period in 1999.
General and administrative expenses were higher by $174,073 due to an increase
in professional expenses ($144,000), and investor relation expenses ($43,000).
We recorded $226,154 in interest expense on our notes payable and $135,158 in
research and development costs. As a result, we recorded a net loss of
$1,293,875 in the three month period ended March 31, 2000, compared to a net
loss of $821,526 for the three month period ended March 31, 1999.
Trends, Events and Uncertainties
- --------------------------------
Liquidity
- ---------
The funding we have received pursuant to the management agreement, reported in
our Forms 8-K and 8-K/A-1 dated December 11, 1999, and the private placement
reported in our Form 8-K dated April 13, 2000, have significantly increased our
liquidity and funding for operations. Our current assets to current liabilities
ratio is 37.4:1 as of March 31, 2000. See our Forms 8-K and 8-K/A-1 dated
December 11, 1999 and Form 8-K dated April 13, 2000 for detailed information on
this Management Agreement and recent financing.
Seasonality
- -----------
Our system sales and installation business is not seasonal in nature, except to
the extent that weather conditions at certain times of the year in certain
geographic areas may temporarily affect construction and installation of our
systems. However, our projects and markets are geographically spread so that
when weather conditions limit construction activity in southern market areas,
projects in northern markets can proceed, and when northern area weather is
inappropriate, southern projects can proceed. BionSoil and BionSoil product
sales are expected to exhibit a somewhat seasonal sales pattern with emphasis on
spring, summer and fall sales.
- 17 -
<PAGE>
PART II Other Information
- -------------------------
ITEM 1. Legal Proceedings
We know of no material pending legal proceedings to which Bion or any of our
subsidiaries is a party or in which any of our systems is the subject except as
follows:
The Office of the Attorney General of the State of Illinois has filed a formal
complaint before the Illinois Pollution Control Board against an Illinois hog
producer (who installed a Bion NMS), Murphy Farms, Inc., and Bion Technologies,
Inc. alleging violations of the Illinois Environmental Protection Act. We have
stated our position to the Illinois Pollution Control Board that the Bion NMS
was not properly installed, maintained and operated by the hog producer involved
in this suit. The parties involved in the complaint are currently in discussions
to solve the problems. Management reasonably believes that the outcome of this
complaint will have no material effect on our business and that it has no
liability for any Illinois violations.
ITEM 2. Changes in Securities and Use of Proceeds
The following securities were sold in the three month period ended March
31, 2000 without registration under the Securities Act of 1933, as amended:
Warrants
- --------
We issued 958,100 J-1 Warrants (540,000 on February 29, 2000 and 418,100 on
March 31, 2000) to purchase restricted and legended Common Stock at $2.375 per
share. The warrants are exercisable from March 31, 2000 to December 31, 2004.
Bion received $47,905 in cash for use in operations for these warrants. See
Exhibit 10.1 and 10.3 to our Form 8-K dated April 13, 2000.
We issued 75,000 J-1 Warrants on March 31, 2000 to purchase restricted and
legended Common Stock at $2.375 per share to two parties. The warrants are
exercisable from March 31, 2000 to December 31, 2004. Bion received consulting
and management services as consideration for these warrants.
On January 1, 2000 we issued 2,500,000 D2C warrants exercisable at $2.50 per
share expiring on December 31, 2000. These warrants were valued at $275,000 or
$.11 per share. See Form 8-K dated December 11, 1999, Exhibit 10.1.
- 18 -
<PAGE>
Common Stock
- ------------
We issued 5,535 shares of restricted and legended Common Stock to two private
investors in privately negotiated transactions for an aggregate amount of $8,210
on January 24 and February 2, 2000.
Convertible Notes
- -----------------
We added $1,307,680 of principal and interest to the convertible notes listed in
Note 4 of Notes to Consolidated Financial Statements in our 10-KSB/A dated June
30, 1999.
Common Stock issued pursuant to the transactions set forth above was issued in
reliance upon the exemptions from registration afforded by Sections 3(b), 4(2),
and/or other provisions of the Securities Act of 1933, as amended. Each of the
persons to whom such securities were issued made an informed investment decision
based upon negotiation with us and was provided with appropriate offering
documents and access to material information regarding Bion. We believe that
such persons had knowledge and experience in financial and business matters such
that they were capable of evaluating the merits and risks of the acquisition of
our Common Stock in connection with these transactions. All certificates
representing such common shares bear an appropriate legend restricting the
transfer of such securities, except in accordance with the Securities Act of
1933, as amended, and stop transfer instructions have been provided to our
transfer agent in accordance therewith.
We added $3,793,707 of long-term convertible bridge debt and interest during the
three month period January 1, 2000 to March 31, 2000. See Form 8-K dated April
13, 2000.
ITEM 3. Defaults Upon Senior Securities. None
ITEM 4. Submission of Matters to a Vote of Security Holders. None
ITEM 5. Other Information. None
ITEM 6. Exhibits and Reports on Form 8-K.
- 19 -
<PAGE>
Index to Exhibits
- -----------------
(2) Plan of acquisition, reorganization, arrangement, liquidation, or
succession. None.
(4) Instruments defining the rights of holders, incl. Indentures. None.
(10) Material contracts. Management and Consulting Agreement with D2 Co. LLC
incorporated herein by reference to our Forms 8-K and 8-K/A-1 dated
December 11, 1999.
(11) Statement re: computation of per share earnings. None.
(15) Letter on unaudited interim financial information. None.
(18) Letter on change in accounting principles. None.
(19) Reports furnished to security holders. None.
(22) Published report regarding matters submitted to vote. None.
(20) Other documents or statements to security holders. None.
(23) Consents of experts and counsel. None.
(24) Power of attorney. None.
(27) Financial Data Schedule included herewith this Form 10-QSB.
(99) Additional exhibits. None.
Reports on Form 8-K
- -------------------
The following current reports on Form 8-K were filed during the nine months
following our 10-KSB/A dated June 30, 1999.
Form 8-K dated May 22, 1999: Items 5 and 7
Form 8-K dated July 23, 1999: Items 5 and 7
Form 8-K dated August 1, 1999: Item 5
Form 8-K dated December 11, 1999: Items 5 and 7
Form 8-K/A-1 dated December 11, 1999: Items 5 and 7
Form 8-K dated April 13, 2000: Items 5 and 7
- 20 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, we have
duly caused this report to be signed on its behalf by the undersigned thereunder
duly authorized.
Bion Environmental Technologies, Inc.
/s/Jon Northrop
---------------
Jon Northrop, President
Dated: May 15, 2000
- 21 -
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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