SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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)
Colorado 84-1176672
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7921 Southpark Place, Suite 200 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 November 10, 2000: Common Stock, No Par Value, 13,041,685.
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
<PAGE>
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1 FINANCIAL STATEMENTS
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 2000
(unaudited) and June 30, 2000 (audited) 3-4
Unaudited Consolidated Statements of Operations for the Three
Months Ended September 30, 2000 and 1999 5
Unaudited Consolidated Statements of Changes in Stockholders'
Deficit for the Three Months Ended September 30, 2000 6
Unaudited Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 2000 and 1999 7-8
Notes to Unaudited Consolidated Financial Statements 9-25
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 26-29
PART II OTHER INFORMATION
ITEMS 1-6 29-31
2
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
2000
(Unaudited) June 30, 2000
------------ -------------
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 1,323,958 $ 2,604,933
Accounts receivable, less allowance of $12,000
for possible losses 8,654 26,695
Prepaid expenses, note receivable and accrued interest 103,182 46,702
------------ ------------
Total current assets 1,435,794 2,678,330
------------ ------------
Property and equipment:
Furniture and equipment 319,499 319,499
Computer equipment 91,382 92,828
------------ ------------
410,881 412,327
Less accumulated depreciation 221,569 203,894
------------ ------------
Net property and equipment 189,312 208,433
------------ ------------
Other assets:
Patents, net of accumulated amortization of
$19,152 and $18,344 35,794 36,602
Deposits and other 138,756 11,884
------------ ------------
Total other assets 174,550 48,486
$ 1,799,656 $ 2,935,249
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
2000
(Unaudited) June 30, 2000
------------ -------------
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current:
Convertible bridge notes payable (Note 3) 3,625,517 -
Accounts payable $ 113,274 $ 101,166
Current portion of capital lease obligations 23,039 26,627
Accrued expenses and note payable 45,823 49,419
------------- -------------
Total current liabilities 3,807,653 177,212
------------- -------------
Long-term liabilities:
Convertible bridge notes payable (Note 3) - 3,362,242
Notes payable, related parties (Note 4) 3,189,696 2,846,471
Accrued consulting fees 187,500 122,833
Long-term portion of capital lease obligations 10,797 16,737
------------- -------------
Total long-term liabilities 3,387,993 6,348,283
------------- -------------
Total liabilities 7,195,646 6,525,495
------------- -------------
Commitments and contingencies
Stockholders' deficit:
Common stock, no par value, 100,000,000
shares authorized, 13,041,685 and
11,902,669 shares issued and outstanding 25,752,247 22,748,871
Non-recourse promissory note (500,000) (500,000)
Deferred consulting expense (2,488,783) (1,944,739)
Unearned compensation (67,500) (67,500)
Accumulated deficit (28,091,954) (23,826,878)
------------- -------------
Total stockholders' deficit (5,395,990) (3,590,246)
------------- -------------
$ 1,799,656 $ 2,935,249
============ =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Unaudited Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000 1999
------------- -------------
<S> <C> <C>
Revenues:
Soil sales $ 17,652 $ 43,948
System contract revenues - -
------------- -------------
Total revenues 17,652 43,948
------------- -------------
Cost of goods and services sold:
Soil sales 80,807 90,776
System contract - -
------------- -------------
Total cost of goods sold 80,807 90,776
------------- -------------
Gross loss (63,155) (46,828)
------------- -------------
Expenses:
General and administrative (including
$2,449,253 and $348,034, non-cash,
respectively) 3,171,654 1,032,546
Research and development 382,319 88,816
------------- -------------
Total expenses 3,553,973 1,121,362
------------- -------------
Loss from operations (3,617,128) (1,168,190)
------------- -------------
Other income (expense):
Interest expense (including $681,853 and
$140,287, non-cash, respectively) (683,102) (146,040)
Interest income 41,953 3,474
Loss on sale of mortgage receivable - ( 57,250)
Other expense, net ( 6,799) 4,758
------------- -------------
Total other expense (647,948) (195,058)
------------- -------------
Net loss and comprehensive loss $ (4,265,076) $ (1,363,248)
------------- -------------
Basic and diluted loss per common share $ (.34) $ (.13)
------------- -------------
Weighted-average number of common
shares outstanding, basic and diluted 12,568,076 10,200,378
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc. and
Subsidiaries
Unaudited Consolidated Statement of Stockholders' Deficit
<TABLE>
<CAPTION>
Non-
Recourse Deferred Unearned Total
Three Months Ended Common Stock Promissory Consulting Compen- Accumulated Stockholders'
September 30, 2000 Shares Amount Note Expense sation Deficit Deficit
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 2000 11,902,669 $22,748,871 $(500,000) $(1,944,739) $(67,000) $(23,826,878) $(3,590,246)
Beneficial value of
warrants exchanged for
common stock (Note 6) 1,139,016 2,173,460 - - - - 2,173,460
Issuance of stock options
and warrants for consulting
services (Note 5) - 22,832 - - - - 22,832
Modification of terms of
convertible bridge notes
(Note 3) - 70,079 - - - - 70,079
Warrants issued for consulting
services (Note 5) - 737,005 - (737,005) - - -
Deferred consulting expense
(Note 5) - - - 192,961 - - 192,961
Net loss for the quarter ended
September 30, 2000 - - - - - (4,265,076) (4,265,076)
---------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 13,041,685 $25,752,247 $(500,000) $(2,488,783) $(67,500) $(28,091,954) $(5,395,990)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended September 30, 2000 1999
------------------------------------------------ ------------- -------------
<S> <C> <C>
Operating activities:
Net loss $ (4,265,076) $ (1,363,248)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 18,482 14,053
Accounts receivable and work-in progress allowance - 34,950
Issuance of stock for services, compensation and interest - 144,133
Amortization of prepaid consulting expenses - 143,901
Issuance of subscribed stock for services - (60,000)
Issuance of note payable for consulting services - 60,000
Issuance of note payable for management fee 60,000 -
Issuance of note payable for interest expense 249,462 -
Beneficial value of warrants exchanged for common stock 2,173,460 -
Amortization of debt discounts 431,785 -
Amortization of deferred consulting expense 192,961 -
Issuance of options and warrants for consulting services 22,832 -
Loss on sale of mortgage assets - 57,250
Changes in operating assets and liabilities:
Accounts receivable 18,042 21,520
Prepaid expenses and other (112,170) (107,015)
Accrued interest receivable (11,183) -
Accounts payable 12,108 (2,923)
Accrued liabilities (3,597) 61,525
------------- -------------
Net cash used in operating activities (1,212,894) (995,854)
============= =============
</TABLE>
7
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000 1999
-------------------------------- ------------- -------------
<S> <C> <C>
Investing activities:
Refund of equipment returned 1,447 -
Other - 808
------------- -------------
Net cash provided by investing activities 1,447 808
------------- -------------
Financing activities:
Proceeds from notes payable, related parties - 671,125
Proceeds from sale of mortgages - 202,750
Proceeds from stock issuances and subscriptions - 100,000
Payments on note receivable (60,000) -
Payments on capital lease obligations (9,528) (12,849)
------------- -------------
Net cash provided by (used in) financing activities (69,528) 961,026
------------- -------------
Net decrease in cash and cash equivalents (1,280,975) (34,020)
Cash and cash equivalents, beginning of period 2,604,933 55,583
------------- -------------
Cash and cash equivalents, end of period $ 1,323,958 $ 21,563
------------- -------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,249 $ 3,129
Supplemental disclosure of non-cash financing activities:
Warrants issued for deferred consulting services 737,005 -
Warrants issued in connection with related party note payable - 349,924
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. Accounting Policies
The summary of the significant accounting policies of Bion Environmental
Technologies, Inc. ("Bion" or "Company") is incorporated by reference to our
annual report on Form 10-KSB at June 30, 2000.
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.
2. Continuing Operations
The consolidated financial statements have been prepared assuming the Company
will continue as a going concern. The Company incurred losses totaling
$4,265,076 during the three months ended September 30, 2000 (including
non-cash interest expense and other non-cash expenses of $681,853 and
$2,449,253, respectively) and has a history of losses that has resulted in an
accumulated deficit of $28,091,954 at September 30, 2000.
During the year ended June 30, 2000, the Company successfully obtained
external financing through private placements of debt and equity and the sale
of its warrants. The Company continues to explore sources of additional
financing to satisfy its current operational requirements, and is currently
contemplating additional private placements of debt and equity, under the most
favorable terms available.
9
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
There can be no assurance that any funds required during the next twelve
months or thereafter can be generated from operations or that if such required
funds are not internally generated that funds will be available from external
sources such as debt or equity financings or other potential sources. The lack
of additional capital resulting from the inability to generate cash flow from
operations or to raise capital from external sources, would force the Company
to substantially curtail or cease operations and would, therefore, have a
material adverse effect on its business. Further, there can be no assurance
that any such required funds, if available, will be available on attractive
terms or that they will not have a significantly dilutive effect on the
Company's existing shareholders.
To enhance the Company's longer term prospects, since January 2000, management
has committed significant resources to develop the next generation Bion system
design, which will include system monitoring and controls and possibly a clean
water recycling loop; an expanded research program for BionSoil(R); and
retained consultants to support these efforts. The expenditures related to
these efforts are anticipated to continue until the next generation design is
completed. Management's decision to pursue these efforts is the result of
positive results of limited market tests of BionSoil(R) products. There can be
no assurance that the next generation Bion system design or the BionSoil(R)
program will be successful or that sufficient capital will be available to
fund operations.
There is substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability or classification of asset carrying
amounts or the amounts and classification of liabilities that may result
should the Company be unable to continue as a going concern.
10
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
3. Convertible Bridge Notes Payable
On April 13, 2000, the Company completed a private offering of unsecured
convertible bridge notes payable (the "Notes") in the principal amount of
$4,095,000. Principal and accrued interest ($228,000 at September 30, 2000 is
included in convertible bridge notes) on the Notes at 10% per annum are due on
July 1, 2001. In connection with the sale of the Notes, the Company issued
stock purchase warrants convertible into 1,213,500 shares of the Company's
common stock at $2.375 per share through December 31, 2004. The warrants were
originally valued at $1,110,118 using the Black Scholes option-pricing model
and are being amortized as additional interest expense over the term of the
Notes.
On September 15, 2000, following acceptance by the note-warrant holders on
August 24, 2000, the Company amended the convertible bridge notes payable and
associated warrants as follows:
- adjusted the conversion rate to equal the market price of the Company's
common stock at the date of conversion;
- limited the conversion rate on the notes to $5.00 per share;
- adjusted the exercise price of the warrants from $2.375 to $2.00 per
share; and,
- automatic conversion one year from date of note.
The reduction of the exercise price of the warrants to $2.00 per share,
resulted in an additional $70,079, of value attributable to the warrants. Such
amount has been reflected as an additional discount on the convertible bridge
notes payable. The Company recorded $230,137 of interest expense during the
three months ended September 30, 2000 due to the amortization of the warrant
discount. The unamortized warrant discount at September 30, 2000 of
approximately $697,483 will be amortized to interest expense over the
remaining term of the notes.
11
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Upon issuance of its capital stock in a public or private offering, with gross
proceeds greater than $5,000,000, the Company, at its option, must either
prepay the notes without penalty or convert the notes into shares of common
stock, at a conversion rate equal to the market price of the Company's common
stock on the date of conversion, not to exceed $5.00 per share.
Of the convertible bridge notes payable issued, $50,000 was issued to a
director and $100,000 was issued to D2 Co., LLC (Note 5).
12
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
4. Notes Payable, Related Parties
Notes payable, related parties, consisted of the following:
September 30,
2000
Unsecured notes payable to Mark A. Smith -
Rollover IRA, Kelly Smith - Rollover IRA and
Dublin Holding, Ltd. entities controlled by a
stockholder/director, principal amount of
$3,075,798 plus accrued interest of $300,093,
net of unamortized warrant discount of $1,814,828.
All outstanding principal and accrued interest due
is immediately convertible into shares of the
Company's common stock at a price of $1.80 per share.
During the three months ended September 30, 2000,
the Company amortized $201,648 of the warrant discount
to interest expense. All outstanding principal and
interest, computed at 1% per month, is due and payable
on or before December 31, 2002. $ 1,561,063
---------------
Unsecured notes payable to a stockholder, principal
amount of $308,114 plus accrued interest of $49,696.
All outstanding principal and interest, computed at 1%
per month, is due and payable on or before December 31,
2001. The outstanding principal and accrued interest
due, is convertible into shares of the Company's common
stock at a price of $1.80 per share, under certain agreed
upon conditions. 357,810
---------------
13
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Unsecured notes payable to various stockholders, principal
amount of $1,150,833 plus accrued interest of $119,990. All
outstanding principal and accrued interest at 1% per month
is due and payable on or before December 31, 2001. Under
the terms of the agreement, options or warrants held by
these stockholders may be exercised, as repayment
for the existing notes. 1,270,823
---------------
$ 3,189,696
===============
14
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
5. Related Party Transactions
The Company's notes payable and equity transactions with stockholders and
other related parties are included in Notes 3 and 4, respectively.
In December 1999 the Company entered into a three year agreement for
management and consulting services with D2 Co., LLC ("D2"). The agreement
requires total annual consideration of $240,000 payable in common stock of
Bion or cash, at the option of the Company. In January 2000, D2 agreed to add
the monthly fees, aggregating to $187,500 at September 30, 2000, to the
balance of their convertible bridge notes payable (Note 3). In connection with
the agreement the Company granted warrants exercisable into 2,500,000 shares
of the Company's common stock at $2.50 per share through June 30, 2004. The
warrants were valued at $2,333,687 using the Black Scholes option-pricing
model and have been reflected as deferred consulting expense in the
accompanying Consolidated Statement of Stockholders' Deficit and are being
amortized to consulting expense over the three year term of the agreement.
During August 2000, the Company amended the management agreement with D2,
whereby the Company extended the consulting services for an additional year
and issued 1,500,000 additional warrants (1,000,000 warrants exercisable at
$3.50 per share and 500,000 exercisable at $6.00 share, both from January 1,
2002 until August 10, 2005). The Company valued the warrants issued under the
Black-Scholes option-pricing model and has added the value of $737,005 to the
deferred consulting expense. During the three months ended September 30, 2000,
the Company recorded $192,961 to consulting expense as a result of amortizing
the deferred consulting expense balance. The remaining unamortized deferred
consulting expense of $2,488,783 at September 30, 2000 will be amortized over
the remaining term of the amended agreement.
15
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
In August 2000, the Company issued stock options and warrants to three members
of the Company's Board of Directors for additional services to be performed by
the directors. In total, options were issued to purchase 160,000 shares of
common stock at $2.25 per share, exercisable immediately until December 31,
2003 and warrants were issued to purchase 100,000 shares of common stock at
$2.375 per share, exercisable immediately until December 31, 2003. During the
three months ended September 30, 2000, the Company recorded $22,832 as
consulting expense related to the options and warrants.
6. Stockholders' Deficit
Exchange of Warrants for Common Stock
Effective August 3, 2000, certain holders of Class X warrants and Class Z
warrants exchanged 165,198 Class X warrants and 5,425,440 Class Z warrants for
863,399 shares of restricted common stock. For the three months ended
September 30, 2000, the Company recorded $1,662,340 as additional expense
related to the beneficial value of the consideration received over the value
of warrants surrendered.
Effective August 23, 2000, certain holders of the Class X warrants and Class Z
warrants, including certain officers, employees and stockholders exchanged, in
aggregate, 469,458 Class X warrants and 898,444 Class Z warrants for 275,617
shares of restricted common stock. For the three months ended September 30,
2000, the Company recorded $511,120 as additional expense related to the
beneficial value of the consideration received over the value of warrants
surrendered.
16
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
7. Capital Structure
Because the Company has a relatively complex capital structure the following
capital structure details are set forth:
Common Stock
As of November 10, 2000 we had 13,041,685 (1) shares of common stock issued
and outstanding.
Options
On August 10, 2000, the Company initiated an exchange offer with holders
(current and former employees and consultants) of certain classes of options
issued under the Company's existing option plans, which was completed on
August 31, 2000. In aggregate, the Company issued 404,107 new options,
exercisable at $2.00 per share until December 31, 2002 and canceled 775,772
existing options with various exercise prices between $3.60 to $13.50 and
expiration dates from October 31, 2000 to June 30, 2003. There are no
immediate accounting implications related to the option exchange, as the
Company's stock price was equal to the new exercise price as of September 30,
2000. The Company will monitor the changing stock price each quarter and
record additional compensation expense if applicable.
17
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
As of Novembet 10, 2000, the Company had the following options outstanding:
Options Vested
--------------
Exercise
Price Shares Expiration
----------- --------- ----------
Directors $ 1.55 11,112 08/19/02
Plan $ 2.04 11,112 08/19/02
$ 2.91 11,112 11/17/03
$ 1.61 10,000 08/04/04
---------
Total
Directors 43,336
---------
Exercise
Price Shares Expiration
----------- --------- ----------
Employees $ 2.00 180,638 12/31/02
Plan $ 2.20 80,0000 12/31/03
$ 2.25 160,000 12/31/03
$ 2.25 474,000 (2) 12/21/01
$ 2.50 40,000 (3) 12/31/01
$ 2.50 254,445 06/30/00
$ 2.70 55,556 12/31/02
$ 3.04 1,112 01/28/01
$ 4.05 1,112 11/30/00
---------
Total
Employees 1,246,863
---------
Total
(Directors
and
Employees) 1,290,199
---------
18
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(1) Includes 27,000 shares not vested at November 10, 2000.
(2) Each holder has agreed to exercise these options with outstanding
promissory notes of the Company under certain conditions.
(3) Holder has agreed to exercise using outstanding long-term notes
payable of the Company upon certain conditions.
Options Non-Vested
------------------
Exercise Vesting
Price Shares Dates Expiration
-------- ------- --------- ----------
Employee
Plan $ 2.00 239,719 11/19/00- 12/31/02
10/31/02
$ 2.50 140,000 03/01/01- 12/31/01-
--------- 06/30/02 06/30/03
Total 379,719
---------
Total Vested
and Non-Vested 1,669,918
=========
19
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Warrants
--------
As of November 10, 2000, the Company had the following warrants outstanding:
Warrant Shares Expiration Date Exercise Price
------- ------ --------------- --------------
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 D2C-W 24,550 (4) $ 2.50
Class D2D 1,000,000 (5) $ 3.50
Class D2E 500,000 (6) $ 6.00
Class G-5.1 1,115 (7) $ 2.70
Class G-5.2 919 (8) $ 2.70
Class G-6 3,148 (9) $ 5.40
Class H-1 11,112 (10) $ 4.50
Class H-2 16,112 (11) $ 2.70
*Class H-16 38,000 (12) $ 2.25
Class J-1 1,404,450 (13) $ 2.00
Class J-2 165,000 (14) $ 2.375
Class X 481,552 (15) $ 8.00
--------- ----------
8,660,958 $1.75-6.00
========= ==========
*Holder has agreed to exercise by cancellation of promissory note of the
Company on certain conditions.
1. Class AA.01 Warrants may be exercised to purchase 15,000 shares of
Common Stock for a 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 period beginning December 31, 1999 and ending December
31, 2004.
20
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
3. Class D2C Warrants may be exercised to purchase 2,500,000 shares
of Common Stock for a period beginning January 1, 2000 and ending June 30,
2004.
4. Class D2C-W Warrants may be exercised to purchase 24,550 shares of
Common Stock for a period beginning October 30, 2000 and ending June 30, 2004.
5. Class D2D Warrants may be exercised to purchase 1,000,000 shares of
Common Stock for a period beginning January 1, 2002 and ending August 10,
2005.
6. Class D2E Warrants may be exercised to purchase 500,000 shares of
Common Stock for a period beginning January 1, 2002 and ending August 10,
2005.
7. Class G-5.1 Warrants may be exercised to purchase 1,115 shares of
Common Stock for a period beginning January 22, 1996 and ending January 21,
2001.
8. Class G-5.2 Warrants may be exercised to purchase 919 shares of Common
Stock for a period beginning September 13, 1996 and ending September 12, 2001.
9. Class G-6 Warrants may be exercised to purchase 3,148 shares of Common
Stock for a period beginning April 21, 1997 and ending April 20, 2002.
10. Class H-1 Warrants may be exercised to purchase 11,112 shares of Common
Stock for a period beginning August 21, 1996 and ending August 20, 2001.
11. Class H-2 Warrants may be exercised to purchase 16,112 shares of Common
Stock for a period beginning August 21, 1996 and ending August 20, 2001.
21
<PAGE>
<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
12. Class H-16 Warrants may be exercised to purchase 38,000 shares of
Common Stock for a period beginning January 1, 2000 and ending December 31,
2001.
13. Class J-1 Warrants may be exercised to purchase 1,404,450 shares of
Common Stock for a period beginning March 31, 2000 and ending December 31,
2004.
14. Class J-2 Warrants may be exercised to purchased 165,000 shares of
Common Stock for a period beginning March 31, 2000 and ending December 31,
2004.
15. Class X Warrants may be exercised to purchase 481,552 shares of Common
Stock for a period beginning January 1, 2000 and ending December 31, 2001.
At November 10, 2000, there were warrants exercisable to purchase 7,160,958
shares of Common Stock.
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<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Convertible Notes
-----------------
As of September 30, 2000 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:
Note Amount
Underlying Shares of Stock (at 09/30/00)
Shares if Held to Maturity
Dublin Holding, Ltd. $ 2,815,257 1,564,032 2,046,081
Mark A. Smith Rollover IRA 300,836 167,131 218,643
Kelly Smith Rollover IRA 259,798 144,332 188,817
H. Northrop 357,810 198,783 224,460
----------- --------- ---------
TOTAL $ 3,733,701 2,074,278 2,678,001
=========== ========= =========
Holders of the above convertible notes have agreed to convert under certain
conditions. See Forms 8-K and 8-K/A-1 dated December 11, 1999.
The Company has $1,840,098 (Principal and Interest) in long-term notes due on
December 31, 2001 (included the H. Northrop note above). Holders of $1,436,071
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 $4,416,371 (Principal and Interest) in long-term convertible
notes are due on December 31, 2002.
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<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
8. Office Lease Agreement
On August 28, 2000, the Company entered into a lease agreement for office
facilities in New York City. The term of the lease is eleven years and the
aggregate cost is approximately $2.8 million. The Company also entered into a
sublease for a portion of the facilities with an unrelated party for an
aggregate rent of approximately $576,000 over the eleven-year term.
9. Segment Information
The Company operates in two business segments as follows:
Systems: The Company designs, markets, installs and manages waste,
wastewater and storm water systems, primarily in the agricultural and food
processing industries.
Soil: The Company produces and markets BionSoil(R) products such as
organic fertilizers, potting soils and soil amendments which are produced from
the nutrient rich Bion Solids harvested from certain types of agricultural
systems installed on large dairy and hog farms.
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<PAGE>
Bion Environmental Technologies, Inc.
and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
The Company's reportable operating segments have been determined in accordance
with the Company's internal management structure, which is organized based on
operating activities. The accounting policies of the operating segments are
the same as those described in the summary of accounting policies. The Company
evaluates performance based upon several factors, of which the primary
financial measure is segment operating income.
Three Months
Ended September 30, 2000 1999
Revenues:
Soil $ 17,652 $ 43,948
Systems - -
------------ ------------
$ 17,652 $ 43,948
============ ============
Operating Loss:
Soil $ 1,602,653 $ 708,732
Systems 2,014,475 459,458
------------ ------------
$ 3,617,128 $ 1,168,190
============ ============
Depreciation and amortization:
Soil $ 12,058 $ 12,642
Systems 6,424 1,411
------------ ------------
$ 18,482 $ 14,053
============ ============
Expenditures for additions and
long-lived assets:
Soil $ - $ -
Systems 1,447 808
------------ ------------
$ 1,447 $ 808
============ ============
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
Consolidated Financial Statements and accompanying notes.
Going Concern
-------------
The financial statements contained in this Form 10-QSB show $25,752,247
being invested in or contributed to Bion as of September 30, 2000. We have a
shareholder deficit of $5,395,990, cumulative deficit of $28,091,954, which
includes non-cash charges of $3,131,106 incurred during the quarter ended
September 30, 2000, limited current revenues and substantial current operating
losses. (Note that the related parties notes payable of $3,189,696 are
approximately 60% of the negative net worth, all of which is convertible into
our restricted and legend Common Stock.) 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 Bion system and BionSoil(R) sales are sufficient to fund
operations.
Bion NMS system and BionSoil(R) sales require additional expenditures.
Our system sales require additional personnel and significant capital
expenditures, which will generally increase our overhead. BionSoil(R) product
sales and marketing 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. We are negotiating with independent third parties and related
parties to obtain the necessary additional funding. Although management
believes that there is a reasonable basis to remain optimistic, no assumption
can be made that we will be able to attain profitable operations and/or raise
sufficient capital to sustain operations.
The level of funding required to accomplish our objectives is ultimately
dependent on the success of our research and development efforts, which at
this time, are unknown. Currently, we estimate that approximately an
additional $3,000,000 will be required during the year ended June 30, 2001.
We anticipate spending $750,000 on research and development efforts and the
balance on compensation and general business overhead.
Financial Condition and Results of Operations
---------------------------------------------
Liquidity and Capital Resources
Our Consolidated Balance Sheet as of September 30, 2000 shows Current
assets of $1,435,794 and Total assets of $1,799,656. Our current and total
liabilities as of September 30, 2000 are $3,807,653 and $7,195,646,
respectively. Total assets decreased by $1,135,593 from June 30, 2000. The
26
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<PAGE>
change is primarily attributable to the decrease in cash. Cash and cash
equivalents decreased $1,280,975 from June 30, 2000, primarily as a result of
net cash used in operating activities. Our current ratio is 0.38:1 as of
September 30, 2000 as compared to 15.1:1 as of June 30, 2000. The reduction
in the current ratio results from the classification of convertible bridge
notes payable as a current liability as notes are due July 1, 2001. Deposits
and other assets increased $126,872 during the three months ended September
30, 2000 of which $120,561 was for a letter of credit on the New York City
office lease.
Total liabilities increased $670,151 in the three month period ended
September 30, 2000. This increase was due to interest on the convertible
bridge notes and related parties note payable increasing $606,500 and accrued
consulting expenses increasing $64,667.
Our Stockholders' Equity account reflects a total of 1,139,016 shares of
restricted common stock issued in the quarter ended September 30, 2000. We
issued the restricted common stock in an exchange of 634,656 Class X warrants
and 6,323,884 Class Z warrants. We valued the warrants in accordance with the
Black-Scholes model and recorded $2,173,460 of additional expense related to
the beneficial value of the consideration received over the value of the
warrants surrendered.
We believe that during the balance of the fiscal year, we will not
generate sufficient operating cash flow to meet our needs without additional
external financing. There is no assurance that our efforts to obtain such
financing will be successful. Any failure on our part to do so will have a
material adverse impact on us and may cause us to cease operations.
Results of Operations
---------------------
Comparison of the Three Months Ended September 30, 2000 with the Three Months
Ended September 30,1999
We recorded $17,652 of BionSoil(R) sales during the three months ended
September 30, 2000. This compares to $43,948 BionSoil(R) sales during the
three months ended September 30, 1999. The decrease of $26,296 is attributable
to lower BionSoil(R) sales to customers, as a larger quantity of BionSoil(R)
was used for testing and turf trials. We have been in the design and testing
phase of the second-generation system that will include computerized real-time
monitoring and controls and will also reduce the size of the system. The focus
on the new system design has had a short-term negative effect on system sales.
Cost of goods sold decreased $9,969 for the soil sales.
We incurred gross losses of $63,155 and $46,828 during the three months
ended September 30, 2000 and 1999, respectively. The gross losses result from
inefficiencies associated with the disproportionate relationship between
compensation/overhead and revenues associated with a technological growth-
oriented company. We believe that this trend will reverse as revenues
increase.
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<PAGE>
General and administrative expenses increased $2,139,108 (207%) for the
three months ended September 30, 2000 as compared to the three months ended
September 30, 1999. The increase is primarily ($2,449,253) attributable to
non-cash expenses related to the beneficial value of the stock consideration
received over the value of the warrants surrendered in connection with
warrant/stock exchange transactions, partially offset by other individually
insignificant decreases.
Research and development costs increased $293,503 during the three months
ended September 30, 2000. This increase is due to the design and testing of
the second- generation system and increased BionSoil(R) research and testing
expenses.
Interest expense increased $537,062, of which $681,853 was for non-cash
expenses associated with certain warrants and promissory notes, partially
offset by other individually insignificant decreases. Non-cash interest
expense for the three months ended September 30, 1999, was $140,287.
We had an increase in interest income due to higher cash balances
associated with cash flow generated from financing activities.
We sold the two mortgages we received from the LTLK Defined Benefit Plan
during the three months ended September 30, 1999. We incurred a non-recurring
loss of $57,250 on the sale of the two mortgages.
The net loss and comprehensive loss increased $2,901,828 (213%) during
the three months ended September 30, 2000. The increase primarily related to
$2,449,253 of non-cash general and administrative expenses (for the issuance
of stock and warrants associated with various transactions discussed above)
and $681,853 of non-cash interest expense incurred during the three months
ended September 30, 2000, partially offset by other individually insignificant
decreases.
Basic and diluted loss per common share is increased by $.21, from $.13
to $.34. The increase in the loss per share is attributable to the
aforementioned increase in the net loss.
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(R) and
BionSoil(R) product sales are expected to exhibit a somewhat seasonal sales
pattern with emphasis on spring, summer and fall sales.
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<PAGE>
Impact of Recently Issued Accounting Pronouncements
---------------------------------------------------
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," required companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair market value. Gains or losses
resulting from changes in the values of those derivatives are accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000. Management believes that the adoption of SFAS No. 133
will have no material effect on our financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation" ("FIN 44"), which was
effective July 1, 2000, except that certain conclusions in this Interpretation
which cover specific events that occur after either December 15, 1998, or
January 12, 2000, are recognized on a prospective basis from July 1, 2000.
This Interpretation clarifies the application of APB Opinion 25 for certain
issues related to stock issued to employees. We believe our existing stock-
based compensation policies and procedures are in compliance with FIN 44 and,
therefore, the adoption of FIN 44 had no material impact on our financial
condition, results of operation or cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101 (effective for the last fiscal quarter
of 2001), which provides guidance on applying generally accepted accounting
principles to selected revenue recognition issues. We believe that our
revenue recognition policies are in accordance with SAB 101.
Inflation and Changes in Prices
-------------------------------
We are unable to predict the impact of inflation on our activities;
however, at this time we believe it is minimal.
PART II
ITEM 1. Legal Proceedings
We are not a party to any pending legal proceeding that is material to
our business.
ITEM 2. Changes in Securities and Use of Proceeds
The following securities were sold in the three month period ended
September 30, 2000 without registration under the Securities Act of 1933, as
amended:
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Warrants
------------
We issued 1,000,000 D2D Warrants and 500,000 D2E Warrants issued to D2
CO. LLC on August 10, 2000 to purchase restricted and legended stock at $3.50
and $6.00 per share, respectively. These warrants were valued at $737,005
using the Black-Scholes model and are exercisable from January 1, 2002 to
August 10, 2005. See our Form 8-K dated August 3, 2000, Exhibit 99.2. These
warrants were issued for services rendered pursuant to the management
agreement between us and D2 CO. LLC.
We issued 100,000 J-2 Warrants to a director on August 10, 2000 to
purchase restricted and legended stock at $2.375 per share. These warrants
are exercisable from August 10, 2000 to December 31, 2004 and were valued at
$63,873 using the Black-Scholes model. See our Form 8-K dated August 3, 2000,
Exhibit 99.3. These warrants were issued for services rendered.
We issued 3,825 J-1 Warrants on August 9, 2000 to a broker as
compensation for their placement of convertible bridge notes. See our Form 8-
K dated April 13, 2000 Exhibits 10.1, 10.2, and 10.3.
Common Stock
------------
We issued 1,139,016 shares of restricted and legended Common Stock to 43
holders of Class X and Z Warrants in exchange for their warrants. 634,656
Class X Warrants and 6,323,884 Class Z Warrants were exchanged and we recorded
$2,173,460 as additional expense related to the beneficial value of the
consideration received over the value of the Warrants surrendered.
Convertible Notes
-----------------
We added $141,578 of interest to the convertible notes listed in Note 3
during the quarter ended September 30, 2000.
The warrants and shares of our Common Stock which were issued pursuant to
the transactions set forth above were 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/or 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.
ITEM 3. Defaults Upon Senior Securities. None
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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.
Index to Exhibits
-----------------
(27) Financial Data Schedule. Filed herewith electronically.
Reports on Form 8-K
-------------------
The following current reports on Form 8-K were filed during the quarter ended
September 30, 2000.
Form 8-K dated August 3, 2000: Items 5 & 7
Form 8-K dated August 9, 2000: Item 4
Form 8-K dated August 10, 2000: Items 5 & 7
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
Bion Environmental Technologies, Inc.
By: /s/ Jon Northrop
Jon Northrop, Executive Vice President &
Chief Financial Officer
Dated: November 14, 2000
32
