<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
Amendment No. 1
(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)
Colorado 84-1176672
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 17th Street, Suite 3310, Denver, Colorado 80202
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(303) 294-0750
----------------------------------------------------
(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>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
June 30, 1999 (Audited) and March 31,
2000 (Unaudited) 3
Unaudited Consolidated Statements of Operations
and Comprehensive Loss:
For Nine Month Periods Ended
March 31, 1999 and March 31, 2000 4
Unaudited Consolidated Statements of Operations
and Comprehensive Loss:
For the Three Month Periods Ended
March 31, 1999 and March 31, 2000 5
Unaudited Consolidated Statement of Changes in
Shareholders' Deficit 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 7-8
Notes to Unaudited Consolidated Financial
Statements 9-16
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17-20
PART II OTHER INFORMATION
ITEMS 1-6 21-22
2
<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) (Audited)
----------- ---------
<S> <C> <C>
Assets
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
Convertible 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
Convertible notes payable B private placement
(including related parties), net of unamortized discount
of $1,062,213 and $0 2,731,494 -
Convertible related party notes payable and accrued interest,
net of unamortized discount of $2,218,123 and $0 2,666,519 3,113,219
Capital lease obligations 22,555 37,196
------------ ------------
Total liabilities 5,517,370 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 22,632,637 12,060,705
Common stock subscribed - 60,000
Deferred consulting expense (2,139,213) -
Non-recourse promissory note (500,000) -
Accumulated deficit (21,369,920) (14,929,493)
------------ ------------
Total Shareholders' deficit (1,376,496) (2,808,788)
------------ ------------
Total liabilities and Shareholders' deficit $ 4,140,874 $ 1,317,231
============ ===========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Operations and Comprehensive Loss
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 4,308,455 1,602,591
Research and development 295,298 183,171
------------ ------------
Loss from operations (4,779,884) (1,943,140)
Other income (expense)
Interest income 26,738 -
Interest expense (1,622,994) (59,569)
Other income (expense), net (7,037) 677
Loss on sale of mortgage receivable (57,250) -
------------ ------------
Net loss and comprehensive loss $ (6,440,427) $ (2,002,032)
============ ============
Basic and diluted loss per common share $ (.59) $ (.22)
============ ============
Weighted common shares outstanding 10,963,021 8,976,796
============ ============
See notes to unaudited consolidated financial statements.
4
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Operations and Comprehensive Loss
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 1,020,832 686,660
Research and development 135,158 60,863
------------ -----------
Loss from operations (1,242,188) (798,077)
Other income (expense)
Interest income 22,266 -
Interest (expense) (370,096) (24,066)
Other income (expense), net (7,898) 617
------------ -----------
Net loss and comprehensive loss $ (1,597,916) $ (821,526)
============ ===========
Basic and diluted loss per common share $ (.14) $ (.09)
============ ===========
Weighted common shares outstanding 11,822,388 9,144,820
============ ===========
See notes to unaudited consolidated financial statements.
5
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statement of Changes in Shareholders' Deficit
<TABLE>
<CAPTION>
Non-
Recourse Common Deferred Unearned
Promissory Stock Consulting Compen- Accumulated Shareholders'
Shares Amount Note Subscribed Expense sation Deficit Deficit
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 10,092,795 $12,060,705 $ - $ 60,000 $ - $ - $(14,929,493) $(2,808,788)
Conversion of common stock
subscriptions to note
payable - - - (60,000) - - - (60,000)
Issuance of warrants to
note holders - 349,492 - - - - - 349,492
Warrants issued for
consulting services - 144,133 - - - - - 144,133
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 - - - - - - (1,363,248) (1,363,248)
---------------------------------------------------------------------------------------------------------------------------------
Balances at September 30,
1999 10,231,631 12,798,231 - - - - (16,292,741) (3,494,510)
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 (net $500,000 non-
recourse promissory note) - 2,477,370 (500,00) - - - - 1,977,370
Issuance of stock in
conversion of a note
payable 60,000 127,605 - - - - - 127,605
Warrants issued for
consulting services - 2,333,687 - - (2,333,687) - - -
Beneficial conversion
feature on convertible
note payable - 656,027 - - - - - 656,027
Issuance of stock and
warrants in related party
note payable and warrant
exchange 1,172,426 2,419,771 - - - - - 2,419,771
Net (loss) for three months
ended December 31, 1999 - - - - - - (3,479,263) (3,479,263)
---------------------------------------------------------------------------------------------------------------------------------
Balances at December 31,
1999 11,781,410 21,336,771 (500,000) - (2,333,687) - (19,772,004) (1,268,920)
Issuance of common stock
for cash 5,535 8,210 - - - - - 8,210
Issuance of common stock
for services 63,473 177,538 - - - - - 177,538
Issuance of warrants in
in connection with bridge
notes payable - 1,110,118 - - - - - 1,110,118
Deferred consulting expense - - - - 194,474 - - 194,474
Net (loss) for three months
ended March 31, 2000 - - - - - - (1,597,916) (1,597,916)
---------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2000 11,850,418 $22,632,637 $(500,000) $ - $(2,139,213) $ - $(21,369,920) $(1,376,496)
=================================================================================================================================
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended
--------------------------
March 31, March 31,
2000 1999
----------- -----------
Cash flows from operating activities
Net loss $(6,440,427) $(2,002,032)
Adjustments to reconcile net loss to net
cash used in operating activities -
Depreciation and amortization 43,783 42,061
Amortization of deferred consulting expense 194,474 -
Amortization of debt discounts 551,138 -
Issuance of warrants for consulting services 144,133 -
Beneficial value of warrants issued 1,477,370 -
Beneficial conversion feature amortized to
interest expense 656,027 -
Issuance of subscribed stock for services (60,000) 34,500
Issuance of stock for services and interes 527,269 189,063
Issuance of note payable for consulting services 180,000 -
Loss on sale of mortgage receivables 57,250 -
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)
----------- -----------
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
=========== ===========
See notes to unaudited consolidated financial statements.
7
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Cash Flows
Continued from previous page.
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 $60,000 stock subscriptions into a note payable.
Issued warrants for deferred consulting services valued at $2,333,687.
Issued note receivable for $500,000 in consideration for the sale
of warrants.
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 an excess of
$2,419,771.
Issued warrants with a value of $1,110,118 in a private placement.
Issued warrants with a value of $349,492 in connection with
convertible related party notes payable.
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.
See notes to unaudited consolidated financial statements.
8
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 1 - Restatement
--------------------
In connection with the audit of the Company's Financial Statements for the
fiscal year ended June 30, 2000, management determined that the Company should
make certain non-cash adjustments to its accounting throughout the fiscal
year. The cumulative effects of these adjustments were reflected in the
financial statements contained in the Company's Annual Report for the 2000
fiscal year. The Company has made the following non-cash adjustments in its
accounting for the first, second and third quarters:
- The Company recorded a warrant discount during the first quarter on
the related party notes payable of $349,492 and amortized $34,950 to
interest expense during the three months ended September 30, 1999.
The remaining unamortized discount of $314,542 was expensed during the
second quarter upon the exchange of the original related party notes
payable for new notes payable;
- The Company recorded consulting expense of $144,133 (valued in
accordance with the Black-Scholes model) during July 1999 related to
the value of warrants issued for consulting services to an entity
affiliated with a shareholder;
- The full fair value of 2,500,000 warrants (computed in accordance with
the Black-Scholes model) issued to D2 Co. LLC ("D2") in connection
with a consulting services agreement was recorded as $2,333,687 of
deferred consulting expense in December 1999, to be charged to expense
over the three year term of the agreement;
- The Company calculated the fair value of the 2,500,000 warrants
(valued in accordance with the Black-Scholes model) purchased by D2
in December 1999 of $2,447,370 for $500,000 cash and a $500,000
non-recourse promissory note receivable. The excess of the fair value
of the warrants over the consideration received of $1,447,370 was
charged to general and administrative expenses;
- In December, 1999, the Company recorded a $2,419,771 discount on
related party notes payable representing the difference in fair values
of equity instruments exchanged, originally issued in connection with
related party notes payable. The fair value of the warrants exchanged
were computed in accordance with the Black-Scholes model; and
- A beneficial conversion feature of $656,027 concerning a related party
note payable which was immediately convertible on the date of issue was
charged to interest expense in December 1999 as the related party notes
payable were immediately convertible.
As a result of the above, the Company has restated the financial statements
contained in the Form 10-QSB for the three and nine months ended March 31,
2000. For the three months ended March 31, 2000, the Company increased
general and administrative expenses from $860,733 to $1,020,832 and increased
interest expense from $226,154 to $370,096, resulting in an increase in the
net loss and comprehensive loss from $1,293,875 to $1,597,916 and an increase
in the basic and diluted loss per common share from $0.11 per share to $0.14
per share. For the nine months ended March 31, 2000, the Company increased
general and administrative expenses from $2,526,853 to $4,308,455 and
increased interest expense from $473,533 to $1,622,994, resulting in an
9
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 1 - Restatement (continued)
-------------------------------
increase in the net loss and comprehensive loss from $3,509,364 to $6,440,427
and an increase in the basic and diluted loss per common share from $0.32 per
share to $0.59 per share. As of March 31, 2000, related party notes payable
and accrued interest decreased from $4,884,644 to $2,666,519 due to the
unamortized warrant discount of $2,218,123 and convertible bridge notes
payable decreased from $3,793,707 to $2,731,494 due to the unamortized warrant
discount of $1,062,213. The Company increased the accumulated deficit at
March 31, 2000 from $18,438,858 to $21,369,920 and decreased the total
stockholders' deficit from $4,656,834 to $1,376,496.
Note 2 - Summary of 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/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 3 - 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 $21,369,920,
resulting in an accumulated Shareholders' deficit of $1,376,496. 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 BionSoilJ 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 BionSoilJ (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 4 - Capital Structure
--------------------------
Because we have a relatively complex capital structure the following capital
structure details are set forth:
10
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 4 - Capital Structure (continued)
--------------------------------------
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.
Options
-------
Exercise
Price Shares Expiration
-------- ------- ----------
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 12/31/01
$ 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 06/30/02 -
--------- 12/31/02
Total Employees (Vested) 1,129,392
Total Vested (Directors
and Employees) 1,172,728
(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.
11
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 4 - Capital Structure (continued)
--------------------------------------
Options (continued)
-------------------
Employees (Non-vested)
Vesting Dates Expiration
------------- ----------
$ 2.50 165,000 03/01/01-06/30/02 2/31/01-06/30/03
$ 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
Warrants
--------
As of May 8, 2000, we have 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 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
========== ===========
12
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 4 - 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.
13
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 4 - Capital Structure (continued)
--------------------------------------
Warrants (continued)
--------------------
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. 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 H-16 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.
14
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 4 - Capital Structure (continued)
--------------------------------------
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.
Underlying Shares of Stock Shares: if Held
Note Amount (at 03/31/00) to Maturity
----------- -------------------------- ---------------
LTLK $1,186,653 659,252 915,497
LTLK $ 287,560 159,756 221,852
Defined Benefit
Plan - Dublin
Holding, Ltd. $1,708,876 949,376 1,316,192
H. Northrop $ 339,323 188,513 224,460
---------- --------- ---------
TOTAL $3,522,412 1,956,897 2,678,001
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 5 - Accounting on Material Agreements
------------------------------------------
In connection with our agreements with D2 Co. LLC (AD2@), as reported in our
Forms 8-K and 8-K/A-1 dated December 11, 1999, we issued 2,500,000 warrants
valued at $2,477,370 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. The
beneficial value of the warrants issued over the consideration received of
$1,477,370 has been expensed in the consolidated statement of operations.
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 of $2,333,687 as deferred consulting expenses and
recognize the expense over the three-year life of the agreement.
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 $2,419,771 as a discount on the new related party notes payable. 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.
15
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 6 - 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 cash proceeds of $4,095,000 of long-term convertible bridge debt
and $61,425 in equity for the purchase of 1,213,500 warrants. The value of
the warrants of $1,110,118 has been recorded as a warrant discount on the
convertible bridge notes payable, to be amortized to interest expense over the
life of the notes. 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. (ALTLK@), 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.
16
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
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 $1,376,496, accumulated deficit of $21,369,920, 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 BionSoilJ (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 $5,517,370 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.
17
<PAGE>
Total liabilities increased $1,391,351 in the nine month period ended
March 31, 2000. Notes payable increased by $2,096,563, 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), offset by an unamortized
discount of $2,218,123, and will convert into stock if certain conditions are
met, and to the long-term convertible bridge debt ($3,793,707), offset by an
unamortized discount of $1,062,213, 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. In connection with the warrant/stock exchange, we
recorded $2,419,771 as a debt discount, representing the excess of the fair
value of common stock and warrants issued in exchange for the value of
warrants surrendered. The amount was recorded as debt discount because the
warrants exchanged were originally issued in connection with related party
notes payable. 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.) The value of the warrants computed in accordance with the
Black Scholes model of $2,477,370 was charged to common stock and $1,477,370
representing the excess of the fair value of the warrants over the
consideration received, has been charged to general and administrative
expenses. We recorded deferred consulting expense of $2,333,687 as a
component of stockholders' deficit, representing the fair value of 2,500,000
warrants issued to D2 Co., LLC, in connection with a three-year consulting
agreement.
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 BionSoilJ (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.
18
<PAGE>
General and administrative expenses were higher by $2,705,864 due to an
increase in employee compensation ($233,000), professional expenses
($419,000), non-cash expenses related to the beneficial value of warrants
issued over the consideration received ($1,477,000), consulting expenses
related to warrants issued for services ($144,000),and amortization of
deferred consulting expenses ($194,000), and investor relation expenses
($274,000).
We recorded $1,622,994 in interest expense (including $656,027 of
beneficial conversion feature related to certain related party notes payable
and $493,434 of amortization of debt discount related to certain related party
notes payable) 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 $6,440,427 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 BionSoilJ (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.
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 $334,172 due to an
increase in professional expenses ($144,000), amortization of deferred
consulting expenses ($194,000), and investor relation expenses ($43,000).
We recorded $370,096 in interest expense on our notes payable and
$135,158 in research and development costs. As a result, we recorded a net
loss of $1,597,916 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.
19
<PAGE>
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.
20
<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
$2,333,687 using the Black-Scholes model. See our Form 8-K dated December
11, 1999, Exhibit 10.1.
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.
21
<PAGE>
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. The debt has
been reduced by an unamortized warrant discount of $1,062,213 resulting from
the value of the bridge warrants issued in the private placement with the
convertible bridge debt. See our 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.
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
22
<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: October 20, 2000
23
