<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 September 30, 1999
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 November 10, 1999: Common Stock, No Par Value, 10,302,381
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
September 30, 1999 (Unaudited) 3
Unaudited Consolidated Statements of Operations
and Comprehensive Loss:
For the Three Month Periods Ended
September 30, 1998 and
September 30, 1999 4
Unaudited Consolidated Statement of Changes in
Stockholders' Deficit for the Period
June 30, 1999 through September 30, 1999 5
Unaudited Consolidated Statements of Cash Flows:
For the Three Month Periods Ended
September 30, 1998 and
September 30, 1999 6-7
Notes to Unaudited Consolidated Financial
Statements 8-14
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 15-19
PART II OTHER INFORMATION
ITEMS 1-6 19-21
2
<PAGE>
PART I Financial Information
ITEM 1. Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999
(Unaudited) (Audited)
------------------ -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 21,563 $ 55,583
Accounts receivable (Net of allowance of $2,000) 60,932 60,452
Contract receivables (net of allowance of $10,000) 11,310 33,310
Mortgage Receivables held for sale -- 260,000
Prepaid consulting service, current portion 240,000 240,000
------------ ------------
Total current assets 333,805 649,345
------------ ------------
Property and equipment
Computers and equipment 316,967 316,967
Accumulated depreciation (160,260) (146,207)
------------ ------------
156,707 170,760
------------ ------------
Other assets
Prepaid consulting service, long-term portion 300,000 360,000
Other prepaid assets 193,235 86,735
Patents, net 39,026 39,834
Deposits and other 11,072 10,557
------------ ------------
Total other assets 543,333 497,126
------------ ------------
Total assets $ 1,033,845 $ 1,317,231
============ ============
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 347,704 $ 340,202
Accounts payable - related party 7,499 17,924
Convertible related party notes payable and accrued interest 216,596 210,589
Capital lease obligations 48,340 55,688
Accrued expenses 26,098 31,740
Accrued payroll 386,628 319,461
------------ ------------
Total current liabilities 1,032,865 975,604
Long-term liabilities
Convertible Related party notes payable and accrued interest,
net of unamortized discount of $314,542 and $0 3,463,795 3,113,219
Capital lease obligations 31,695 37,196
------------ ------------
Total liabilities 4,528,355 4,126,019
------------ ------------
Commitments and contingencies
Stockholders' deficit
Common stock, no par value, 100,000,000 shares 12,798,231 12,060,705
authorized, 1,231,631 shares issued and outstanding
Common stock subscribed -- 60,000
Accumulated deficit (16,292,741) (14,929,493)
------------ ------------
Total stockholders' deficit (3,494,510) (2,808,788)
------------ ------------
Total liabilities and stockholders' deficit $ 1,033,845 $ 1,317,231
============ =============
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Operations
Three Months Ended
September 30,
---------------------------
1999 1998
------------ -----------
Soil sales $ 43,948 $ 28,372
System contract revenues -- 35,500
------------ -----------
Total revenues 43,948 63,872
Contract costs 99,463 122,841
------------ -----------
Gross (loss) (55,515) (58,969)
General and administrative expenses 1,023,859 382,475
Research and development 88,816 66,999
------------ -----------
Loss from operations (1,168,190) (508,443)
Other income (expense)
Interest income 3,474 17
Interest expense (146,040) (15,148)
Other income/expense, net 4,758 (2,659)
Loss of Sale of Mortgage Receivable (57,250) --
------------ -----------
Net loss and comprehensive loss $ (1,363,248) $( 526,233)
============ ===========
Basic and diluted loss per common share $ (0.13) $ (0.06)
============ ===========
Weighted common shares outstanding 10,200,378 8,833,960
============ ===========
See notes to unaudited consolidated financial statements.
4
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statement of Changes in Stockholders' 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> <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 period
ended September 30, 1999 - - - - - - (1,363,248) (1,363,248)
---------------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 10,231,631 $12,798,231 - $ - - - $(16,292,741) $(3,494,510)
=================================================================================================================================
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,363,248) $(526,233)
Adjustments to reconcile net loss to net cash used in operating
activities -
Depreciation and amortization 14,053 14,044
Amortization of debt discount 34,950 -
Issuance of warrants for consulting services 144,133 -
Issuance of stock for services, compensation and interest 143,901 10,725
Issuance of subscribed stock for services (60,000) 11,500
Issuance of note payable for consulting services 60,000 -
Loss on sale of mortgage receivables 57,250 -
Changes in assets and liabilities - - -
Receivables 21,520 (863)
Prepaid expenses and other (107,015) 29
Accounts payable (2,923) 34,832
Accrued liabilities 61,525 51,493
----------- ---------
Net cash used in operating activities (995,854) (404,473)
----------- ---------
Cash flows from investing activities
Purchases of equipment - (2,969)
Investment in patents 808 -
----------- ---------
Net cash (used in) provided by investing activities 808 (2,969)
----------- ---------
Cash flows from financing activities
Proceeds from sale of mortgages 202,750 -
Proceeds from notes payable 671,125 175,000
Proceeds from stock and stock subscription issuances 100,000 161,674
Proceeds from exercise of options and warrants - 82,500
Payments on capital lease obligations (12,849) (17,006)
----------- ---------
Net cash provided by financing activities 961,026 402,168
----------- ---------
Net decrease in cash and cash equivalents (34,020) (5,274)
Cash and cash equivalents at beginning of period 55,583 19,104
----------- ---------
Cash and cash equivalents at end of period $ 21,563 $ 13,830
========== =========
</TABLE>
Continued on following page.
See notes to unaudited consolidated financial statements.
6
<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 quarter for interest was $3,129 (1999) and $4,437
(1998).
Supplemental disclosures of non-cash financing activities for the quarter
ended September 30, 1998-
Converted $1,500 of common stock subscribed into 300 shares of common
stock.
Supplemental disclosure of non-cash financing activities for the quarter ended
September 30, 1999.
Issued warrants with a value of $349,924 in connection with convertible
related party notes payable.
See notes to unaudited consolidated financial statements.
7
<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 certain non-cash adjustments in its
accounting for the first quarter to reflect the value of warrants issued in
connection with related party notes payable as a warrant discount on the debt
by recording a warrant discount during the first quarter on the related party
notes payable of $349,492 (valued in accordance with the Black-Scholes model)
to be amortized to interest expense over the term of the debt ($34,950 for the
three months ended September 30, 1999), and by reflecting consulting expense
of $144,133 during July 1999 related to the value of warrants issued for
consulting services (valued in accordance with the Black-Scholes model) to an
entity affiliated with a shareholder.
As a result of the above, the Company has restated the financial statements
contained in the Form 10-QSB for the three months ended September 30, 1999.
For the three months ended September 30, 1999, the Company increased general
and administrative expenses from $879,726 to $1,023,859 and increased interest
expense from $111,089 to $146,040, resulting in an increase in the net loss
and comprehensive loss from $1,184,165 to $1,363,248 and an increase in the
basic and diluted loss per common share from $0.12 per share to $0.13 per
share. As of September 30, 1999, related party notes payable and accrued
interest decreased from $3,778,337 to $3,463,795 due to the unamortized
warrant discount of $314,542. The Company increased the accumulated deficit
from $16,113,658 to $16,292,741 and decreased the total stockholders' deficit
from $3,809,052 to $3,494,510.
Note 2 - Summary of Accounting Policies
---------------------------------------
The summary of the significant accounting policies of Bion Environmental
Technologies, Inc. ("Company") is incorporated by reference to the Company's
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 accruals) 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
of the Company. 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. The Company has not yet begun
earning significant revenue from its planned principal operations.
Consequently, as of September 30, 1999, the Company has incurred accumulated
8
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 3 - Continued Operations (Continued)
-----------------------------------------
losses totaling $16,292,741, resulting in an accumulated stockholders' deficit
of $3,494,510. Cash flows from current operations are not sufficient to meet
the obligations of the Company. Management plans include continuing efforts
to obtain additional capital to fund operations until contract sales along
with sales of BionSoil(TM) are sufficient to fund operations. There can be no
assurance that the Company will be able to successfully attain profitable
operations or raise sufficient capital.
Note 4 - 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, 1999 the Company had 10,302,381 shares of Common Stock
issued and outstanding.
Options
-------
Vesting Date Expires
------------ -------
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) $ 2.50 40,000 Vested 12/31/01
$ 2.70 27,778 Vested 12/31/02
$ 3.04 1,112 Vested 01/28/01
$ 3.60 3,334 Vested 03/03/00
$ 3.60 1,019 Vested 03/18/00
$ 3.60 2,693 Vested 05/17/00
$ 3.60 7,750 Vested 06/30/00
$ 3.60 19,445 Vested 08/01/00
$ 3.60 9,935 Vested 12/31/01
$ 3.60 19,525 Vested 12/31/02
$ 3.72 1,112 Vested 08/31/00
$ 4.05 1,112 Vested 11/30/00
$ 5.40 1,600 Vested 03/03/00
$ 5.40 1,226 Vested 05/17/00
$ 5.40 4,276 Vested 06/30/00
$ 5.40 15,485 Vested 12/31/01
$ 5.63 1,112 Vested 05/31/00
$ 7.20 37,753 Vested 12/31/01
$ 9.00 11,112 Vested 12/31/01
Total Vested 207,379
9
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 4 - Capital Structure (Continued)
--------------------------------------
Employees (Non-vested) $ 3.60 26,251 04/30/00 12/31/02
$ 3.60 26,251 04/30/01 12/31/02
$ 3.60 26,251 04/30/02 12/31/02
$ 3.60 10,000 08/01/00 12/31/02
$ 3.60 10,000 08/16/99 12/31/02
$ 5.40 10,613 11/19/99 12/31/02
$ 5.40 1,556 03/04/00 12/31/02
$ 5.40 1,038 03/16/00 12/31/02
$ 5.40 1,464 04/01/00 12/31/02
$ 5.40 1,038 06/01/00 12/31/02
$ 5.40 10,000 08/01/00 12/31/02
$ 5.40 1,038 09/01/00 12/31/02
$ 7.20 770 12/16/99 12/31/01
$ 7.20 1,334 02/03/00 12/31/01
$ 7.20 1,464 04/01/00 12/31/02
$ 7.20 18,381 04/30/00 12/31/02
$ 7.20 1,926 08/04/00 12/31/02
$ 7.20 1,482 08/11/00 12/31/02
$ 7.20 10,613 11/19/00 12/31/02
$ 7.20 1,556 03/04/01 12/31/02
$ 7.20 1,038 03/16/01 12/31/02
$ 7.20 18,381 04/30/01 12/31/02
$ 7.20 1,038 06/01/01 12/31/02
$ 7.20 10,000 08/16/01 12/31/02
$ 7.20 1,038 09/01/01 12/31/02
$ 7.20 18,381 04/30/02 12/31/02
$ 7.20 10,000 08/16/02 12/31/02
$13.50 28,898 04/30/00 12/31/02
$13.50 28,898 04/30/01 12/31/02
$13.50 28,898 04/30/02 12/31/02
Total Non-vested 309,596
Total Employees
and Directors 560,311
10
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 4 - Capital Structure (Continued)
--------------------------------------
Warrants
--------
As of November 10, 1999, the Company has the following warrants outstanding:
Warrant Shares Expiration Date Exercise Price
Class G-5.1 1,115 (1) 2.70
Class G-5.2 919 (2) 2.70
Class G-6 3,148 (3) 5.40
Class G-8 27,779 (4) 5.40
Class H-1 11,112 (5) 4.50
Class H-2 16,112 (6) 2.70
Class H-9 11,112 (7) 9.00
Class H-9.1 11,112 (8) 11.25
Class H-9.2 11,112 (9) 7.20
Class H-9.3 11,112 (10) 13.50
Class H-9.4 11,112 (11) 5.40
Class H-10 18,519 (12) 3.60
Class H-11 18,519 (13) 3.60
Class H-12 27,778 (14) 2.70
Class H-14 18,519 (15) 3.60
Class H-15.1 26,251 (16) 3.60
Class H-15.2 26,251 (17) 3.60
Class H-15.3 26,251 (18) 3.60
Class H-15.4 18,381 (19) 7.20
Class H-15.5 18,381 (20) 7.20
Class H-15.6 18,381 (21) 7.20
Class H-15.7 28,898 (22) 13.50
Class H-15.8 28,898 (23) 13.50
Class H-15.9 28,898 (24) 13.50
Class H-16 412,000 (25) 2.25
Class H-17 18,519 (26) 7.20
Class I-1 4,167 (27) 5.40
Class K-1 55,556 (28) 5.40
Class X 4,428,969 (29) 8.00
Class Z 3,588,224 (30) 13.50
Class AA.01 15,000 (31) 5.40
--------- -----------
8,942,105 $2.25-13.50
========= ===========
(1) 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.
(2) 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.
(3) 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.
11
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 4 - Capital Structure (Continued)
--------------------------------------
Warrants
--------
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) Class H-11 Warrants may be exercised to purchase 18,519 shares of common
stock for a 49 month period beginning December 1, 1998 and ending
December 31, 2002.
(14) Class H-12 Warrants may be exercised to purchase 27,778 shares of common
stock for 34 month period beginning March 1, 1999 and ending December
31, 2002.
(15) Class H-14 Warrants may be exercised to purchase 18,519 shares of common
stock for a 25 month period beginning December 1, 1999 and ending
December 31, 2002.
12
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 4 - Capital Structure (Continued)
--------------------------------------
Warrants
--------
(16) Class H-15.1 Warrants may be exercised to purchase 26,251 shares of
common stock for a 32 month period beginning April 30, 2000 and ending
December 31, 2002.
(17) Class H-15.2 Warrants may be exercised to purchase 26,251 shares of
common stock for a 20 month period beginning April 30, 2001 and ending
December 31, 2002.
(18) Class H-15.3 Warrants may be exercised to purchase 26,251 shares of
common stock for a 8 month period beginning April 30, 2002 and ending
December 31, 2002.
(19) Class H-15.4 Warrants may be exercised to purchase 18,381 shares of
common stock for a 32 month period beginning April 30, 2000 and ending
December 31, 2002.
(20) Class H-15.5 Warrants may be exercised to purchase 18,381 shares of
common stock for a 20 month period beginning April 30, 2001 and ending
December 31, 2002.
(21) Class H-15.6 Warrants may be exercised to purchase 18,381 shares of
common stock for a 8 month period beginning April 30, 2002 and ending
December 31, 2002.
(22) Class H-15.7 Warrants may be exercised to purchase 28,898 shares of
common stock for a 32 month period beginning April 30, 2000 and ending
December 31, 2002.
(23) Class H-15.8 Warrants may be exercised to purchase 28,898 shares of
common stock for a 26 month period beginning April 30, 2001 and ending
December 31, 2002.
(24) Class H-15.9 Warrants may be exercised to purchase 28,898 shares of
common stock for a 8 month period beginning April 30, 2002 and ending
December 31, 2002.
(25) Class H-16 Warrants may be exercised to purchase 412,000 shares of
common stock for a 24 month period beginning January 1, 2000 and ending
December 31, 2001.
(26) Class H-17 Warrants may be exercised to purchase 18,519 shares of common
stock for a 25 month period beginning December 1, 2000 and ending
December 31, 2002.
(27) 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.
13
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 4 - Capital Structure (Continued)
--------------------------------------
Warrants
--------
(28) Class K-1 Warrants may be exercised to purchase 55,556 shares of common
stock for a 19 month period beginning March 1, 1998 and ending October
1, 1999.
(29) Class X Warrants may be exercised to purchase 4,428,969 shares of common
stock for a 24 month period beginning January 1, 2000 and ending
December 31, 2001.
(30) Class Z Warrants may be exercised to purchase 3,588,224 shares of common
stock for a 24 month period beginning January 1, 2000 and ending
December 31, 2001.
(31) 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.
At November 10, 1999, there were warrants exercisable to purchase 255,284
shares of common stock.
Note 5 - Subsequent Events
--------------------------
During the month of October 1999 we issued 70,750 shares of free trading stock
under our Fiscal Year 1994 Incentive Plan to six employees.
For the period October 1, 1999 through November 10, 1999, we received $171,827
of additional money from a shareholder. The shareholder received 171,827
Class X warrants and the total principal and interest can be converted into
restricted stock at $1.80 per share.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussion below contains forward-looking statements (denoted with
asterisk (*) at the end of each such statement) made in reliance upon the
provisions of Rule 175 promulgated under the Securities Act of 1933 and should
be read in conjunction with the Company's consolidated financial statements
and the Notes thereto. This discussion is qualified in its entirety by the
risk factors discussed herein.
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
$12,300,000 being invested in Bion as of September 30, 1999. We have a
negative net worth of $3,494,510, accumulated deficit of $16,292,741, limited
current revenues, and substantial current operating losses. (Note that the
negative net worth is approximately equal to the outstanding long-term debt to
management and major shareholders, the largest part of which is convertible
into Bion's restricted and legended 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 sales 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 requires 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 continually negotiating with independent third parties
and related parties to obtain the necessary additional funding for us.
Although management believes that there is a reasonable basis to remain
optimistic, no assumption can be made that we will be able to successfully
attain profitable operations and/or raise sufficient capital to sustain
operations.
Liquidity and Capital Resources
-------------------------------
Our Consolidated Balance Sheet shows Current assets of $333,805 and Total
assets of $1,033,845. Our current and total liabilities as of September 30,
1999 are $1,032,865 and $4,528,355, respectively. Total assets decreased by
$283,386 from June 30, 1999. This change is primarily attributable to the
sale of the mortgage receivables (see our 10-KSB/A dated June 30, 1999). Cash
and cash equivalents decreased $34,020 from June 30, 1999. Our current ratio
(current assets / current liabilities) is 0.32 as of September 30, 1999 as
compared to 0.67 as of June 30, 1999.
15
<PAGE>
Total liabilities increased $402,336 in the three month period ended
September 30, 1999. Accrued salaries and notes payable increased by $67,167
and $350,576, respectively. The notes payable increase were to related parties
or employees. During the three months ended September 30, 2000, we recorded a
discount of $349,492 related to warrants issued in connection with the related
party notes payable. Interest expense of $34,950 was recorded during the
three months ended September 30, 1999 in connection with amortization of the
discount.
Our Stockholders' Equity account reflects a total of 138,836 shares of
common stock issued in the quarter ended September 30, 1999. We issued 66,667
shares of common stock for cash ($100,000), 72,169 shares of common stock for
services ($143,901) recorded at the value of services provided and warrants
for consulting expenses $(144,133) valued in accordance with the Black-Scholes
model. Of these shares, we issued a total of 74,502 shares of legended and
restricted common stock and 64,334 shares of unrestricted stock. The Company
issued a note to an employee and as part of the note reclassified $60,000 of
subscribed stock into the note payable.
Results of Operations
---------------------
Comparison of the Three Months Ended September, 30 1999
with the Three Months Ended September 30, 1998
-------------------------------------------------------
Revenue in the three months ended September 30, 1999 was $43,948 compared
to $63,872 for the corresponding three month period in 1998, a decrease of
$19,924. Contract costs were lower in the 1999 three month period by $23,378
due to decreased expenses associated with system design and New York BionSoil
processing. The above resulted in a gross loss for the period ended September
30, 1999 of $55,515 as compared to a gross loss of $58,969 for the same three
month period in 1998. No system sales occurred in the quarter ended September
30, 1999, due to hog industry and regulatory changes (see explanation below).
General and administrative expenses were higher by $641,384 due to an
increase in employee compensation ($107,000), professional expenses
($167,000), consulting expenses for warrants issued ($144,000), and investor
relation expenses ($193,000) and other individually insignificant increases.
The warrants issued for consulting services were valued in accordance with the
Black-Scholes model.
The Company recorded $146,040 in interest expense on its notes payable
and $88,816 in research and development costs. Of the total interest expense,
$34,950 represented amortization of debt discount recorded in connection with
the issuance of warrants associated with related party notes payable. The
Company also recorded a loss of $57,250 on the sale of the mortgage
receivables in the quarter. As a result of the above, the Company recorded a
net loss of $1,363,248 in the three month period ended September 30, 1999,
compared to a net loss of $526,233 for the three month period ended September
30, 1998.
The Company will need to increase sales significantly to obtain
profitability.
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<PAGE>
Trends, Events and Uncertainties
--------------------------------
Liquidity
---------
We continue to have difficulty raising finances for operations. Funding
for operations occurs primarily through equity financing. The following
identifies cash sources from financing transactions over the past two fiscal
years.
Convertible
Debt/Notes Stock Options Total
LTLK $1,503,750 $ 282,750 -- $1,786,500
Other $300,000 $1,039,826 $889,938 $2,229,764
Total $1,803,750 $1,322,576 $889,938 $4,016,264
LoTayLingKyur, Inc. ("LTLK") has been the primary funding agent for Bion
over the past year. LTLK is a major shareholder that continues to finance our
operations. Without this funding the company would not be able to continue as
a going concern.
The Hog Market Impact
---------------------
Our system sales growth was negatively impacted as a result of the recent
extended deep depression in hog prices, which started in 1998. Prices reached
a low of $9.00 per hundred weight in December 1998, down from $43.00 per
hundred weight in December 1997. While these prices have trended up from the
December 1998 low point, they still remain well below historic levels for the
industry. These depressed prices are below the break-even point for many hog
growers. The price drop and resulting hog industry losses have caused hog
producers to reduce general and capital expenditures and curtail their
expansion plans. This industry change has had a significant negative impact
on our plans to sign additional contracts within the hog industry and has
caused some growers to put systems covered by existing contracts on temporary
hold.
Management believes that over the next several quarters, if the
strengthening in hog prices continues, it will result in more contracts being
signed and work resuming (or commencing) on some existing contracts that have
been slowed or put on hold.*
As a result of the problems facing the hog industry, we have increased
our focus on expanding Bion's presence in the dairy farm system markets to
offset the reduction in hog system sales. To support this shift, as well as
to gain access to the large western United States market, we have recently
added sales personnel in California and the Pacific Northwest. Management
believes that this recent expansion in conjunction with increasing hog prices
may assist us in accelerating our system sales pace.*
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<PAGE>
Regulatory Environment
----------------------
We have experienced an adverse impact in selected regions due to changes
and uncertainties in regulatory positions. For example, Colorado voters
passed an amendment in November 1998 (Amendment 14) that places significant
constraints on large hog farms in the state. The extended election campaign
and subsequent rule making process completely stopped our progress on system
contracts for 350,000 hogs on farms in Eastern Colorado. It is not likely
that work will resume on this contract, nor for us to acquire significant
additional contracts in Colorado, until this situation is completely resolved
and a consistent regulatory practice is established.* We face a similar slow
down of new contract activity in North Carolina as the result of a state wide
moratorium on construction of new or expanded hog farms (retrofits of waste
handling systems on existing farms are proceeding) which may be extended.
Numerous other states, including without limitation, Georgia, Minnesota,
Florida, California, and New York have adopted or are considering new
regulations on large animal raising facilities. Additionally, litigation is
in process in a number of states. The short term impact on our business has
been negative but management believes the trend to stricter regulations will
help our business in the long run.*
There is growing activity at the state and federal levels to protect the
environment from pollution caused by animal raising facilities. Although
future regulations may benefit us in obtaining system contracts, the current
ambiguity in the regulatory environment is causing farmers to delay
implementation of waste treatment technologies.* For example, on March 9,
1999, Vice President Gore announced a federal strategy to decrease non-point
source pollution of lakes, rivers, and streams caused by large livestock
facilities. A joint effort by the Environmental Protection Agency and the
Department of Agriculture developed the UNSAFO (Unified National Strategy for
Animal Feeding Operations). UNSAFO will require large animal facilities to
obtain Clean Water Act discharge permits and to develop nutrient management
plans for animal feeding operations. UNSAFO will also require integrators,
large livestock companies that contract with smaller operators to raise their
animals, to share responsibility for meeting regulatory requirements. This
strategy is not a new regulation nor is it a substitute for existing Federal
regulations; however, it does give an indication of the potential regulatory
environment. In addition, President Clinton and the EPA have indicated that
they are planning on enforcing a provision of the Clean Water Act that
requires states to assess the health of every body of water within their
borders, determine the maximum allowable levels of pollutants for each one and
then parcel out the responsibility for meeting these goals to individual
polluters. This includes point and non-point source polluters.
This increasing federal environmental activity along with similar changes
at the state and local levels create an unpredictable regulatory environment.
How these changes affect our business can not be identified with any precision
at this time; however, we believe that more stringent requirements on the
animal raising industry will improve our sales outlook.*
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<PAGE>
Year 2000 Issue
---------------
We are aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The year
2000 problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two-digit year value to
00. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. After a review of our computer systems and associated
software, management does not believe year 2000 will have a material effect on
our operations or financial condition. We can not predict the impact that
year 2000 will have on our customers and vendors.
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.
PART II Other Information
ITEM 1. Legal Proceedings
The Company knows of no material pending legal proceedings to which the
Company (or the Subsidiary) is a party or to which any of its systems is the
subject and no such proceedings are known to the Company.
ITEM 2. Changes in Securities and Use of Proceeds
The following securities were sold in the three month period ended
September 30, 1999 without registration under the Securities Act of 1933, as
amended:
Warrants
--------
- We issued a Class X Warrant to purchase 440,456 shares of restricted
and legended common stock at $8.00 per share. The warrant is
exercisable from January 1, 2000 to December 31, 2001. Bion
received cash advances in consideration for this warrant for use
in operations. See Note 4 of our 10-KSB/A dated June 30, 1999.
- We issued a Class AA.01 Warrant to purchase 15,000 shares of
restricted and legended common stock at $5.40 per share. The
warrant is exercisable from August 12, 1999 to December 31, 2001.
Bion received consulting services as consideration for this warrant.
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<PAGE>
- We issued a Class H.16 Warrant to purchase 56,000 shares of
restricted and legended common stock at $8.00 per share. The
warrant is exercisable from January 1, 2000 to December 31, 2001.
Bion received employment services in consideration for this warrant.
Common Stock
------------
- 66,667 shares of restricted and legended common stock to one private
investor in a privately negotiated transaction for an aggregate
amount of $100,000.
- 7,835 shares of restricted and legended common stock to two
consultants in lieu of cash for services rendered valued at, in
aggregate, $12,835.
Convertible Notes
-----------------
- We added $504,230.18 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, and recorded a discount of
$349,492.
The shares of the Company's 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 the Company and was provided with appropriate offering
documents and access to material information regarding the Company. The
Company believes 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 the Company's 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 the Company's transfer agent in accordance
therewith.
ITEM 3. Defaults Upon Senior Securities. None
ITEM 4. Submission of Matters to a Vote of Security Holders. None
ITEM 5. Other Information. None
20
<PAGE>
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. None.
(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. See below.
(99) Additional exhibits. None.
Reports on Form 8-K
-------------------
The following current reports on Form 8-K were filed during the quarter
following our 10-KSB/A dated June 30, 1999.
Form 8-K dated August 1, 1999: Items 5 & 7
Form 8-K dated July 23, 1999: Items 5 & 7
Form 8-K dated May 22, 1999: Items 5 & 7
21
<PAGE>
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.
/s/Jon Northrop
Jon Northrop, Chief Executive Officer
Dated: October 20, 2000
22
