-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LNHjvwNaOIqG9K2Vpk0B0lK9RO18R5IDNG0GzE6+m1/B8xHjw+QXylgivkZAvXk3 C+lHcXi6ctQ0rhrI5JMWCw== /in/edgar/work/0000948830-00-000491/0000948830-00-000491.txt : 20001025 0000948830-00-000491.hdr.sgml : 20001025 ACCESSION NUMBER: 0000948830-00-000491 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20001024 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BION ENVIRONMENTAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000875729 STANDARD INDUSTRIAL CLASSIFICATION: [3590 ] IRS NUMBER: 841176672 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-19333 FILM NUMBER: 744469 BUSINESS ADDRESS: STREET 1: 7921 SOUTHPARK PLACE SUITE 200 CITY: LITTLETON STATE: CO ZIP: 80120 BUSINESS PHONE: 3032940750 MAIL ADDRESS: STREET 1: 7921 SOUTHPARK PLACE SUITE 200 CITY: LITTLETON STATE: CO ZIP: 80120 FORMER COMPANY: FORMER CONFORMED NAME: RSTS CORP DATE OF NAME CHANGE: 19930328 10QSB/A 1 0001.txt 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 December 31, 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 February 11, 2000: Common Stock, No Par Value, 11,807,660 Transitional Small Business Disclosure Format (Check one): Yes No X TABLE OF CONTENTS PAGE NO. PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS Consolidated Balance Sheets: June 30, 1999 (audited) and December 31, 1999 (unaudited) 3 Unaudited Consolidated Statements of Operations and Comprehensive Loss: For Six Months Periods Ended December 31, 1998 and December 31, 1999 4 Unaudited Consolidated Statements of Operations and Comprehensive Loss: For the Three Month Periods Ended December 31, 1998 and December 31, 1999 5 Unaudited Consolidated Statement of Changes in Shareholders' Deficit for the Period June 30, 1999 through December 31, 1999 6 Unaudited Consolidated Statements of Cash Flows: For the Three Month Periods Ended December 31, 1998 and December 31, 1999 7-8 Notes to Unaudited Consolidated Financial Statements 9-16 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17-21 PART II OTHER INFORMATION ITEMS 1-6 22-24 2 PART I Financial Information ITEM 1. Financial Statements BION ENVIRONMENTAL TECHNOLOGIES, INC. Consolidated Balance Sheets
December 31, June 30, 1999 1999 (Unaudited) ----------- ----------- Assets Current assets Cash and cash equivalents $ 662,177 $ 55,583 Accounts receivable (net of allowance of $2,000) 28,054 60,452 Contract receivables (net of allowance of $10,000) 1,310 33,310 Work in Progress 6,000 - Mortgage Receivables held for sale - 260,000 Prepaid consulting service, current portion 240,000 240,000 ------------- ------------ Total current assets 937,541 649,345 -------------- ------------ Property and equipment Computers and equipment 316,967 316,967 Accumulated depreciation (174,052) (146,207) ------------- ------------ 142,915 170,760 ------------- ------------ Other assets Prepaid consulting service, long-term portion 240,000 360,000 Other prepaid assets 159,476 86,735 Patents, net 38,218 39,834 Deposits and other 11,222 10,557 ------------- ------------ Total other assets 448,916 497,126 ------------- ------------ Total assets $ 1,529,372 $ 1,317,231 ============= ============ Liabilities and Shareholders' Deficit Current liabilities Accounts payable $ 49,948 $ 340,202 Accounts payable - related party - 17,924 Note payable and accrued interest 200,865 190,065 Convertible related party notes payable and accrued interest 21,739 20,524 Capital lease obligations 40,336 55,688 Accrued expenses 19,441 31,740 Accrued payroll 135,318 319,461 ------------- ------------ Total current liabilities 467,647 975,604 Long-term liabilities Convertible related party notes payable and accrued interest, net of unamortized discount of $2,419,771 and $0 2,304,218 3,113,219 Capital lease obligations 26,427 37,196 ------------- ------------ Total liabilities 2,798,292 4,126,019 ------------- ------------ Commitments and contingencies Shareholders' deficit Common stock, no par value, 100,000,000 shares authorized, 11,781,410 and 10,092,795 shares issued and outstanding at December 31, 1999 and June 30, 1999, respectively 21,336,771 12,060,705 Common stock subscribed - 60,000 Non-recourse promissory note (500,000) - Deferred Consulting expense (2,333,687) - Accumulated deficit (19,772,004) (14,929,493) ------------- ------------ Total Shareholders' deficit (1,268,920) (2,808,788) ------------- ------------ Total liabilities and Shareholders' deficit $ 1,529,372 $ 1,317,231 ============ =============
See notes to unaudited consolidated financial statements. 3 BION ENVIRONMENTAL TECHNOLOGIES, INC. Unaudited Consolidated Statements of Operations and Comprehensive Loss Six Months Ended December 31, ------------------------------ 1999 1998 ------------ ------------- Soil sales $ 55,262 $ 43,228 System contract revenues 16,000 60,696 ------------ ------------ Total revenues 71,262 103,924 Contract costs 161,195 210,748 ------------ ------------ Gross (loss) (89,933) (106,824) General and administrative expenses 3,286,575 910,657 Research and development 160,140 122,307 ------------ ------------ Loss from operations (3,536,648) (1,139,788) Other income (expense) Interest income 4,471 - Interest expense (1,252,899) (34,995) Other income (expense), net (185) (5,723) Loss on Sale of Mortgage Receivable (57,250) - ------------ ------------ Net loss and comprehensive loss $ (4,842,511) $ (1,180,506) ============ ============ Basic and diluted loss per common share $ (.46) $ (.13) ============ ============ Weighted common shares outstanding 10,533,338 8,892,784 ============ ============ See notes to unaudited consolidated financial statements. 4 BION ENVIRONMENTAL TECHNOLOGIES, INC. Unaudited Consolidated Statements of Operations and Comprehensive Loss Three Months Ended December 31, ----------------------------- 1999 1998 ------------ ------------ Soil sales $ 11,314 $ 14,856 System contract revenues 16,000 25,196 ------------ ------------ Total revenues 27,314 40,052 Contract costs 61,732 87,907 ------------ ------------ Gross (loss) (34,418) (47,855) General and administrative expenses 2,262,716 518,183 Research and development 71,324 55,308 ------------ ------------ Loss from operations (2,368,458) (621,346) Other income (expense) Interest income 998 - Interest (expense) (1,106,860) (19,847) Other income (expense), net (4,943) (13,080) ------------ ------------ Net loss and comprehensive loss $ (3,479,263) $ 654,273) ============ ============ Basic and diluted loss per common share $ (.32) $ (.07) ============ ============ Weighted common shares outstanding 10,866,299 8,951,608 ============ ============ See notes to unaudited consolidated financial statements. 5 BION ENVIRONMENTAL TECHNOLOGIES, INC. Unaudited Consolidated Statement of Changes in Shareholders' Deficit
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 (500,000) - - - - 1,977,370 Issuance of stock in conversion of 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) =================================================================================================================================
See notes to unaudited financial statements. 6 BION ENVIRONMENTAL TECHNOLOGIES, INC. Unaudited Consolidated Statements of Cash Flows
Six Months Ended December 31, ------------------------------ 1999 1998 ------------ ------------- Cash flows from operating activities Net loss $ (4,842,511) $ (1,180,506) Adjustments to reconcile net loss to net cash used in operating activities - Depreciation and amortization 29,461 28,099 Issuance of stock for services, compensation and interest 349,731 23,620 Amortization of debt discount 349,492 -- 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) 23,000 Issuance of note payable for consulting services 120,000 -- Loss on sale of mortgage receivables 57,250 -- Changes in assets and liabilities - Receivables and work-in-progress 58,398 24,666 Prepaid expenses and other (73,406) 349 Accounts payable (308,178) 93,194 Accrued liabilities (196,442) 155,587 ------------ ------------ Net cash used in operating activities (2,238,675) (831,991) ------------ ------------ Cash flows from investing activities Investment in patents -- (2,969) ------------ ------------ Net cash used in investing activities -- (2,969) ------------ ------------ Cash flows from financing activities Payments on notes payable -- (3,000) Proceeds from sale of mortgages 202,750 -- Proceeds from notes payable 1,622,785 235,000 Proceeds from stock and stock subscription issuances 545,855 539,424 Proceeds from exercise of options and warrants -- 82,500 Proceeds from sale of warrants 500,000 -- Payments on capital lease obligations (26,121) (34,622) ------------ ------------ Net cash provided by financing activities 2,845,269 819,302 ------------ ------------ Net increase in cash and cash equivalents 606,594 (15,658) Cash and cash equivalents at beginning of period 55,583 19,104 ------------ ------------ Cash and cash equivalents at end of period $ 662,177 $ 3,446 ============ ============
Continued on following page. See notes to unaudited consolidated financial statements. 7 BION ENVIRONMENTAL TECHNOLOGIES, INC. Unaudited Consolidated Statements of Cash Flows Continued from previous page. Supplemental disclosure of cash flow information Cash paid during the six months for interest was $6,668 (1999) and $10,464 (1998) Supplemental disclosures of non-cash financing activities for the six months ended December 31, 1999 - 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 warrants with a value of $349,392 in connection with convertible related party notes payable. Converted $60,000 stock subscriptions into a note payable. 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. Supplemental disclosures of non-cash financing activities for the six months ended December 31, 1998- Converted $3,000 of common stock subscribed into 800 shares of common stock. Converted $77,710 of notes payable and interest into 12,862 shares of common stock. See notes to unaudited financial statements. 8 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 and second 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 ("AD2") 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 for $500,000 cash and a $500,000 non-recourse promissory note receivable in December 1999 of $2,447,370. 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 using 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. 9 BION ENVIRONMENTAL TECHNOLOGIES, INC. Notes to Unaudited Consolidated Financial Statements Note 1 - Restatement (continued) - -------------------------------- As a result of the above, the Company has restated the financial statements contained in the Form 10-QSB for the three and six months ended December 31, 1999. For the three months ended December 31, 1999, the Company increased general and administrative expenses from $785,346 to $2,262,716 and increased interest expense from $136,291 to $1,106,860, resulting in an increase in the net loss and comprehensive loss from $1,031,324 to $3,479,263 and an increase in the basic and diluted loss per common share from $0.09 per share to $0.32 per share. For the six months ended December 31, 1999, the Company increased general and administrative expenses from $1,665,072 to $3,286,575 and increased interest expense from $247,380 to $1,252,899, resulting in an increase in the net loss and comprehensive loss from $2,215,489 to $4,842,511 and an increase in the basic and diluted loss per common share from $0.21 per share to $0.46 per share. As of December 31, 1999, related party notes payable and accrued interest decreased from $4,723,989 to $2,304,218 due to the unamortized warrant discount of $2,419,771. The Company increased the accumulated deficit at December 31, 1999 from $17,144,982 to $19,772,004 and decreased the total stockholders' deficit from $3,688,691 to $1,268,920. 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 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 its planned principal operations. Consequently, as of December 31, 1999, we have incurred accumulated losses totaling $19,772,004, resulting in an accumulated Shareholders' deficit of $1,268,920. Cash flows from current operations are not sufficient to meet obligations. 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 we will be able to successfully attain profitable operations or raise sufficient capital. 10 BION ENVIRONMENTAL TECHNOLOGIES, INC. Notes to Unaudited Consolidated Financial Statements Note 4 - Capital Structure - -------------------------- Because we have a relatively complex capital structure the following capital structure details are set forth: Common Stock - ------------ As of February 11, 2000 we had 11,807,660 (1) shares of Common Stock issued and outstanding. Options - ------- 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 40,000 Vested 12/31/02 $ 2.70 55,556 Vested 12/31/02 $ 3.04 1,112 Vested 01/28/01 $ 3.60 87,461 Vested 03/03/00-12/31/02 $ 3.72 1,112 Vested 08/31/00 $ 4.05 1,112 Vested 11/30/00 $ 5.40 33,200 Vested 03/03/00-12/31/01 $ 5.63 1,112 Vested 05/31/00 $ 7.20 39,857 Vested 12/31/01 $ 9.00 11,112 Vested 12/31/01 ------- Total Employees (Vested) 805,079 Total Vested (Directors and Employees) 848,415 (1) Includes 16,666 shares not vested at February 11, 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 payable of Bion upon certain conditions. 11 BION ENVIRONMENTAL TECHNOLOGIES, INC. Notes to Unaudited Consolidated Financial Statements Note 4 - Capital Structure (continued) - -------------------------------------- Options (continued) - ------------------- Employees (Non-vested) Vesting Dates Expiration $ 2.50 300,000 03/30/00-06/30/02 12/31/01-06/30/03 $ 3.60 220,707 04/30/00-04/30/02 12/31/02 $ 5.40 16,134 03/16/00-09/01/00 12/31/02 $ 7.20 212,161 03/04/00-08/16/02 12/31/01-12/31/02 $13.50 176,988 04/30/00-04/30/02 12/31/02 --------- Total Non-Vested 925,990 ========= Total Vested and Non Vested 1,774,405 ========= Warrants - -------- As of February 11, 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 X 1,116,012 (18) 8.00 ***Class Z 6,323,884 (19) 13.50 ---------- 12,631,327 $ 1.75-13.50 ========== ============= 12 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. 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 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 may be exercised to purchase 18,519 shares of common stock for a 50 month period beginning November 2, 1998 and ending December 31, 2002. 16. Class H16 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 X 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. 19. 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 February 11, 1999, there were warrants exercisable to purchase 12,631,327 shares of common stock. 14 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. Note Amount Underlying Shares of Stock ----------- -------------------------- (at 12/31/99) LTLK $1,151,754.14 639,864 LTLK $ 279,102.99 155,058 Defined Benefit Plan Dublin Holding, $1,655,854.84 919,920 Ltd. H. Northrop $ 330,079.78 183,378 ------------- --------- TOTAL $3,416,791.75 1,898,220 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 $1,543,095 in long term notes due on December 31, 2001 (including the H. Northrop note above). Holders of $1,213,015 of the long term notes have agreed to exercise outstanding options/warrants under certain conditions. See Forms 8-K and 8-K/A-1 dated December 11, 1999. A total of $3,086,712 in long-term convertible notes are due on December 31, 2002. (See above.) Note 5 - Accounting on Material Agreements - ------------------------------------------ In connection with our agreements between D2 Co. LLC (AD2@), as reported on 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 (included in general and administrative expenses). 15 BION ENVIRONMENTAL TECHNOLOGIES, INC. Notes to Unaudited Consolidated Financial Statements Note 5 - Accounting on Material Agreements (Continued) - ------------------------------------------------------ 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 recorded the value of the warrants issued of $2,333,687 as deferred consulting expense, and will recognize the expense over the three-year term 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 term of the debt as additional interest expense. See our Forms 8-K and 8-K/A-1 dated December 11, 1999. Note 6 - Subsequent Events - -------------------------- During the month of January 2000 we issued 21,950 shares of registered stock under our Fiscal Year 1994 Incentive Plan as bonuses to 18 employees. During the period of January 1, 2000 through February 11, 2000 we issued 2,300 shares of registered stock under our Fiscal Year 1994 Incentive Plan to two consultants for compensation. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS The discussion below contains forward-looking statements (denoted with asterisk (*) at the end of each such statement and printed in italics) made in reliance upon the provisions of Rule 175 promulgated under the Securities Act of 1933 and should be read in conjunction with our 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 $13,400,000 being invested in Bion as of December 31, 1999. We have a negative net worth of $1,268,920, an accumulated deficit of $19,772,004, 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 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 $937,541 and Total assets of $1,529,372. Our Current and total liabilities as of December 31, 1999 are $467,647 and $2,798,292, respectively. Total assets increased by $212,141 from June 30, 1999. The change is primarily attributable to the increase in cash from 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 $606,594 from June 30, 1999. Our current ratio (current assets / current liabilities) is 2.00 as of December 31, 1999 as compared to 0.67 as of June 30, 1999. 17 Total liabilities decreased $1,327,727 in the six month period ended December 31, 1999. Notes payable decreased by $796,986 primarily due to the unamortized discount of $2,419,771, partially offset by a decrease in accrued salaries and accounts payable of $184,143 and $308,178, respectively. The notes payable increases were to related parties or employees that will convert into stock if certain conditions are met. Our common stock reflects a total of 1,688,615 shares of common stock issued in the six month period ended December 31, 1999. We issued 277,167 shares of common stock for cash ($418,250) and 179,022 shares of common stock for services ($349,731). We also issued 1,172,426 shares of common stock in an exchange of Class X Warrants for common shares and Class Z Warrants (see our Forms 8-K and 8-K/A-1 dated on 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. We issued a total of 1,466,401 shares of legended and restricted common stock and 222,214 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 (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 Six Months Ended December 31, 1999 with the Six Months Ended December 31, 1998 ---------------------------------------------------------- Revenue in the six months ended December 31, 1999 was $71,262 compared to $103,924 for the corresponding six month period in 1998, a decrease of $32,622. Contract costs were lower in the 1999 six month period by $49,553 due to decreased expenses associated with system design and New York BionSoil processing. The above resulted in a gross loss for the period ended December 31, 1999 of $89,933 as compared to a gross loss of $106,824 for the same six month period in 1998. System sales were lower in the six months ended December 31, 1999, due to hog industry and regulatory changes (see explanation below). General and administrative expenses were higher by $2,375,918 due to an increase in employee compensation ($213,000), professional expenses ($272,000), the beneficial value of warrants issued over the consideration received ($1,477,000), consulting expenses related to warrants issued for services ($144,000), investor relations expenses ($231,000)and other individually insignificant increases. 18 We recorded $1,252,899 in interest expense (including $656,027 of beneficial conversion feature related to certain related party notes payable and $349,492 of discount amortization associated with certain related party notes payable) on our notes payable and $160,140 in research and development costs. We also recorded a loss of $57,250 on the sale of the mortgage receivables in the quarter. As a result of the above, we recorded a net loss of $4,842,511 in the six month period ended December 31, 1999, compared to a net loss of $1,180,506 for the six month period ended December 31, 1998. Comparison of the Three Months Ended December 31, 1999 with the Three Months Ended December 31, 1998 ------------------------------------------------------ Revenue in the three months ended December 31, 1999 was $27,314 compared to $40,052 for the corresponding three month period in 1998, a decrease of $12,738. Contract costs were lower in the 1999 three month period by $26,175 due to decreased expenses associated with system design and New York BionSoil processing. The above resulted in a gross loss for the quarter ended December 31, 1999 of $34,418 as compared to a gross loss of $47,855 for the same three month period in 1998. General and administrative expenses were higher by $1,744,533 due to an increase in employee compensation ($123,000), professional expenses ($113,000), the beneficial value of warrants issued over the consideration received ($1,477,000), investor relations expenses ($38,000), offset by other individually insignificant decreases. We recorded $1,106,860 in interest expense on its notes payable and $71,324 in research and development costs. As a result of the above, we recorded a net loss of $3,479,263 in the three month period ended December 31, 1999, compared to a net loss of $654,273 for the three month period ended December 31, 1998. We will need to increase sales significantly to obtain profitability. Trends, Events and Uncertainties -------------------------------- Liquidity --------- The management agreement, reported in our Forms 8-K and 8-K/A-1 dated December 11, 1999, has significantly increased our liquidity and funding for operations. Our current assets to current liabilities ratio is 2.00 as of December 31, 1999. See our Forms 8-K and 8-K/A-1 dated December 11, 1999 for detailed information on this Management Agreement and recent financing. 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. These depressed prices were 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 19 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. 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, or that we will 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 20 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. 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. 21 PART II - Other Information ITEM 1. Legal Proceedings We know of no material pending legal proceedings to which Bion (or the Subsidiary) is a party or to which any of its systems is the subject and no such proceedings are known to us 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 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. Consequently, 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 December 31, 1999 without registration under the Securities Act of 1933, as amended: Warrants We issued a Class D2P Warrant to purchase 2,500,000 shares of restricted and legended common stock at $1.75 per share. The warrant is exercisable from December 23, 1999 to December 31, 2004. Bion received $500,000 in cash for use in operations and a $500,000 secured, non-recourse promissory note in consideration for this warrant. See Exhibit 10.2 to our Forms 8-K and 8-K/A-1 dated December 11, 1999. We issued a Class D2C Warrant to purchase 2,500,000 shares of restricted and legended common stock at $2.50 per share. The warrant is exercisable from January 1, 2000 to June 30, 2004. Bion received consulting and management services as consideration for this warrant as reported in our Forms 8-K and 8-K/A-1 dated December 11, 1999. We issued 2,735,660 Class Z Warrants to parties as partial consideration in exchange for outstanding Class X Warrants. See our Forms 8-K and 8-K/A-1 dated December 11, 1999. See below and Footnote 3 to Financial Statements above. Common Stock We issued 1,172,426 shares of restricted and legended common stock as partial consideration to parties in exchange for outstanding Class X Warrants. See Exhibit 10.4 to our Forms 8-K and 8-K/A-1 dated December 11, 1999 and Footnote 3 to Financial Statements above. We issued 210,500 shares of restricted and legended common stock to five private investors in privately negotiated transactions for an aggregate amount of $318,250. 22 We issued 16,808 shares of restricted and legended common stock to one company in lieu of cash for services rendered valued at, in aggregate, $16,500. Convertible Notes We added $1,202,060 of principal and interest to the convertible notes listed in Note 4 of Notes to Consolidated Financial Statements in our 10-KSB/A dated June 30, 1999. Common Stock issued pursuant to the transactions set forth above 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 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 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. 23 Reports on Form 8-K - ------------------- The following current reports on Form 8-K were filed during the six 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 24 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, Chief Financial Officer Dated: October 20, 2000 25 EX-27 2 0002.txt
5 This schedule contains summary financial information extracted from the balance sheets and statements of operations found on page 3 and 4 of the Company's Form 10-QSB for the year to date, and is qualified in its entirety by reference to such financial statements. 6-MOS JUN-30-1999 DEC-31-1999 662,177 0 17,364 12,000 0 937,541 316,967 174,052 1,529,372 467,647 0 21,336,771 0 0 (22,605,691) 1,529,372 0 71,262 0 161,195 3,446,715 0 1,252,899 (4,842,511) 0 (4,842,511) 0 0 0 (4,842,511) (0.46) (0.46)
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