-----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, Pa7vZLd+Bq5OIvu1ThEMV2eF0ytV2eYmo6a7gfOgT9DJaUAR2igLoH4PL2sdn/yB Byby0yYhxnhxeTIlNIJU2g== 0000949303-97-000088.txt : 19971002 0000949303-97-000088.hdr.sgml : 19971002 ACCESSION NUMBER: 0000949303-97-000088 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 DATE AS OF CHANGE: 19971001 SROS: NASD 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: 10-K SEC ACT: SEC FILE NUMBER: 000-19333 FILM NUMBER: 97687978 BUSINESS ADDRESS: STREET 1: 555 17TH ST STREET 2: STE 3310 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032940750 FORMER COMPANY: FORMER CONFORMED NAME: RSTS CORP DATE OF NAME CHANGE: 19930328 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] FOR THE FISCAL YEAR ENDED June 30, 1997 --------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] 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 St., Suite 3310 Denver, Colorado 80202 - - - --------------------------- ----------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (303) 294-0750 ------------------------------------ (Registrant's telephone number, including area code) Securities registered under Section 12(b) and/or 12(g) of the Exchange Act: Common Stock, no par value ------------------------------------------------------ (Title of Class) 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___ --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this form 10-KSB. [ X ] The aggregate market value as of September 25, 1997 of voting stock held by non-affiliates of the Registrant was $7,056,723 based upon the average of the closing bid and asked prices on the Over the Counter Electronic Bulletin Board exchange as of that date. As of September 25, 1997, 3,832,422 shares of Registrant's Common Stock, no par value, and 18,834 shares Series B Convertible Preferred Stock were issued and outstanding. PART I ------ ITEM 1. DESCRIPTION OF BUSINESS THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS (IDENTIFIED WITH AN ASTERISK "*" AT THE END OF EACH SUCH STATEMENT) THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THIS BUSINESS SECTION AND UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" BELOW. Business Development --------------------- Bion Environmental Technologies, Inc. (the "Registrant") is a Colorado corporation organized on December 31, 1987. The Registrant maintains its principal executive offices at Suite 3310, 555 Seventeenth Street, Denver, Colorado 80202 and its phone number is (303) 294-0750. Substantially all of the business and operations of the Registrant are conducted through two wholly owned subsidiaries, Bion Technologies, Inc. (a Colorado corporation organized September 20, 1989) and BionSoil, Inc. (a Colorado corporation organized June 3, 1996). The Registrant and its subsidiaries are hereafter referred to as the "Company". The Company has offices located in Colorado, Florida, New York, and North Carolina. Business of the Company - - - -------------------------- General Description -------------------- The Company currently conducts its business in two complimentary areas: first, the Company designs, markets and installs waste, wastewater, and storm water treatment systems, primarily in the agricultural and food processing area; and second, markets BionSoil' products such as organic fertilizers, potting soil, and soil amendments which are produced from the nutrient rich biosolids harvested from certain types of the Company's agricultural systems installed on large dairy and hog farms. Principal Products and Services ---------------------------------- In the waste, wastewater, and stormwater treatment system area, the Company designs, markets, monitors the construction and installation of, and assists its customers in the operation of systems for the biological treatment of organic waste, wastewater, and stormwater. The Company's systems reduce pollutant levels in waters discharged from agricultural and food processing operations in order to enable customers to satisfy environmental regulatory requirements and to avoid fines, penalties, or citizen lawsuits. Currently the Company has systems designed for and operating in the dairy and hog farming and fruit processing industries. The Company is designing systems to treat agricultural waste streams (feedlots, beef, poultry, fruit and vegetable farms), food processing plants, and high-intensity and non-point source waste and wastewater discharges. The Company*s animal waste treatment systems convert animal waste into nutrient rich organic biosolids which the Company processes and sells as BionSoil' and BionSoil products either in bulk or bagged form. The Company holds patents that generally cover the systems' processes and the soil products produced by those processes. The Company's systems solve or mitigate a broad range of environmental problems by combining advanced technology with biological and chemical processing, engineering, and management principles. The Company studies each proposed site of application carefully to determine the best system design to solve the client's existing problems, oversees system construction and start-up, and then works to promote the conditions under which system performance can be optimized. The result is an enhanced natural system generally consisting of a bioreactor (with aerobic, facultative, and anaerobic bacterial populations for initial waste breakdown), an ecoreactor (a managed high intensity wetland-like area), and, in some applications, a georeactor (a treatment zone of porous material underlying the bioreactor and ecoreactor). Such a system removes odors, nutrients such as nitrogen and phosphorus, and other materials from wastes and wastewaters. The materials are then bioconverted into some or all (depending on the specific application) of the following end products: biosolids used to produce BionSoil and BionSoil products, a high protein feed crop, clean water, and wetlands habitats. Since its inception through June 30, 1997, the Company has sold, installed, or had under construction, 30 systems in the aggregate (five of which are no longer in service). These systems demonstrate multiple applications for the Company's technology including conversion of hog and dairy cow waste into BionSoil (while removing nutrients and reducing odor), treating wastewater from dairy farms, food and fruit processing plants, and storm and surface water run-off from dairy farms, industrial installations, and sugar cane plantations. Marketing and Distribution ---------------------------- Systems ------- The Company's marketing efforts for system sales and installations generally have been directed at solving environmental problems (ground and surface water contamination, and odor) faced by the agricultural and food processing industries. While system sales have continued to result from enforcement actions and pressures from environmental regulatory agencies at the federal, state, and local levels, satisfied customers and positive media coverage have also resulted in system sales and the generation of more leads. The Company's marketing strategy has generally involved a two stage process. First, a particular technology application is developed and initial sales are made in the selected market segment within a single geographic area. Based on performance of the initial systems, the specific market segment is developed in the geographic area through the sales of additional systems. Simultaneously, other potential customers with similar problems in the area are identified, and new applications of the technology are developed and marketed to them based on the Company's demonstrated track record in solving similar problems in the initial market segment. Second, as the success of each particular application is demonstrated in an initial market, marketing commences in other geographic regions. Following this basic approach, the Company is currently developing and/or marketing systems in Florida, New York, Colorado, and North Carolina. In addition, during the past year the Company has received initial marketing contacts for licensing or joint ventures to utilize the Company*s technologies for applications in Pacific Rim countries, Eastern Europe, and Canada. The Company also plans over the coming year to increase its marketing efforts in the areas of industrial and municipal wastewater treatment and stormwater remediation. The Company has marketed and sold its animal waste treatment systems primarily to large high intensity hog raising facilities and dairy farms. The Company continues to design, permit, build, and operate systems that meet the objectives of its customers for waste and wastewater treatment, reduce odor, and satisfy environmental regulators. BionSoil -------- The Company*s Bion NMS system converts animal waste into nutrient rich biosolids which can be processed and sold in bulk and in bags as BionSoil and BionSoil products. The biosolids are blended to produce organic potting soil, fertilizer, and soil amendments. The Company has not yet established sales distribution systems for BionSoil products and sales to date have been only sporadic. Delays have also resulted from the need for additional research on blending BionSoil products and from limited working capital to purchase equipment. To date there have been limited sales of bulk product to nurseries, growers, and distributors, and of bagged product to retail outlets in New York. Bagged product is expected to be on the market in New York and Florida for the spring 1998 season *. Competition ----------- The Company believes that its systems offer technical and environmental advantages, are frequently more affordable than competitive technologies, and produce superior treatment results in appropriate situations. However, competition in the biological wastewater treatment industry is intense. The Company faces significant competition from many firms involved in the design, construction, and operation of conventional wastewater treatment systems, as well as developers of constructed wetlands which are similar but not identical to the Company's technology. Additionally, there are companies that are capable of developing systems similar to those being developed by the Company and that have developed and are capable of developing systems based on other technologies that are or may be competitive with the Company's systems. Many of these companies are well-established, have substantially greater financial and other resources than the Company and have established success in the development, sale and service of their systems. These companies may succeed in developing competing systems that are more effective than those developed by the Company. The Company's ability to compete will be dependent upon its ability to obtain required approvals and licenses from regulatory authorities and upon the Company's ability to introduce its systems in the appropriate markets. The Company believes, however, that in the market segments on which it has focused to date, its systems offer a less expensive and more flexible process with better economic and remedial performance than conventional systems offered by competitors. There is also extensive competition in the potting soil, organic soil amendment, and organic fertilizer markets. There are many companies which are already selling similar type products. These companies have established marketing and sales organizations and retail customer commitments, are supporting their products with advertising, sometimes on a national basis, and have developed brand name recognition and customer loyalty in many cases. Gaining a share of this market may take time and could require substantial resource allocation for advertising, packaging, and product introductions. Further competition will come from a variety of composting operations being run by municipal and other governmental agencies, and by private industry, to dispose of various waste products including industrial and municipal wastewater sludges, yard and landscaping wastes, and other industrial or commercial organic wastes. These composted materials may be sold by the various organizations at low cost just to reduce or defray disposal expense, thereby creating downward pressure on the price the Company may be able to charge for its products. Many of the competing organizations and companies are well-established, have substantially greater financial and other resources than the Company and have already established success in the development and sale of their products. The Company believes it can compete successfully with these organizations in its market niche because BionSoil is generally a higher quality product which qualifies as an all-organic material *. In addition, initial university growth studies indicate that BionSoil has the potential of replacing all of the amendments used in standard growers' mixes *. It will, however, take further product development and marketing to realize the market potential that BionSoil currently appears to offer *. Dependence on One or a Few Major Customers ------------------------------------------------- The Company's operating results are not dependent upon a limited number of large contracts. Although some of the Company-'s customers accounted for more than 10 percent of the Company's revenues during the past fiscal year resulting from the installation of new systems, no such customer is expected to account for more than 10 percent of the Company's revenues during the current fiscal year. The nature of the Company's business is such that significant sales are generally expected to be "one-time" contracts pursuant to which single systems are sold and installed, with income to be received after the first year of operation from the sale of by-products produced by the systems and from maintenance contracts. Patents ------- The Company is the sole owner of five United States patents and one Canadian patent: U.S. Patent No. 5,078,882, Bioconversion Reactor and System. The patent describes the Meta System Reactor (MSR) which is the underlying technology for the Company's current wastewater treatment and Bion NMS systems. This patent describes in detail the MSR containing three primary treatment zones, bioreactor, ecoreactor and georeactor, which are cyclically connected by a series of recycle flows and organism movements to bioconvert the contained materials. The MSR, with modification, is the basis of the Company's NMS and Bion NMS systems which have been developed for managing nutrient rich waste streams from dairies, farms and food processing facilities. U.S. Patent No. 5,472,472, Animal Waste Bioconversion System. The patent describes a process for the bioconversion of animal wastes produced at a Confined Animal Feeding Operation into economically desirable or ecologically neutral materials. There are two essential aspects of the process. One involves treatment of the solids fraction of the waste stream, resulting in a variety of soil-like materials ranging from a high nutrient, organic soil to a peat-like substance. The other aspect of the process entails treatment of the waste stream liquids by means of a microbial activation zone and a constructed wetland zone. The end-products are clean, virtually nutrient-free water, a high humus soil, and an attractive wetland environment. This patent covers the technology for the Bion NMS. U.S. Patent No. 5,538,529, Bioconverted Nutrient Rich Humus. The patent describes the process which is an improved process to create nutrient rich humus through the biological transformation of animal wastes into ecologically manageable materials. This patent describes the process of creating BionSoil and its characteristics. Prior to the issuance of this patent a continuation-in-part was filed describing additional attributes of BionSoil and how it can be mixed with other substances to create additional useful products. U. S. Patent No. 4,721,569, Phosphorus Treatment Process. The patent describes a process developed to substantially reduce the phosphorus content of an aqueous influent stream containing biodegradable substrates. This process, in essence, reduces the capital expenditures required to reduce phosphorus levels in either air or oxygen-based wastewater treatment plants, as compared to more conventional biological phosphorus removal or chemical precipitation systems. The process also allows further savings to be realized in operations due to the elimination or significant reduction of the chemical loading required by conventional systems to accomplish the same removal rate. U.S. Patent No. 5,626,644 Storm Water Remediatory Bioconversion System. The patent describes a process for the treatment of agricultural, municipal, or residential stormwater runoff or the like through the capture and bioconversion of nutrients and contaminants in a constructed wetland treatment zone entailing the addition of non-toxic chemical additives and the establishment of chemical-microbial-vegetative complexes. Canadian Patent No. 1,336,623, Aqueous Stream Treatment Process. This patent extends Canadian patent protection to a combination of the features included in U.S. Patents No. 4,721,569 and 5,078,882. Management intends to file such additional patent applications in the future as it may deem necessary or appropriate to protect any future development of the Company's existing technology. However, there can be no assurances: that any additional patents will be granted to the Company, that the patents will be defendable against competitors' potential infringement actions, if any, and/or that the patents will provide any substantial protection of the Company's technology. Research and Development -------------------------- The Company maintains an active research program and continues working on the generation of potentially marketable and patentable applications of the Company's waste and wastewater treatment technology. Current research and development efforts are focused on enhancements of the Bion NMS and derivative technologies as utilized in the Company's existing systems in order to apply these technologies to opportunities that exist in additional geographic areas and industry segments. As each new geographic market and industry application area is entered, there will be a need for additional research efforts to adapt the Company's systems. Further, the Company is developing a research effort focused on BionSoil and BionSoil products. During the past year the Company, in conjunction with Washington State University has studied the benefits of using BionSoil as a fertilizer in apple orchards in Washington. Additionally, over the past year a cooperative research relationship has been established with North Carolina Cooperative Extension, North Carolina State University and North Carolina Department of Agriculture in an effort to evaluate the benefits realized from potential uses of BionSoil in both horticultural and animal nutrition and its relative economic value. Follow-up studies are ongoing in this effort. Environmental Protection/Regulation ------------------------------------ The Company is a provider of systems and services which result in reduction of pollution and as such is not itself under direct enforcement or regulatory pressure. However, because the Company is involved in wastewater treatment, it is subject to environmental regulations with at least three different focuses. Specifically: (1) The marketing and sales success of the Company depends, to a substantial degree, on the pollution clean-up requirements of various governmental agencies from the Environmental Protection Agency (EPA) at the federal level to various state departments of environmental affairs to local governmental agencies at the county and city levels. As guidelines or directives are established at the highest of these levels, lower jurisdictions generally are required to at least meet or, in many instances, exceed the standards established. Without these governmentally-induced pressures to solve pollution problems, many municipalities, industries and individuals will not expend the capital necessary to purchase systems to treat their wastewater streams. While the current administration in Washington, D.C. has verbally placed emphasis on pollution clean-up targets, there can be no assurance that these statements will lead to actions which will result in regulations and/or enforcement activity that will increase demand for the Company's systems. (2) Federal, state and local environmental agencies frequently change required final effluent standards for treatment systems which introduces a degree of uncertainty in system design and performance criteria. As these requirements change, the marketability of the Company's systems may be impacted both negatively and positively. (3) Additionally, most of the Company's systems require governmental permits or approval prior to installation as they are treating situations for customers where government regulations specify permit requirements for operation. Employees --------- The Company employed twenty persons with eighteen persons full-time as of June 30, 1997. Four of these full-time persons are engaged in management; twelve in operations, sales and marketing; and two in clerical and administration. ITEM 2. DESCRIPTION OF PROPERTY Office and Processing Facilities - - - ----------------------------------- The Company's executive offices are located at 555 17th Street, Suite 3310, Denver, Colorado. The Company subleases four offices (plus use of common facilities, office equipment and certain services) from Delta Petroleum Corporation (which owns approximately 4% of the Company's currently issued and outstanding common stock) on a month-to-month basis pursuant to an oral arrangement between the parties. The Company has additional offices at 606 N. French Road, Suite 6, W. Amherst, New York; 206 North Parrott Avenue, Okeechobee, Florida; and 619-C South Third Street, Smithfield, North Carolina. The Company also rents BionSoil processing sites located at State Road 710 and SE 74th Trail, Okeechobee, Florida; 5116 Hermitage Road, Gainesville, New York; 5905 Curriers Road, Arcade, New York; Upper Reservation Road, Castile, New York; and 542 Garrett Road, Four Oaks, North Carolina. All leases and rental agreements are with non-affiliated parties. ITEM 3. LEGAL PROCEEDINGS The Company knows of no material pending legal proceedings to which the Company (or its Subsidiaries) is a party or of which any of its systems is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There has been no submission of matters to a vote of security holders during the fourth quater of the fiscal year ended June 30, 1997. PART II ------- ITEM 5.. MARKET FOR BION ENVIRONMENTAL TECHNOLOGIES, INC. COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a) Market Information ------------------ The Company has had during the past two years only sporadic trading in its common stock in the over-the-counter market, and there is no assurance that such trading will expand or even continue. The Company's stock may not be traded in certain states unless the Company is able to qualify its stock in such states. During the past year there have been quotations for various transactions in the Company's shares which are not necessarily representative of an established public trading market. At present, the Company's Common Stock trades under the symbol "BION" (changed from "BIET" effective September 15, 1997) on the NASDAQ OTC Bulletin Board. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Quarter Ended High Bid Low Bid - - - ------------- ---------- -------- March 31, 1995 $ 7.75 $ 1.00 June 30, 1995 $ 7.75 $ 1.00 September 30, 1995 $ 4.97 $ 1.50 December 31, 1995 $ 4.63 $ 2.25 March 31, 1996 $ 3.75 $ 3.00 June 30, 1996 $ 4.00 $ 2.50 September 30, 1996 $ 3.25 $ 2.50 December 31, 1996 $ 5.50 $ 4.00 March 31, 1997 $ 6.38 $ 5.44 June 30, 1997 $ 5.50 $ 3.00
On September 25, 1997 the bid and asked prices of the Common Stock were $4.25 and $5.00, respectively. (b) Holders ------- The number of holders of record of the Company's Common Stock at September 25, 1997 was approximately 236. (c) Dividends --------- The Company has never paid any cash dividends on its Common Stock. The payment of dividends, if any, in the future is within the discretion of the Board of Directors and will depend on the Company's earnings, if any, its capital requirements and financial condition, and other relevant factors. The Board of Directors does not intend to declare any cash or other dividends in the foreseeable future, but instead intends to retain earnings, if any, for use in the Company's business operations. Class B Preferred stockholders are entitled to receive, upon conversion, redemption or liquidation, cumulative dividends at the per annum rate of $.54 per share on the issued and outstanding Class B Preferred Stock. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (a) Plan of Operation ------------------- THE DISCUSSION IN ITEM 6(A) BELOW CONTAINS FORWARD-LOOKING STATEMENTS (IDENTIFIED WITH AN 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. General Discussion of Current and Proposed Operations ----------------------------------------------------------- As shown in the financials in this Form 10-KSB, over $8,706,000 of equity has been invested in the Registrant through the close of the fiscal year ended June 30, 1997. These financial statements also show that on June 30, 1997 the Company had a negative net worth of $186,604, cumulative losses of $8,893,182, limited current revenues and substantial current operating losses. Continued losses without additional outside funding raise doubt about the Company*s ability to continue as a going concern. Management plans to continue raising additional capital to fund operations until such time, if ever, as systems sales along with the sales of BionSoil and BionSoil products are sufficient to fund operations. Management believes, however, that additional information is necessary to evaluate the Company and its progress relative to the business it is pursuing and the associated value the Company has developed during the last several years. Therefore, the following section of this Form 10-KSB is presented by management to give the reader a better understanding of the development of the business of the Company to date, and its goals for growth in the future. Business Development --------------------- The Company's mission is to provide services, systems and products which solve environmental problems and, in appropriate situations, recycle wastes into high value horticultural products which produce superior plant growth performance. Based on this, the Company is currently focused primarily on the application of its patented and proprietary technology in two complementary business areas; first, Bion NMS' systems (previously called BionSoil NMS systems): the design, sales, installation oversight, operations management, and material harvesting of Bion NMS systems for large animal raising agricultural facilities; and, second, BionSoil: the processing, blending, packaging, marketing, distribution and sales of BionSoil and BionSoil-based products which are produced from the biosolids harvested from the Bion NMS systems. From prior to September 20, 1989, (when Bion Technologies, Inc., one of the subsidiaries of the Company, was incorporated) through at least March 31, 1995, the Company was in the technology development mode with limited sales of primarily first-of-a-kind wastewater and/or Bion NMS systems. As of June 30, 1997 the Company has, in the aggregate, performed studies for, sold, installed, or had under construction, systems in four distinct regions: North Carolina, New York, Florida, and the Pacific Northwest. The systems in these regions establish multiple applications for the Company's technology including: (a) Dairy farm wastewater treatment and nutrient reduction systems which treat wastewater from dairy farms to remove phosphorus, nitrogen and other nutrients and create water suitable for discharge or reuse; located in Florida, New York, and Washington. (b) Dairy farm Bion NMS systems which solve the environmental problems associated with dairy farms and also create BionSoil; located in New York, Maryland, North Carolina, Florida, Washington, and Oregon. (c) Hog farm Bion NMS systems which solve odor, waste and wastewater problems associated with hog farms and also create BionSoil; located in North Carolina. (d) Combination food processing and manure waste treatment systems which treat nutrients and solid wastes in waste streams from combined food processing plants and animal confinement areas; located in New York. (e) Fruit processing wastewater treatment systems which treat wastewater from fruit processing plants to remove solids, nutrients and other contaminants to create water suitable for discharge or reuse; located in Florida, New York, and Washington. (f) Storm water and surface water run-off treatment systems which treat storm water run-off from agricultural and industrial installations to remove nutrients and other contaminants to create water suitable for discharge or reuse; located in Florida, treating run-off from dairy farm pastures, industrial installations and sugar cane plantations. (g) A feasibility study for the installation of a Bion system for the treatment of all wastewater generated in a small mobile home community; located in New York. Geographic Expansion --------------------- The activities of the Company to design, permit, install and operate these systems have established credibility with federal, state, and local regulators and environmental and agricultural professionals. The Company estimates that the cost associated with staffing, servicing, and marketing its systems in new geographic regions, including initial sales calls, design, regulatory approvals, installation and operation through the cash-flow break-even point (the Company has not yet achieved cash-flow break-even in any of its regional operations), is not less than $500,000 per region, and may exceed $1,500,000. Based on experience to date in the regions where system sales and installation activity have been focused, the Company estimates that approximately $3.5 million has been expensed related to these matters which has created what might be called "good will," "marketing" and "regulatory" value. An example of the accumulation of these costs can be understood by reference to the development and installation of the Company's initial hog farm Bion NMS system in North Carolina. During February 1994 the Company opened its office in Smithfield, North Carolina with one full time sales employee. Numerous contacts were made in both the hog raising and dairy farming industries, and the first agreement (for a hog system) was signed in December 1994. A second full time employee, required to provide design, engineering, construction and system operation expertise, was transferred to North Carolina in February 1995. Adverse weather conditions during the construction period resulted in a longer construction time than anticipated; however, system start-up was achieved in June of 1995, and the system has been in continuous operation since. Based on this investment of time and effort and the successful operation of the system, the Company has expanded its efforts in North Carolina including hiring a horticulturist for BionSoil product development and testing and a manager for the region. Currently, the Company has submitted proposals to a number of potential customers, is engaged in discussions with several of these, and has signed agreements for five additional system installations. Management estimates that, to date, in excess of $500,000 has been devoted to the effort to build the Company's business in North Carolina. Current projections are that it will require an additional nine to twelve months before sufficient cash flow will be generated from system and BionSoil sales in North Carolina to offset ongoing expenses *. The Company anticipates continuing its expansion into new areas in the future, and this expansion will require similar additional cash resources which, when expended, will also be expensed and not shown as balance sheet assets *. Technology Expansion --------------------- The Company has five issued U.S. Patents: a Bioconversion Reactor and System, an Animal Waste Bioconversion System, a Bioconverted Nutrient Rich Humus, a Phosphorous Treatment Process, and a Storm Water Remediatory Bioconversion System. The Company also has an issued Canadian Patent for an Aqueous Stream Treatment Process. These patents provide broad coverage of the fundamental technology that underlies the Company's systems and processes. Additional patent filings will occur as further applications are developed. The Company estimates that a large portion of the net loss through fiscal year 1995 (then shown on the financial statements as approximately $4.0 million) was actually expended on research and the development of the technology and construction of prototype systems that are the basis of the Company's planned future expansion. All of these costs have been expensed by the Company. Just as there are additional expenses associated with geographical expansion, there also are substantial additional expenses associated with the adaptation of existing technology for use in regions where climate, soil, and regulatory conditions are different from those experienced in other already established installations. Further, the Company anticipates additional expenditures in the near future associated with expansions of the technology into the cattle feedlot and poultry raising businesses where adaptation of the technology is necessary to treat waste with both different characteristics and different collection technologies than for existing dairy or swine waste systems *. The majority of such expenses (which are investments in the Company's future) will not show as balance sheet assets despite the fact that very real long term technological value is being developed *. Financial Discussion --------------------- The Company receives two distinct revenue streams from Bion NMS systems: 1) initial fees for system design, permitting, start-up and initial operation (and, for selected systems, periodic management or technology license fees), and 2) after the initial start-up period for a system (approximately 12 to 15 months after the agreement is signed), revenue from the sale of BionSoil and BionSoil-based products produced from the systems. BionSoil Economics ------------------- The Company tracks its BionSoil business on the basis of a Company defined standard unit (a "BionAnimal"), where one BionAnimal is defined as a manure producing unit (made up of one or more animals) which produces wastes (that can be captured in a Bion NMS system) equivalent to those produced by one 1,400 pound dairy cow living in a total confinement facility. When all the manure and urine produced by one BionAnimal is collected and converted into BionSoil, it will yield approximately 10 cubic yards of processed BionSoil per year *. Based on data available from the American Society of Agricultural Engineers (ASAE D384.1 - 1989) the Company has calculated that, for totally confined animals where all wastes are captured, approximately one dairy cow, 2.2 beef cattle, 11 market hogs, 200 turkeys, or 475 layer chickens equal one BionAnimal. As of June 30, 1997 the Company has nine systems containing 4,730 BionAnimals that are on line and producing biosolids which will be processed into BionSoil. Further, the Company has signed contracts covering five additional systems containing 4,175 BionAnimals that are not yet in production. These systems are in various stages from preliminary design through construction. As a result, the Company has 14 systems containing 8,905 total BionAnimals in production or covered by signed contracts. The Company estimates that these BionAnimals should produce approximately 90,000 cubic yards of processed BionSoil per year when all of the systems are on line, which is currently expected to occur within the next nine to twelve months *. The Company did not meet its systems sales and BionAnimal projections for the fiscal year ended June 30, 1997 due to a number of factors, including but not limited to capital availability, the decision to close the Company's Washington state operations, uncertainty created in certain markets due to pending legislation which would directly impact animal waste treatment and disposal practices, the decision to cancel certain agreements and/or contracts for systems that were not profitable, and the decision to renegotiate certain of its existing agreements for systems to establish more equitable terms (which systems have been removed from the above system and BionAnimal totals until such time as the renegotiations result in new signed contracts). As systems are brought on line and biosolids harvested, BionSoil, Inc. (the Company's other wholly-owned subsidiary) will purchase (for cash) the harvested material from Bion Technologies, Inc. to process it into final products for sale to customers *. Subsequently, some farms may be paid fees as royalty for the biosolids *. These payments may represent an important part of the strategy developed by the Company for the successful marketing of Bion NMS systems *. Most large animal raising facilities have substantial operating costs associated with the disposal of waste products which are produced in large quantities at these facilities *. With the construction and operation of a Bion NMS on a farm site, many of these costs can be substantially reduced or eliminated, and the farm may also receive a revenue stream from the cash payments made by the Company to the farm *. Initial BionSoil harvests have been made during the last twelve months of approximately 12,500 cubic yards. Of that amount, 2,000 cubic yards of BionSoil were sold in bulk at prices ranging from $4.00 to $20.00 per yard. Small quantities of processed and bagged BionSoil, in 20 to 75 pound bags, have been sold to organic farmers, nurseries, and at farmers markets and green markets in New York and Florida for the equivalent of $40.00 to $100.00 per cubic yard. During the year ended June 30, 1997, the first distribution to retail outlets was initiated with Agway stores in western New York. Deliveries averaging six pallets per store were made to 15 Agway retail stores. This product is being sold to Agway at introductory prices of $65.00 per cubic yard ($1.625 per 25-pound bag). Additionally, approximately 7,000 cubic yards are currently being processed in preparation for sale. The average selling price during the past fiscal year for bulk, unprocessed BionSoil was $9.88 per cubic yard, and for processed and bagged BionSoil was $87.89 per cubic yard. Note, however, that a large part of this BionSoil was from first harvests of various systems which, due to start-up issues, yield a lower quantity of high quality product. While sales of Bion NMS systems have been sporadic over the last four years, and significant quantities of BionSoil have only recently become available, the Company has clearly demonstrated the technology with ten systems in successful operation, seven of which have been on line for more than two years *. Additionally, through both Company performed and independent university sponsored testing, BionSoil has been shown to clearly enhance plant growth performance *. Based on these results and analysis of the Company's potential markets, a series of aggressive goals for system sales and installations have been established *. These goals which, if actually achieved, would result in a major expansion of the Company, are based on historical sales during the past year, the large number of proposals and preliminary agreements currently being prepared, and the apparent steadily increasing interest in Bion NMS systems in the large animal agriculture area *. Management's goals at present set as a target a level of 250 systems under contract containing 200,000 BionAnimals by June 30, 2000, the end of the Company's fiscal year 2000 *. If actually achieved, this goal represents a 2200% growth in the number of BionAnimals under contract *. To support achievement of this long range goal the Company has established the addition of 40 systems under contract (containing 30,000 BionAnimals) as its target for June 30, 1998 *. The Company is currently working with the offices in each region to develop strategic plans to achieve this level of sales as well as the short range plans to accomplish the fiscal year 1998 goal *. If these targets for fiscal year 1998 are met and the systems are brought into production as anticipated, after appropriate start-up period, BionSoil and BionSoil products in the approximate amount of 400,000 cubic yards per year should be available for harvest and preparation for sale during and after fiscal 1999 *. If the Company's goal for growth through fiscal 2000 is met approximately 2,000,000 cubic yards per year of BionSoil and BionSoil products would be available for sale in fiscal years after fiscal year 2000 *. Market Size ------------ The long range sales goal outlined by the Company represents aggressive growth for the Company *. Although an examination of the size of the target markets for system sales and installations and BionSoil sales shows that the percent of total market penetration which these goals represent are very modest, there can be no assurance that the Company will be successful in achieving its targeted goals *. The Company has analyzed the 1992 U.S. Department of Agriculture Census statistics (the most recent information available from the U.S. Department of Agriculture) and developed the data presented below for the target market segments for system sales *. The Company has analyzed the economics of system installation and operation as they relate to the size of farms, and based on this analysis has established a potential target universe of approximately 14 million BionAnimals which are on large farms, and therefore are believed by the Company to be potential candidates for system installation *. On the basis of these assumptions and the analysis done, the goal for fiscal year 1998 system sales (and the associated BionAnimals) would represent approximately a 0.3% market penetration in fiscal 1998, and the goal for fiscal year 2000, if achieved, would represent approximately a 1.4% market penetration *. The Company believes that the potential market for BionSoil and blended BionSoil products has been described and quantified by the Battelle Institute in a study conducted for the Solid Waste Composting Council (see Biomass and ----------- Bioenergy, Vol. 3, Nos 3-4, pp. 281-299, 1992, "Compost: United States Supply - - - --------- and Demand Potential") *. Batelle calculated that the demand for compost and compost-like products (including products ranging from manures to composted organic wastes to manufactured potting soils and soil enhancers) in the U.S. alone is projected to be in excess of one billion cubic yards per year which far exceeds projected supply in nine application segments: landscapers, delivered topsoil, bagged retail, nurseries, landfill final cover, surface mine reclamation, sod production, silvaculture, and agriculture *. Targeted markets for BionSoil include these segments in addition to state and municipal park and transportation departments, golf courses and athletic fields, home gardeners, reforestation projects for timber and mining companies, and the U.S. Park Service *. On the basis of this projected market potential, the BionSoil that the Company anticipates will be produced from the 40,000 BionAnimals if the Company reaches its fiscal year 1998 sales target (in excess of 400,000 cubic yards) would result in less than a 0.1% market penetration, and the goal for fiscal year 2000, if achieved, would represent approximately a 0.2% market penetration in this broadly defined market *. As part of its current planning process the Company is developing a detailed analysis of targeted market segments and is establishing plans to penetrate these segments *. Based on current pricing experience, a review of prices for soils and soil-enhancing products in the market, target market segment strategies being developed, and limited sales to date, the Company believes that BionSoil will sell at no less than $10 per cubic yard when sold unprocessed in bulk, and will sell for higher prices when processed and bagged, prices which may rise to $100 per cubic yard (or greater) *. Additionally, based on actual costs experienced in BionSoil harvesting and processing to date, and projected costs as volume levels increase to the forecast levels, the Company has established projected costs for the various levels of processing required to sell BionSoil products *. Therefore, given the contract terms and projected costs of production and sales, the potential return to the Company from BionSoil products sales alone has been projected for a series of potential price points (and the implied processing levels required to achieve the products to be sold at these price points) *. Table 1 presents this information for six selected price points *. This table has been prepared based on the Company's limited experience to date with the harvesting and processing of BionSoil and BionSoil products *. While this information represents management's best estimates for future performance, there can be no guarantee that these projections will be achieved *.
Table 1 * Projected Projected BionSoil Selling Projected Annual Gross Margin Price Per Cubic Bion Per Cubic Per Bion Yard* Expenses* Yard* Animal* - - - ---------------- --------- ------------ ------------ $10* $ 8* $2* $20* 20* 13* 7* 70* 40* 28* 12* 120* 60* 37* 23* 230* 80* 40* 40* 400* 100* 43* 57* 570*
Income from BionSoil sales is anticipated to begin in an average of one and a half to two years after the signing of an agreement for a Bion NMS system *. These gross margins would be expected to be repeated each year thereafter for as long as the installations remain in operation *. No fees for system installation, licensing, or management are included in these projections *. If the Company is successful in bringing targeted systems on line producing BionSoil within the 12 to 15 month start-up time frame and is successful in realizing a target average sales price of $40 per cubic yard (starting in fiscal year 1998), each BionAnimal would contribute $400 of revenue per year to the Company, resulting in projected gross margins of $120 per year *. Under the terms of most Bion NMS agreements, this contribution to revenue and gross margin is anticipated to continue for at least a 15-year period (the term of most Bion NMS system contracts before extension (if any) for additional years) *. If the net present value (discounted at 10%) of this gross margin cash flow is calculated for this 15-year period, the Company projects that each BionAnimal is anticipated to have approximately $950 net present value to the Company *. Table 2, below, summarizes this net present value projection for the BionSoil selling prices reflected in Table 1, above *.
Table 2 * Projected Projected BionSoil Selling 15 Year Net Present Price Per Value of Per Animal Cubic Yard * Annual Gross Margins * ---------------- ---------------------- $10* $158* 20* 555* 40* 952* 60* 1,826* 80* 3,176* 100* 4,525*
Based on experience to date, the Company anticipates that contract fees, independent of BionSoil revenues, will be sufficient to cover direct expenses (such as system design, permitting support, construction oversight and initial system operation) related to these system installations *. Therefore, if a sufficient number of systems are under contract and if the BionSoil production is on line, the Company is projected to achieve financial break-even *. Even though the Company is extremely small at present, has not yet developed substantial market penetration, needs to raise additional capital, and has (and is continuing to accrue) losses to date, the potential return based on the Company's growth goals is apparent if the Company is successful in achieving its targets *. As the discussion above includes forward looking statements made in reliance upon the provisions of Rule 175 promulgated under the Securities Act of 1933, readers are cautioned that, although management believes it currently has a reasonable good faith basis for disclosing the substance of some of its internal projections to the public at this time, there can be no assurance given that the Company will ever be successful in achieving any of its stated goals. The Company intends to periodically report on its progress, or lack thereof, in attaining the goals set forth above. The ultimate realization of most (if not all) of the Company's goals will require significant expenditures of funds which as of this date are not currently available to the Company. It is currently anticipated that the selling and installation of additional BionSoil systems will require the Company to hire additional personnel, make significant capital expenditures and generally increase its overhead. Further, the marketing and sale of BionSoil products will require the implementation of a distribution network of wholesalers and/or retailers and a transportation system for delivery of the product to the intended recipients, and may require permitting in some locations, none of which the Company may be successful in achieving. Additional expenditures for personnel and equipment will be necessary to harvest, process, package, sell and deliver the product. The projections stated by management assume that the Company will be successful in obtaining the requisite funds on commercially reasonable terms and that the other stated obstacles will be successfully overcome in the process of making sales of products in the future. As the Company has never operated at a profit and has a negative net worth at the present time, its ability to successfully confront even the currently identified challenges which lie ahead in meeting its stated goals is far from certain. It is likely that the Company will face additional challenges which have not as yet even been identified. In the event the Company is not able to obtain sufficient outside funding to accomplish its goals within the time periods indicated, the goals will not be met. In the event the Company is not able to successfully overcome the other stated obstacles in the process of making future sales within the time periods indicated, the goals will not be met. As the Company's operations are not currently profitable, readers are further cautioned that, if the Company is not successful in obtaining outside funding in an amount sufficient for it to meet its operating expenses at its current level, the Company's continued existence is uncertain. (b) Management*s Discussion of Financial Condition and Results of ------------------------------------------------------------------------- Operations ----- The Company has incurred losses since inception totaling $8,893,182 and is currently experiencing liquidity problems. The Company*s cash requirements are currently not being met by revenue, and are not expected to be met by revenue in the coming fiscal year. Continued losses without additional outside funding raise doubt about the Company*s ability to continue as a going concern. Management plans to continue raising additional capital to fund operations until such time as systems sales along with the sales of BionSoil and BionSoil products are sufficient to fund operations. The Company is currently negotiating with independent third parties to obtain the necessary additional funding for the Company. Although management believes that there is a reasonable basis to remain optimistic, no assumption can be made that the Company will be able to successfully attain profitable operations and/or raise sufficient capital to sustain operations. Liquidity and Capital Resources ---------------------------------- At June 30, 1997 the Company's total assets were $1,222,706 compared to $556,310 as of June 30, 1996. The change is primarily attributable to an increase in equipment and assets held for resale (see "Note 6 to Consolidated Financial Statements"), partially offset by a decrease in cash during the period. During the year the Company decided to close its operations in the Pacific Northwest in order to concentrate more resources on other operations. The result of this was a one time write off of $25,500 which was a reduction in deferred revenue and work in progress. The Company also expensed $5,100 for work performed to date on one of the systems. The write off occurred since the Company had deferred some of the revenue and was to be compensated from the sale of the soil product. The Company's current ratio as of June 30, 1997 was 0.79 : 1 as compared to 0.63 : 1 as of June 30, 1996. Cash for the period ended June 30, 1997 decreased $109,380 as compared to an increase of $114,811 for the period ended June 30, 1996. The Company's total liabilities decreased $1,420,534 for the year ended June 30, 1997. Notes payable and accrued payroll decreased approximately $1,590,000 and $71,000, respectively, accounts payable increased $120,353 and capital lease obligations increased approximately $154,000 due to expenses associated with the BionSoil start up activity (see" Notes 4 and 6 to Consolidated Financial Statements") during the period. The Company issued 247,777 shares of legended and restricted common stock for cash ($904,488), and 336,905 shares of legended and restricted common stock for property valued at $600,000 for the year ended June 30, 1997. The Company, in July 1997, sold one of the properties for $242,000 and intends to sell the other two properties during the next twelve months. The Company converted $2,361,905 of notes payable and $469,361 of interest and services for 1,268,508 and 157,774 shares of legended and restricted common stock, respectively. The Company also issued warrants for cash and services totalling $153,250. The Company issued a total of 2,013,039 shares of legended and restricted common stock during the year ended June 30, 1997. Results of Operations ----------------------- Comparison of Fiscal Year Ended June 30, 1997 with Fiscal Year Ended June ------------------------------------------------------------------------- 30, 1996 - - - --------- During the twelve months ended June 30, 1997 the Company performed work on 30 new or existing projects as compared to 23 projects in the corresponding period that ended on June 30, 1996. Contract revenue was slightly higher due to the increased amount of project activity and the initial sales efforts on BionSoil and BionSoil products. Contract costs were higher due to the start up expenses associated with the New York and Florida processing sites. Included in these expenses are facilities (rent, utilities, maintenance, etc.), equipment and additional personnel. The Company increased its contract receivables and work in progress reserves for bad debt by $30,000 during the year. The Company's reserves total $60,000 as of June 30, 1997. General and administrative expenses increased due to employee compensation, consulting, legal and accounting costs. The Company anticipates that general and administrative expenses could increase in the future as the business grows. The Company recorded $105,000 in interest income from the sale of Delta stock associated with the Settlement Agreement and General Release on the UFG note. This is the final amount to be collected on the UFG note. The total amount collected is $296,581 in excess of the original principal of the note. The Company incurred $286,387 of interest expense on notes payable to an outside lender and shareholders of the Company (see "Notes 4 and 6 to Consolidated Financial Statements") and research and development expenses of $172,816. The $98,228 increase in R&D expenses is due to the increased research activity in the soils area. Comparison of Fiscal Year Ended June 30, 1996 with Fiscal Year Ended June ------------------------------------------------------------------------- 30, 1995 - - - --------- During the twelve months ended June 30, 1996 the Company performed work on 23 projects as compared to 20 projects in the corresponding period that ended on June 30, 1995. Contract revenue was slightly higher due to the increased amount of project activity. The ability to staff projects with experienced personnel provided efficiencies and therefore lower contract costs. The Company recorded a $68,000 write off of contract receivables and work in progress and reduced the reserves for bad debt by $30,000 during the year. General and administrative expenses decreased due to lower marketing, public relations, consulting, legal and accounting costs. These decreased expenses are partially offset by increased compensation costs. The Company anticipates that general and administrative expenses could increase in the future as the business grows. The Company incurred $218,871 of interest expense on notes payable to LoTayLingKyur and other shareholders of the Company (see "Notes to Consolidated Financial Statements"). The Company also sold marketable securities during the year for a gain of $143,371. Seasonality ----------- The Company's 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 its systems. However, the Company's 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. Inflation and Changes in Prices ----------------------------------- The Company is unable to predict the impact of inflation on the Company's activities, however, at this time it is minimal. ITEM 7. FINANCIAL STATEMENTS Financial Statements and Supplementary Data are included on Pages F-1 through F-23. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Within the twenty-four (24) months prior to the date of its most recent Financial Statements, the Company has had no disagreements with its accountants on accounting or financial disclosure. PART III --------- ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Executive Officers and Directors ----------------------------------- The following table sets forth the names, ages and positions held with respect to each Director and Executive Officer of the Company along with the period served as a Director.
Name Age Position(s) Period of Service - - - --------------- ------- ------------------------- ----------------- Jon Northrop 54 Chairman of the Board, April 9, 1992 to Chief Executive Officer, Present Secretary, and Director Jere Northrop 55 Chief Operating Officer, April 9, 1992 to President, and Director Present M. Duane Stutzman 58 Chief Financial Officer, August 31, 1993 to Treasurer, and Director Present Ronald G. Cullis 61 Director November 1, 1994 to Present John Schwanekamp 49 Director August 31, 1993 to Present
All officers and directors will hold office until the next annual meeting of shareholders. There is no person who is not a designated officer or director who is expected to make any significant contribution to the business of the Company. The following sets forth biographical information as to the business experience of each current Director and Executive Officer of the Company. Jon Northrop has been Chairman of the Board, Chief Executive Officer, and ------------ Secretary of the Company since April 9, 1992. Mr. Northrop is a founder of Bion Technologies, Inc. and has been its Chief Executive Officer since its inception in September 1989. Before founding Bion Technologies, Inc., he served in a wide variety of managerial and executive positions. He was most recently the Executive Director of Davis, Graham & Stubbs, one of Denver's largest law firms, from 1981 to 1989. Prior to his law firm experience, Mr. Northrop worked at Samsonite Corporation's Luggage Division in Denver, Colorado, for over 12 years. His experience was in all aspects of manufacturing, systems design and implementation, and planning and finance, ending with three years as the Division's Vice President, Finance. Mr. Northrop has a bachelors degree in Physics from Amherst College, Amherst, Massachusetts (1965), an MBA in Finance from the University of Chicago, Chicago, Illinois (1969), and spent several years conducting post-graduate research in low energy particle physics at Case Institute of Technology, Cleveland, Ohio. Jon Northrop is the brother of Jere Northrop. Jere Northrop has been President, Chief Operating Officer, and a Director ------------- of the Company since April 9, 1992. Dr. Northrop is a founder of Bion Technologies, Inc. and has been President since October of 1989 and has been President of BionSoil, Inc. since September 1, 1997. He has ten years of recent experience in the management of operations and process control of a large municipal advanced wastewater treatment plant at Amherst, New York (1979-1989). He also has 25 years of experimental research on both individual and complex systems of microorganisms. Dr. Northrop has a bachelors degree in Biology from Amherst College, Amherst, Massachusetts (1964), a doctorate degree in Biophysics from Syracuse University, Syracuse, New York, (1969), and has done post doctoral work at both the University of California at Davis, Davis, California and The Center for Theoretical Biology, State University of New York at Buffalo, Buffalo, New York. Jere Northrop also is an Officer and Director of AutoGnomics Corporation (without compensation) and is the brother of Jon Northrop. M. Duane Stutzman has been a Director of the Company since August 31, ------------------- 1993. Immediately prior to joining the Company as a full time employee on May 1, 1994, he spent 11 years with Davis, Graham & Stubbs, a large Denver law firm, ending as its Chief Financial Officer for the last four years. Prior to his employment at Davis, Graham & Stubbs, Mr. Stutzman worked for 18 years in various accounting and financial positions at Samsonite Corporation's Luggage Division in Denver and the Bendix Corporation's Aerospace Division in Denver and Teterboro, New Jersey. Mr. Stutzman received a Bachelor of Science degree in Accounting from Florida Southern College, Lakeland, Florida in 1964. Mr. Stutzman became Chief Financial Officer on May 1, 1994 and Treasurer on June 30, 1995. Ronald G. Cullis has been a director of the Company since November 1, ------------------ 1994. He has spent the last ten years with PENSA and Altman Weill Pensa, national consulting firms oriented towards law firms, in-house legal departments and other service enterprises as a consultant, manager, and partner. From 1980 to 1985, Mr. Cullis served as the Executive Director of Milbank, Tweed, Hadley & McCloy, a New York City law firm. Prior to that time he worked for 20 years in various positions including Vice President-Finance, and Treasurer for Oceaneering International, Inc., Senior Vice President Finance, Treasurer and Director for Vetco, Inc., Vice President and Controller for Fluor Corporation, and in various planning and analysis capacities with a number of other corporations. Mr. Cullis received a B.A. degree in economics from Williams College in Williamstown, Massachusetts in 1960. John Schwanekamp has been a Director of the Company since August 31, ----------------- 1993. He has over 20 years of experience in public administration. From 1971 to 1973 he served as a lieutenant at the U.S. Army Medical/Bioengineering Research and Development Laboratory in New York and Maryland. The laboratory designed, fabricated and tested prototype devices and equipment for field medical needs and prostheses. Since 1973 he has worked at the Chautauqua County Department of Personnel in Mayville, New York, and currently serves there as deputy director. That work includes a broad range of general management duties in public personnel administration and labor relations. Mr. Schwanekamp received a B.S. degree in Business Administration from Canisius College in Buffalo, New York in 1970. The Company has an Executive Committee consisting of Messrs. Jon Northrop, Jere Northrop, and Duane Stutzman. The Company has Audit and Compensation Committees which consist of Messrs. Schwanekamp and Cullis. These committees were formed on August 31, 1993. Family Relationships --------------------- Jon Northrop and Jere Northrop are brothers. ITEM 10. EXECUTIVE COMPENSATION Summary Compensation ---------------------- The following table shows the aggregate direct remuneration paid by the Company for the fiscal years ended June 30, 1997, 1996, and 1995 to each executive officer.
Summary Compensation Table -------------------------- Annual Compensation Awards Payouts ----------------------- --------------- ------- Other Restric- Name Annual ted Securities All Other and Compen- Stock Underlying LTIP Compensa- Principal Salary1 Bonus sation Award(s) Options/ Payouts tion Position Year ($) ($) ($) ($) SARs(#) ($) ($) - - - --------- ------- ------ ------ ------- -------- ---------- -------- ------- Jon Northrop 1997 150,000(2) - - - - - - Chairman of 1996 133,333(3) - - - - - - the Board, 1995 100,000(4) - - - - - - Chief Execu- tive Officer and Secretary Jere Northrop 1997 150,000(2) - - - - - - President 1996 133,333(3) - - - - - - and Chief 1995 100,000(4) - - - - - - Operating Officer Duane Stutz- man 1997 120,000(5) - - - - - - Chief Finan- 1996 110,000(6) - - 45,777 - - - cial Officer 1995 90,000(7) and Treasurer _______________________________
(1) Includes compensation paid by Bion Technologies, Inc., the Company's wholly-owned subsidiary. (2) Includes $50,000 of salary that was deferred by management and accrued as a liability to conserve cash for operations. (3) Includes $33,333 of salary that was deferred by management and accrued as a liability to conserve cash for operations. (4) Includes $25,000 of salary that was deferred by management and accrued as a liability to conserve cash for operations. (5) Includes $30,000 of salary that was deferred by management and accrued as a liability to conserve cash for operations. (6) Includes $20,000 of salary that was deferred by management and accrued as a liability to conserve cash for operations. (7) Includes $18,750 of salary that was deferred by management and accrued as a liability to conserve cash for operations. Option/SAR Grants Table -----------------------
% of Total Number of Options/ Name Securities SARs and Underlying Granted to Principal Options/SARs Employees Exercise or Base Expiration Position Granted(#3) in Fiscal Year Price($/Sh) Date - - - --------- ------------ -------------- ---------------- ---------- Jon Northrop Chairman of the Board, Chief Execu- tive Officer and Secretary Jere Northrop President and Chief Operat- ing Officer Duane Stutzman 20,000 7.7% $5.00 09/01/01 Chief Finan- cial Officer and Treasurer
Aggregated Option/SAR Exercises and FY-End Option/SAR Values ------------------------------------------------------------
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs Options/SARs Name and at FY-End(#) at FY-End(#) Principal Shares Acquired Exercisable/ Exercisable/ Position on Exercise Value Realized($) Unexercisable Unexercisable - - - --------- ------------- ----------------- --------------- ------------- Jon Northrop -- -- (un) 725,000 -- Chairman of the Board, Chief Execu- tive Officer and Secretary Jere Northrop -- -- (un) 725,000 -- President and Chief Operat- ing Officer Duane Stutzman 20,000 18,477 Chief Finan- cial Officer and Treasurer
Effective September 1, 1993, outside Directors are compensated at a rate of $75 per month for their contributions to the Company. No additional compensation is paid for their involvement in the Audit and Compensation Committees. On June 14, 1996 the Board of Directors of the Company adopted the 1996 Nonemployee Director Stock Plan. There were no awards made during the fiscal year ended June 30, 1997. On August 20, 1997 the Company granted, pursuant to its 1996 Nonemployee Stock Option Plan, options to the two outside directors Mr. Cullis and Mr. Schwanekamp (see below). Employment Contracts and Terms of Employment and Change in Control -------------------------------------------------------------------- Arrangements ----------- On July 12, 1993, the Company entered into separate employment agreements (both of which are substantially identical) with each of Jon Northrop (the Company's Chief Executive Officer) and his brother, Jere Northrop (the Company's President) for the period commencing on July 1, 1993 and ending on March 31, 1998 (unless earlier terminated as discussed below). Among other things, each of the subject employment agreements provides that the affected employee is to be paid a salary of $100,000 per year (which amount has been reduced from $150,000 per year to preserve cash flow for the continued operation of the Company), receive reimbursement for certain business expenses (including but not limited to expenses for travel, entertainment and similar items) and receive payment of certain benefits including parking, health, hospitalization and life insurance, four weeks of paid vacation each year and such other benefits as the Company's Board of Directors may deem appropriate from time to time. Effective November 1, 1995 the Compensation Committee increased Messrs. Northrop's salaries to $150,000 per year of which $50,000 per year will be accrued until such time as cash flow permits payment of the accrued amounts. The Company's Board of Directors is required to review Messrs. Northrop's salaries no less often than once annually with a view to making such increases in each employee's salary or declaring such bonuses or other benefits as may be merited and warranted in light of factors considered pertinent by the Board of Directors at that time. In the event of disability (as defined in the employment agreements) prior to the end of the employment period in each case, the affected employee is entitled to receive his full compensation under his employment agreement during the full term of the disability. The Company may require such evidence of disability as it deems appropriate. Also, in the event the employee dies during the term of the agreement, the Company will be required to pay to the employee's legal representative all of the compensation due to the employee under the agreement for a period of one year or the end of the employment period, whichever occurs earlier. In the event the employee is terminated for cause (which is defined generally as conduct including, among other things, criminal activity, willful misconduct, gross neglect of duties, or breach of the employment agreement by the employee), the Company is entitled to terminate the affected employment agreement without any further liability to the employee. In the event the employee is terminated for any reason other than "for cause," the employee is entitled to receive his full compensation under the agreement for the entire duration of the employment period. In the event that a change in control of the Company occurs at any time during the term of either of the affected employment agreements (as a result of which the Board of Directors appoints a person other than the employee to serve in the capacity for which the employee is employed under the affected employment agreement or as a result of which the employee elects to resign his executive position with the Company), each affected employee is nevertheless entitled to all of the benefits and compensation under his employment agreement for the entire term thereof, regardless of whether the employee continues to perform any services for the Company. Each of the employment agreements is binding upon the Company and its successors and assigns and any person acquiring, whether by merger, consolidation, liquidation, purchase of assets or otherwise all or substantially all of the Company's equity or business. The employment agreements allow each of the respective employees to terminate employment without liability upon 90 days written notice to the Company, and to directly and indirectly engage in other business activities that are not directly competitive with the business of the Company. Neither of the subject agreements contains any non-competition or similar provisions. On January 1, 1995, the Company entered into an employment agreement with Mr. M. Duane Stutzman (the Company's Chief Financial Officer and Treasurer) for the period commencing on January 1, 1995 and ending on December 31, 1997 (unless earlier terminated as discussed below). Among other things, the employment agreement provides that the affected employee is to be paid a salary of $90,000 per year, receive reimbursement for certain business expenses (including but not limited to expenses for travel, entertainment and similar items) and receive payment of certain benefits including parking, health, hospitalization and life insurance, four weeks of paid vacation each year and such other benefits as the Company's Board of Directors may deem appropriate from time to time. Effective November 1, 1995 the Compensation Committee increased Mr. Stutzman's salary to $120,000 per year of which $30,000 per year will be accrued until such time as cash flow permits payment of the accrued amounts. The Company's Board of Directors is required to review Mr. Stutzman's salary no less often than once annually with a view to making such increases in employee salary or declaring such bonuses or other benefits as may be merited and warranted in light of factors considered pertinent by the Board of Directors at that time. In the event of disability (as defined in the employment agreement) prior to the end of the employment period, Mr. Stutzman is entitled to receive his full compensation under his employment agreement for a period of twelve months from the date of his disability. The Company may require such evidence of disability as it deems appropriate. Also, in the event the employee dies during the term of the agreement, the Company will be required to pay to the employee's legal representative all of the compensation due to the employee under the agreement for a period of six months or the end of the employment period, whichever occurs earlier. In the event the employee is terminated for cause (which is defined generally as conduct including, among other things, criminal activity, willful misconduct, gross neglect of duties, or breach of the employment agreement by the employee), the Company is entitled to terminate the affected employment agreement without any further liability to the employee. In the event the employee is terminated for any reason other than "for cause," the employee is entitled to receive his full compensation under the agreement for a period of twelve months or until the end of the employment period, whichever comes first. In the event that a change in control of the Company occurs at any time during the term of the employment agreement (as a result of which the Board of Directors appoints a person other than the employee to serve in the capacity for which the employee is employed under the affected employment agreement or as a result of which the employee elects to resign his executive position with the Company), the employee is nonetheless entitled to all of the benefits and compensation under his employment agreement for the entire term thereof, regardless of whether the employee continues to perform any services for the Company. The employment agreement is binding upon the Company and its successors and assigns and any person acquiring, whether by merger, consolidation, liquidation, purchase of assets or otherwise all of substantially all of the Company's equity or business. The employment agreement allows the employee to terminate employment without liability upon 90 days written notice to the Company and to directly and indirectly engage in other business activities that are not directly competitive with the business of the Company. The subject agreement does not contain any non-competition or similar provisions. Effective February 1, 1997, the Company employed C. Duane Kennedy in the position of President of its two wholly owned subsidiaries Bion Technologies, Inc. and BionSoil, Inc. Mr. Kennedy spent the last five years as Vice President of Sales and Marketing at Pursell Industries, Inc., and prior to that time worked for twenty five years in marketing and sales for Armstrong World Industries, Olympic Stain, and PPG Industries. Effective September 1, 1997, the Company accepted the resignation of Mr. Kennedy. Mr. Kennedy requested the resignation for personal reasons which made it not possible for him to fully carry out the duties of President. Mr. Kennedy has agreed to act in a consulting role to the Company in the area of BionSoil products marketing and sales. All unissued warrants contained in Mr. Kennedy*s compensation package (see Form 8-K dated January 2, 1997) have been canceled. Mr. Kennedy will receive a monthly consulting fee of $5,000. Incentive Compensation Plans ------------------------------ On July 9, 1993, the Board of Directors of the Company adopted the Fiscal Year 1994 Incentive Plan ("Plan"), which Plan was ratified by the Company's shareholders on August 30, 1993. The maximum number of shares of Common Stock which may be issued under the Plan is the greater of 250,000 shares or 20% of the Company's outstanding Common Stock. Shares issued under the Plan may be authorized but unissued shares of common stock or treasury shares, at the discretion of a committee (the "Committee") of not fewer than two directors appointed under the Plan to administer the Plan. The Company's Compensation Committee, which presently consists of John Schwanekamp and Ronald G. Cullis, administers the Plan. The Plan provides for the grant of (i) non-qualified stock options, (ii) incentive stock options, (iii) limited stock appreciation rights, (iv) tandem stock appreciation rights, (v) stand-alone stock appreciation rights, (vi) shares of restricted stock, (vii) shares of phantom stock, and (viii) stock bonuses (collectively, "Incentive Grants"). In addition, the Plan provides for the grant of cash bonuses payable when a participant is required to recognize income for federal income tax purposes in connection with the vesting of shares of restricted stock or the grant of a stock bonus. Employees, officers (whether or not they are directors), and advisors of the Company and its subsidiaries will be eligible to participate in the Plan. The Committee will determine which persons receive Incentive Grants, the type of Incentive Grants granted and the number of shares subject to each Incentive Grant. No Incentive Grant may be granted under the Plan after April 1, 2002. Subject to the terms of the Incentive Plan, the Committee will also determine the prices, expiration dates and other material features of the Incentive Grants granted under the Plan. The Committee may, in its absolute discretion, (i) accelerate the date on which an option or stock appreciation right granted under the Incentive Plan becomes exercisable, (ii) accelerate the date on which a share of restricted stock or phantom stock vests and waive any conditions imposed by the Committee on the vesting of a share of restricted stock, and (iii) grant Incentive Grants to a participant on the condition that the participant surrender to the Company for cancellation such other Incentive Grants (including, without limitation, Incentive Grants with higher exercise prices) as the Committee specifies. The Committee will have the authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it deems necessary. All decisions and determinations of the Committee are final and binding on all parties. The Company will indemnify each member of the Committee against any cost, expense or liability arising out of any action, omission or determination relating to the Plan, unless such action, omission or determination was taken or made in bad faith and without reasonable belief that it was in the best interests of the Company. The Board of Directors may at any time amend the Plan in any respect, provided, that no amendment may (i) increase the number of shares of Common Stock that may be issued under the Plan, (ii) materially increase the benefits accruing to individuals holding Incentive Grants, or (iii) materially modify the requirements as to eligibility for participation in the Plan. The Company awarded certain employees (excluding the Company's officers and directors) the following options to purchase the Company's common stock pursuant to the Fiscal Year 1994 Incentive Plan: on August 30, 1996, 40,000 options at a price of $5.00 per share commencing on September 1, 1996 and expiring on September 1, 2001; on September 26, 1996, 50,000 options at a price of $3.75 per share commencing on September 25, 1996 and expired on January 1, 1997, 50,000 options at a price of $5.25 per share commencing on September 25, 1996 and expired on April 1, 1997, and 50,000 options at a price of $6.00 per share, commencing on December 15, 1996 and expired on May 1, 1997; on January 16, 1997, 50,000 options at a price of $6.00 per share commencing on February 1, 1997 and expiring on December 31, 1997. On August 30, 1996 the Company granted to M. Duane Stutzman, the Company's C.F.O., 20,000 options to purchase shares of the Company's common stock at a price of $5.00 per share commencing on September 1, 1996 and expiring on September 1, 2001. Effective September 15, 1997, the Company issued awards to all current employees (excluding the Company*s officers and directors) under the Company*s Fiscal Year 1994 Incentive Plan totaling 27,762 options with an exercise price of $4.00 per share, 27,756 options with an exercise price of $6.00 per share, 27,754 options with an exercise price of $8.00 per share, 10,000 options with an exercise price of $10.00 per share, 10,000 options with an exercise price of $12.50 per share, and 10,000 options with an exercise price of $15.00 per share; all of the above options expire on December 31, 2001. The options will vest as follows: for employees with less than one year of service, the first third shall vest on their one year employment anniversary date, the second third shall vest on their second anniversary date, and the last third on their third anniversary. For employees with more than one year of service, the first third shall vest on the above effective date, and the second and last third shall vest twelve and twenty-four months thereafter respectively. On June 14, 1996, the Board of Directors of the Company adopted the 1996 Nonemployee Director Stock Plan ("Director Plan"), which plan will be submitted for ratification by the Company's shareholders at the next meeting of the shareholders. The maximum number of shares of Common Stock which may be issued under the Director Plan is 100,000 shares. Shares issued under the Director Plan may be authorized but unissued shares of Common Stock or treasury shares, at the discretion of a committee (the "Director Plan Committee") of not fewer than two directors appointed under the Director Plan to administer the Director Plan who are not eligible to participate in the Director Plan. The Director Plan provides for the grant of stock options to participants. All nonemployee directors shall participate in the Director Plan so long as they remain eligible. No stock option may be granted under the Director Plan after June 13, 2001. Each participant shall be granted an option for 5,000 shares of Common Stock for each 12 months they serve as a director, or if a director for less than the prior 12 months, a pro rata portion of 5,000 shares of Common Stock based on the number of months such participant was a nonemployee director of the Company. The exercise price of the stock option to be granted under the Director Plan shall be 50% of the average market price for the prior twelve months. The stock options granted under the Director Plan shall be exercisable as set forth in the option agreement commencing on the date such option is granted, provided that each option shall expire five years after the date such option was granted. The Director Plan Committee will have the authority to interpret and construe any provision of the Director Plan and to adopt such rules and regulations for administering the Director Plan as it deems necessary. All decisions and determinations of the Director Plan Committee are final and binding on all parties. Neither the Company nor any member of the Board or the Director Plan Committee or designee thereof will be liable for any damages resulting from any action or determination made by the Board or the Director Plan Committee with respect to the Director Plan or any transaction arising under the Director Plan or any omission in connection with the Director Plan in the absence of willful misconduct or gross negligence. The Board of Directors may at any time amend the Director Plan in any respect, provided, that no amendment may (i) change the class of persons eligible to receive stock options under the Director Plan or otherwise modify the requirements as to eligibility for participation in the Director Plan, (ii) materially increase the benefits accruing to participants under the Director Plan, or (iii) increase the number of shares of Common Stock which may be issued under the Director Plan without the approval of the shareholders of the Company. On June 6, 1996 a Form S-8 Registration Statement under the Securities Act of 1933 was filed registering 330,928 shares under the Fiscal Year 1994 Incentive Plan and 100,000 shares under the 1996 Nonemployee Director Plan. No awards were made under either plan during fiscal year ended June 30, 1996. On August 20, 1997 the Company granted, pursuant to the Company's 1996 Nonemployee Stock Option Plan, options to the two outside directors Mr. Cullis and Mr. Schwanekamp for 10,000 shares each (5,000 shares for the year ended June 30, 1997 and 5,000 for the year ended June 30, 1996). Indemnification --------------- The Articles of Incorporation and the Bylaws of the Company provide that the Company may indemnify its officers and directors for costs and expenses incurred in connection with the defense of actions, suits or proceedings where the officer or director acted in good faith and in a manner he reasonably believed to be in the Company's best interest and is a party by reason of his status as an officer or director. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. Report on Repricing of Options/SARs --------------------------------------- The Company has not during the fiscal year ending June 30, 1997 repriced any stock options or SARs previously awarded to any of the named executive officers. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners and Security ------------------------------------------------------------------- Ownership of Management ------------------- The following table sets forth information as of September 25, 1997 (treating all 18,834 outstanding shares of Series B Convertible Preferred Stock ["Preferred Stock"] as if each share of Preferred Stock were converted into Common Stock) based on information obtained from the persons named below, with respect to the beneficial ownership of Common Stock by (i) each person known by the Company to be the owner of more than 5% of the outstanding Common Stock, (ii) each officer and director, and (iii) all officers and directors as a group:
Name and Address Shares of Common Percentage of Common of Beneficial Owner Stock Owned Stock Outstanding - - - ---------------------------- ----------------------- --------------------- Jon Northrop 2,349,457 Shares1,3,4,5 60.5% 1922 W. Sanibel Court Littleton, CO 80120 Jere Northrop 290,458 Shares2,3 7.5% 1961 Tonawanda Creek Road Amherst, NY 14228 LoTayLingKyur, Inc 1,310,290 Shares4 34.0% 1280 Terminal Way, #3 Reno, NV 89502 Dublin Holding, Ltd 756,209 Shares5 19.6% c/o AmeriLawyer, Ltd. Attn: Lloyd Rodney, Esq. Harbor House P.O. Box 120 Grand Turk Turks & Caicos Isl., B.W.I. John Schwanekamp 10,125 Shares6 0.3% Sherman Road Westfield, NY 14787 M. Duane Stutzman 103,583 Shares 2.6% 7483 West Laurel Avenue Littleton, CO 80123 Ronald G. Cullis 15,110 Shares 0.4% 76 Northview Lane Chesapeake City, MD 21915 Management as a Group 2,627,688 Shares 65.2% (5 Persons) ___________________
1 Jon Northrop owns of record 141,913 shares and has investment rights for 141,913 shares. Because of voting rights and agreements Mr. Northrop holds voting rights for a total of 2,349,457 shares. This total includes 14,435 shares owned by the Family Trust U/A 3rd U/W Catherine Northrop. Additionally, includes 2,066,499 shares which Jon Northrop (the Company's Chief Executive Officer) has the right to vote through December 31, 2005, provided however that if the Company is not profitable by June 30, 1999 said voting agreement will terminate on January 1, 2000, all of which shares are owned by LoTayLingKyur, Inc. ("LTLK") and Dublin Holding, Ltd. (see footnotes 4 and 5). Does not include 4,000 shares owned by his wife and 58,550 shares owned by adult children of Jon Northrop each of which Mr. Northrop disclaims beneficial ownership. 2 Jere Northrop owns of record 149,413 shares and has investment rights for 149,413 shares. Because of voting rights and agreements Mr. Northrop holds voting rights for a total of 290,458 shares. The total includes 10,435 shares owned by the Family Trust U/A 3rd U/W Catherine Northrop. Does not includes 4,000 shares owned by his wife and 54,550 shares owned by an adult child of Jere Northrop, each of which Mr. Northrop disclaims beneficial ownership. 3 Includes 126,610 shares owned by Delta Petroleum Corporation which Jon Northrop and Jere Northrop jointly have the right to vote until December 31, 1999. 4 LoTayLingKyur, Inc. ("LTLK") is the assignee of shares previously owned by Stonehenge Capital Corporation. The figure indicated includes 1,101,990 shares owned by LTLK directly, 130,300 owned by Mark Smith, LTLK's President, 64,000 shares owned by Mark Smith's wife, Kelly Moone, and 14,000 shares owned by the children of Mark Smith and his wife. Jon Northrop (the Company's Chief Executive Officer) has the right to vote all 1,310,290 shares pursuant to a voting agreement that expires on December 31, 2005, provided however that if the Company is not profitable by June 30, 1999 said voting agreement will terminate on January 1, 2000. LTLK has investment rights and no voting power to all 1,310,290 shares. 5 Dublin Holding, Ltd. ("DHL") - Jon Northrop (the Company's Chief Executive Officer) has the right to vote all 756,209 shares pursuant to a voting agreement that expires on December 31, 2005, provided however, that if the Company is not profitable by June 30, 1999 said voting agreement will terminate on January 1, 2000. 6 Does not include 125 shares owned by Mr. Schwanekamp's wife of which he disclaims beneficial ownership. Mr. Schwanekamp has full voting power and investment rights on his stock. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Effective December 20, 1994, the Company entered into a Settlement Agreement and General Release (the "Settlement Agreement") with Underwriters Financial Group ("UFG") and Delta Petroleum Corporation ("Delta") pursuant to which Delta delivered to the Company 20,000 restricted shares of Delta's common stock (as an inducement to the Company to enter into the subject Settlement Agreement with UFG), and UFG delivered to the Company 100,000 restricted shares of UFG's common stock as full and final payment of all amounts due and owing to the Company under the terms and conditions of an investment instrument (the "UFG Investment Instrument"), which had been the subject of some dispute between the Company and UFG since approximately December, 1993. The Settlement Agreement provided, among other things, that UFG released any claims that it might have against Delta and certain of Delta's officers which in any manner related to the UFG Investment Instrument or any other activity between the Company and UFG, and further, that both UFG and the Company fully released and discharged each other (and each of their respective directors, officers, attorneys, employees, members, representatives, agents, successors, assigns, parents, subsidiaries and affiliates) from any and all claims that either party may have had against the other by reason of any matter, cause or event whatsoever prior to the date of the Settlement Agreement. As of June 30, 1997, the Company had received an aggregate of $963,248 in net proceeds from the sale of 172,500 of the Delta Shares (including the $45,930 received prior to the subject dispute) held as collateral for the UFG Investment Instrument and 84,607 shares of the UFG Stock from the Settlement Agreement. The Company currently subleases office space from Delta under a month-to-month oral agreement pursuant to which the Company subleases four offices within Delta's existing office space, and is permitted to utilize Delta's office equipment for an aggregate cost to the Company of $3,575 per month. Effective May 6, 1997, the Company replaced an existing May 16, 1995 agreement among the Company, Jon Northrop (the Company's Chief Executive Officer), Jere Northrop (the Company's President) and LoTayLingKyur, Inc. ("LTLK"), and an existing January 8, 1997 agreement among the Company, BionSoil, Inc. and LTLK with a new agreement among the Company, BionSoil, Inc., LTLK, Dublin Holding, Ltd. ("DHL"), Kelly Moone ("KM") and Mark A. Smith ("MAS"). LTLK, DHL, KM, and MAS are hereinafter collectively referred to as the "Investors," and the May 6, 1997 agreement is hereinafter referred to as the "Replacement Agreement." Among other things, the Replacement Agreement provides that the Company is released from any and all obligations to each of the Investors pursuant to: (a) a May 16, 1995 convertible promissory note of the Company owned jointly by LTLK and DHL (see Form 10-KSB/A for the fiscal year ended June 30, 1996); (b) a promissory note and other rights related to a loan to the Company dating from January 8, 1997 (see 8-K dated January 2, 1997); and (c) amounts owed by the Company to LTLK in connection with an April 1997 loan arrangement and certain other unpaid amounts. As of the date of the Replacement Agreement, the subject obligations that were released aggregated an agreed upon $2,146,045. In accordance with the terms of the Replacement Agreement, the Investors also assigned to the Company various real property interests owned by LTLK and KM by quit claim deeds for an aggregate value of $710,000. In exchange, the Company issued to the Investors 1,574,308 shares of the Company's Common Stock, a Class E1 Warrant to purchase an additional 937,154 shares of the Company's Common Stock at a price of $6.00 per share during the period from January 1, 2001 through December 31, 2001 and a Class X Warrant to purchase an additional 1,087,154 shares of the Company's Common Stock at a price of $10.00 per share during the period from January 1, 2003 through December 31, 2003. In accordance with the terms of the Replacement Agreement, the provisions of the various debt instruments among the parties were terminated in their entirety. In addition, the Replacement Agreement provides that in the event of an underwritten offering by the Company, the Investors will not be subject to any lock-up agreement which does not allow the Investors to sell at least 7,500 shares of the Company's Common Stock per month (on a cumulative basis), and that any such lock-up agreement must terminate in its entirety no more than one year after the completion of any such offering. The Replacement Agreement further provides that the Investors do not now and will not attempt to exercise any control over the management or business of the Company and, further, that the Investors will not have any direct or indirect power to control the Company (despite the size of their stockholdings in the Company) due to an existing Voting Agreement, provided, however, that if the Company is not profitable by June 30, 1999, the Voting Agreement will terminate on January 1, 2000, unless otherwise agreed in writing by the Company and the Investors. Pursuant to the Replacement Agreement, the Company is required to indemnify and hold the Investors harmless from any liability to the Company (or others) pursuant to 16(b) of the Securities Exchange Act of 1934 for "short swing profits" which may arise from matching the transactions which are the subject of the Replacement Agreement (including transactions between and among LTLK, DHL, KM, and/or MAS in connection with such agreement) with any other transaction. The Replacement Agreement also provides that LTLK will provide consulting services to the Company commencing July 1, 1997 with base monthly fees of $2,500 until November 1997, at which time such base monthly fee will increase by $500 per month on November 1 of each year thereafter through November 1, 2001. The consulting services are to be provided for a term of 64 months with the base monthly consulting fees to be paid to LTLK on the 15th of each month commencing July 1997. On April 18, 1995 the Company repaid Jon Northrop (an officer and director of the Company and the Company) $10,500 to fully pay off a promissory note of the Company held by Mr. Northrop. The note originated as a result of cash advances from Jon Northrop to the Company on April 14, 1995 to provide the Company with operating capital. On June 30, 1996 the Company converted the outstanding principal and interest balance of $57,920 on a note held by Harley E. Northrop into 28,960 shares of restricted and legended common stock of the Company in full satisfaction of the debt obligation. On October 26, 1996, the Company and Harley E. Northrop ("Lender") entered into an agreement whereby Lender made a $500,000 credit facility available to Company under the following terms and conditions. The Company may request that funds be advanced on either the first or the fifteenth of any month, and Lender will make such funds available within fifteen working days; interest will be paid monthly in cash by the Company to Lender at the rate of 1% per month on the drawn down balance, and if by mutual agreement not paid in cash, will be added to the unpaid balance; the entire drawn down balance will be due and payable on December 31, 1999; there will be no prepayment penalties should the Company pay off the drawn down amount prior to December 31, 1999; advances from Lender to the Company shall be evidenced by a promissory note; the entire outstanding balance may be converted into units (the "Units") at a conversion price of $4.50 per Unit by mutual agreement between the Company and Lender at any time after January 1, 1998; each Unit shall consist of one share of the restricted and legended common stock of the Company plus one warrant authorizing the holder to purchase one share of the restricted and legended common stock of the Company for a price of $4.50 per share for a period commencing at the time of conversion and expiring December 31, 2001; as additional consideration for establishing this credit facility, for each $5.00 loaned to the Company, the Company shall issue to Lender one warrant ("Warrant") to purchase one share of the Company*s stock between November 15, 1998 and November 15, 2001 at a price of $4.50 per share; as incentive for the Company to pay the balance due at an earlier date than December 31, 1999, the Company agreed that if it pays the entire balance due on or before December 31, 1998, the quantity of Warrants issued will be reduced by 50%. On December 1, 1996 Jon Northrop, the Company*s C.E.O., Jere Northrop, the Company*s President and C.O.O., and M. Duane Stutzman, the Company*s Treasurer and C.F.O. signed Investor Representation and Subscription Agreements ("Agreements") to purchase 33,334, 33,334, and 13,334 shares of the restricted and legended common stock of the Company plus 50,000, 50,000, and 20,000 E-1 Warrants to purchase additional shares of the Company's common stock at a per share price of $6.00, for a price of $100,000, $100,000 and $40,000 respectively. Further, each of the officers has notified the Company that payment for the subscribed stock would be made by cancellation of salary amounts owed to the officers by the Company in the amounts of $100,000, $100,000, and $40,000 respectively, such cancellation and payment to occur upon issuance of the restricted and legended common stock. Effective September 15, 1997, the Company authorized the issuance of restricted stock and warrants to purchase stock to the following officer: M. Duane Stutzman, the Company*s Chief Financial Officer, will receive the following: (a) 10,000 shares of the Company*s restricted and legended common stock, (b) 25,000 warrants with an exercise price of $4.00 per share, 25,000 warrants with an exercise price of $6.00 per share, and 20,000 warrants with an exercise price of $8.00 per share, all three classes of warrants shall vest and be exercisable commencing September 15, 1997; (c) 20,000 warrants with an exercise price of $10.00 per share shall vest and be exercisable on September, 15, 1998, 20,000 warrants with an exercise price of $12.50 per share and 20,000 warrants with an exercise price of $15.00 per share shall vest and be exercisable on September 15, 1999. All classes of warrants discussed in this paragraph are to purchase restricted and legended shares of common stock of the Company and shall expire on December 31, 2001. Effective September 15, 1997, the Company issued the following: to Jon Northrop, the Company*s Chief Executive Officer, and to Jere Northrop, President of the Company*s two wholly owned subsidiaries Bion Technologies, Inc. and BionSoil, Inc., 75,000 Class E-1 warrants to purchase the Company*s restricted and legended common stock at $6.00 per share with the exercise period commencing on January 1, 2001 and expiring on December 31, 2001, and 150,000 Class X warrants to purchase restricted and legended common stock of the Company at a price of $10.00 per share with the exercise period commencing January 1, 2003 and expiring on December 31, 2003. All future and ongoing transactions with affiliates will be on terms which the Company's management believes are no less favorable than could be obtained from non-affiliated parties. All future and ongoing loans to affiliates, officials and shareholders of the Company will be approved by a majority vote of the disinterested directors. PART IV -------- ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K Exhibits -------- The Exhibits listed in the Index to Exhibits appearing at page 33 are filed as part of this report. Reports on Form 8-K ------------------- The following current reports on Form 8-K were filed during fiscal year 1997 and the first quarter of fiscal year 1998: Form 8-K dated: August 30, 1996 reporting on items 5 & 7 December 1, 1996 reporting on items 5 & 7 January 2, 1997 reporting on items 5 & 7 April 13, 1997 reporting on items 5 & 7 May 19, 1997 reporting on items 5 & 7 September 1, 1997 reporting on items 5. In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. BION ENVIRONMENTAL TECHNOLOGIES, INC. Date: September 29, 1997 By: /s/ Jon Northrop -------------------- Jon Northrop Chief Executive Officer In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name and Capacity Date ---------------------- ---------------- /s/ Jon Northrop September 29, 1997 - - - ------------------ Jon Northrop, Chief Executive Officer, Director /s/ Jere Northrop September 29, 1997 - - - ------------------- Jere Northrop, President, Director /s/ M. Duane Stutzman September 29, 1997 - - - ------------------------ M. Duane Stutzman, Chief Financial Officer, Treasurer, Director /s/ John Schwanekamp September 29, 1997 - - - ---------------------- John Schwanekamp, Director /s/ Ronald G. Cullis September 29, 1997 - - - ----------------------- Ronald G. Cullis, Director
INDEX TO EXHIBITS (2) Plan of Acquisition, Reorganization, Arrangement, etc. None. ------------------------------------------------------ (3) Articles of Incorporation and Bylaws ------------------------------------ 3.1 Articles of Incorporation previously filed and incorporated herein by reference. 3.2 Bylaws previously filed and incorporated herein by reference. (4) Instruments Defining the Rights of Holders, Inc. Indentures ----------------------------------------------------------- Statement of Designation and Determination of Preferences of Series A Convertible Prefered Stock and Series B Convertible Preferred Stock previously filed and incorporated by reference. (9) Voting Trust Agreement. None. ---------------------- (10) Material Contracts. None. ------------------- (11) Statement Re Computation of Per Share Earnings. None. ---------------------------------------------- (13) Annual or Quarterly Reports, Form 10-Q. Previously filed and incorporated herein by reference. -------------------------------------------------------------- (16) Letter on Changes in Certifying Accountant. None. ------------------------------------------ (18) Letter on Changes in Accounting Principles. None. ------------------------------------------ (21) List of Subsidiaries. Attached and incorporated herein by reference. -------------------- (22) Published Report Regarding Matters Submitted to Vote. None. ---------------------------------------------------- (23) Consents of Experts. Attached to financial statements and incorporated ------------------- herein by reference. (24) Power of Attorney. None. ----------------- (27) Financial Data Schedule. ----------------------- (28) Information from Reports Furnished to State Insurance Regulatory Authorities. ---------------------------------------------------------------- None. (29) Additional Exhibits. None. -------------------- EXHIBIT 21 BION ENVIRONMENTAL TECHNOLOGIES, INC. Subsidiary List Bion Technologies, Inc., incorporated under the laws of the State of Colorado. BionSoil, Inc., incorporated under the laws of the State of Colorado. BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT JUNE 30, 1997 AND 1996 BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES TABLE OF CONTENTS ----------------- Page ---- Independent Auditors' Report F - 1 Financial Statements Consolidated Balance Sheet F - 2 Consolidated Statements of Operations F - 3 Consolidated Statement of Changes in Stockholders' Deficit F - 4 Consolidated Statements of Cash Flows F - 5 Notes to Consolidated Financial Statements F - 7 INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders Bion Environmental Technologies, Inc. Denver, CO We have audited the accompanying consolidated balance sheet of Bion Environmental Technologies, Inc. and Subsidiaries as of June 30, 1997 and the related consolidated statement of operations, stockholders' deficit, and cash flows for the years ended June 30, 1997 and 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bion Environmental Technologies, Inc. and Subsidiaries as of June 30, 1997, and the results of their operations and their cash flows for the year ended June 30, 1997 and 1996, in conformity with generally accepted accounting principles. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company has incurred losses since inception approximately $8,900,000. Continued losses without raising additional capital raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are discussed in Note 2. The consolidated financial statements do not include any adjustments that might result from this uncertainty. /s/Ehrhardt Keefe Steiner & Hottman PC Ehrhardt Keefe Steiner & Hottman PC August 6, 1997 Denver, Colorado BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 1997 ASSETS
Current assets Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 9,232 Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . 5,042 Contract receivables (net of allowance of $30,000) . . . . . . . . 67,921 Work in progress (net of allowance of $30,000) (Note 3). . . . . . 168,000 Assets held for resale (Note 6). . . . . . . . . . . . . . . . . . 600,000 ---------- Total current assets . . . . . . . . . . . . . . . . . . . . . 850,195 ---------- Property and equipment, net of accumulated depreciation of $39,398. 244,824 ---------- Other assets Deferred long-term contact costs (Note 3). . . . . . . . . . . . . 77,333 Patents, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,660 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,694 ---------- Total other assets . . . . . . . . . . . . . . . . . . . . . . 127,687 ---------- Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,222,706 ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 302,820 Accounts payable - related party . . . . . . . . . . . . . . . . . 29,426 Line-of-credit - stockholder (Note 4). . . . . . . . . . . . . . . 105,000 Note payable (Note 4). . . . . . . . . . . . . . . . . . . . . . . 325,000 Notes payable-stockholders (Note 4). . . . . . . . . . . . . . . . 82,171 Capital lease obligation (Note 4). . . . . . . . . . . . . . . . . 62,546 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 36,359 Accrued payroll (Notes 6 and 8). . . . . . . . . . . . . . . . . . 135,500 ---------- Total current liabilities. . . . . . . . . . . . . . . . . . . 1,078,822 Long-term liabilities Capital lease obligation (Note 4). . . . . . . . . . . . . . . . . 149,488 Deferred contract revenue (Note 3) . . . . . . . . . . . . . . . . 181,000 ---------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 1,409,310 ---------- Commitments and contingencies (Notes 2, 8 and 9) Stockholders' deficit (Note 5) Preferred stock, series B, $.001 par value, 85,000 shares authorized, 18,834 shares issued and outstanding (liquidation preference of $121,787). . . . . . . 95,482 Common stock, no par value, 100,000,000 shares authorized, 3,696,816 shares issued and outstanding. . . . . . . . . . . . . 7,983,274 Common stock subscribed. . . . . . . . . . . . . . . . . . . . . 627,822 Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . (8,893,182) ------------ Total stockholders' deficit. . . . . . . . . . . . . . . . . (186,604) ------------ Total liabilities and stockholders' deficit . . . . . . . . . . . $ 1,222,706 ============
See notes to consolidated financial statements. F-2 BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30, -------------------------- 1997 1996 ------------ ------------ Contract revenues. . . . . . . . . . $ 133,925 $ 120,256 Contract costs . . . . . . . . . . . 439,462 176,019 ------------ ------------ Gross loss . . . . . . . . . . . . . (305,537) (55,763) General and administrative expenses. 2,326,389 1,647,308 ------------ ------------ Loss from operations . . . . . . . . (2,631,926) (1,703,071) Other income (expense) Interest income . . . . . . . . . . 111,964 4,254 Interest expense. . . . . . . . . . (286,387) (218,861) Research and development. . . . . . (172,816) (74,588) Gain on securities. . . . . . . . . - 143,371 ------------ ------------ Net loss . . . . . . . . . . . . . . $(2,979,165) $(1,848,895) ============ ============ Net loss per common share. . . . . . $ (1.38) $ (1.16) ============ ============ Weighted common shares outstanding . 2,161,347 1,597,350 ============ ============
See notes to consolidated financial statements. F-3 BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Preferred Stock Preferred Stock Series A Series B ------------------ ----------------- Shares Amount Shares Amount -------- -------- ------- -------- Balance at June 30, 1995 . . . 90 $20,250 18,834 $95,482 Conversion of Preferred A Stock into Common Stock . . . (90) (20,250) - - Conversion of common stock subscriptions to common stock - - - - Common Stock subscriptions for services . . . . . . . . . . - - - - Issuance of common stock for cash. - - - - Conversion of note payable to common stock . . . . . . . . - - - - Issuance of common stock for services . . . . . . . . . . - - - - Dividends declared, preferred stock Series B . . . . . . . - - - - Net loss . . . . . . . . . . - - - - -------- -------- ------ -------- Balance at June 30, 1996 . . - - 18,834 95,482 Conversion of common stock subscriptions to common stock - - - - Common stock subscriptions for services . . . . . . . . . . - - - - Issuance of common stock for cash . . . . . . . . . . . . - - - - Issuance of common stock for property . . . . . . . . . . - - - - Conversion of notes payable to common stock . . . . . . . . - - - - Issuance of common stock for services and interest . . . - - - - Issuance of warrants for services and interest . . . . . . . . - - - - Issuance of warrants for cash - - - - Dividends declared, preferred stock Series B . . . . . . . - - - - Net loss. . . . . . . . . . . - - - - ------- ------ ------ -------- Balance at June 30, 1997 . . - $ - 18,834 $95,482 ======= ======= ====== ========
Continued below:
Common Common Stock Stock Accumulated Shares Amount Subscribed (Deficit) Total -------- ------- ------------ ------------ ------ Balance at June 30, 1995 1,449,959 $2,926,142 $ 19,338 $(4,038,817) $ (977,605) Conversion of Preferred A Stock into Common Stock 4,500 20,250 - - - Conversion of common stock subscriptions to common stock 3,723 14,503 (14,503) - - Common stock subscriptions for services - - 44,703 - 44,703 Issuance of common stock for cash 156,560 371,230 - - 371,230 Conversion of note payable to common stock 28,960 57,920 - - 57,920 Issuance of common stock for services 40,075 95,225 - - 95,225 Dividends declared, preferred stock Series B - - - (16,112) (16,112) ------- ------- --------- ---------- --------- Net loss - - - (1,848,895) (1,848,895) Balance at June 30, 1996 1,683,777 3,485,270 49,538 (5,903,824) (2,273,534) Conversion of common stock subscriptions to common stock 2,075 9,000 (9,000) - - Common stock subscriptions for services - - 587,284 - 587,284 Issuance of common stock for cash 247,777 904,488 - - 904,488 Issuance of common stock for property 336,905 600,000 - - 600,000 Conversion of notes payable to common stock 1,268,508 2,361,905 - - 2,361,905 Issuance of common stock for services and interest 157,774 469,774 - - 469,361 Issuance of warrants for services - 122,000 - - 122,000 Issuance of warrants for cash - 31,250 - - 31,250 Dividends declared, preferred stock Series B - - - (10,193) (10,193) Net loss - - - (2,979,165) (2,979,165) --------- --------- ------- ------------ ----------- Balance at June 30, 1997 3,696,816 $7,983,274 $627,822 $(8,893,182) $(186,604) ========= ========= ======== ============ ===========
See notes to consolidated financial statements. F-4 BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30, ------------ 1997 1996 ------------ ------------ Cash flows from operating activities Net loss . . . . . . . . . . . . . . . . . . . . . $(2,979,165) $(1,848,895) ------------ ------------ Adjustments to reconcile net loss to net cash used in operating activities - Depreciation and amortization. . . . . . . . . . 35,617 4,981 Accounts receivable and work-in progress allowance . . . . . . . . . . . . . . . . . . . 30,000 - Issuance of stock for services, compensation and interest. . . . . . . . . . . . . . . . . . 469,360 148,848 Issuance of note payable for services and interest 6,015 80,921 Issuance of warrants for services. . . . . . . . 122,000 - Gain on sale of marketable equity securities . . - (143,371) Issuance of subscribed stock for services. . . . 347,284 - Changes in assets and liabilities - Receivables. . . . . . . . . . . . . . . . . . (70,893) 38,026 Costs and estimated excess of billings on contracts. . . . . . . . . . . . . . . . . . 16,186 243,707 Prepaid expenses and other . . . . . . . . . . (5,179) (3,814) Accounts payable . . . . . . . . . . . . . . . 65,409 (68,409) Accrued liabilities. . . . . . . . . . . . . . 209,773 55,657 Deferred contact revenue . . . . . . . . . . . - (176,000) Deferred long-term contract costs. . . . . . . 5,100 35,009 ------------ ------------ 1,108,672 215,555 ------------ ------------ Net cash used in operating activities. . . . (1,748,493) (1,633,340) ------------ ------------ Cash flows from investing activities Purchases of equipment . . . . . . . . . . . . . . (19,661) - Sale of marketable equity securities . . . . . . . - 1,418,018 Investment in patents. . . . . . . . . . . . . . . (645) (16,893) ------------ ------------ Net cash (used in) provided by investing activities. . . . . . . . . . . . . . . . . (20,306) 1,401,125 ------------ ------------ Cash flows from financing activities Payments on notes payable. . . . . . . . . . . . . - (60,460) Proceeds from notes payable. . . . . . . . . . . . 659,976 39,047 Proceeds from stock and warrant issuances. . . . . 935,739 371,230 Proceeds from line-of-credit . . . . . . . . . . . 105,000 - Payments on capital lease obligations. . . . . . . (41,296) (2,791) ------------ ------------ Net cash provided by financing activities. . 1,659,419 347,026 ------------ ------------ Net (decrease) increase in cash and cash equivalents. (109,380) 114,811 Cash and cash equivalents at beginning of period. . . 118,612 3,801 ------------ ------------ Cash and cash equivalents at end of period. . . . . . $ 9,232 $ 118,612 ============ ===========
Supplemental disclosure of cash flow information Cash paid during the year for interest was $160,643 (1997) and $141,316 (1996). Supplemental disclosures of non-cash financing activities For the year ended June 30, 1997 - Purchase of equipment under capital leases for $191,801 Conversion of debt, interest and services totaling $2,361,905 into 1,268,508 shares commons stock Declared and accrued dividends of $10,193 for preferred stock Series B Issued 336,905 shares common stock for property valued at $600,000 Wrote off $25,500 of work in process and deferred revenue Converted $240,000 of accrued wages to officers into 80,000 shares subscribed stock Converted $9,000 of common stock subscribed into 2,075 shares of common stock For the year ended June 30, 1996 - Conversion of 90 shares of Preferred A Stock to 4,500 shares of Common Stock valued at $20,250 Conversion of subscribed stock to 3,723 shares of common stock valued at $14,503 Conversion of note payable and accrued interest of $57,920 to 28,960 shares of common stock Entered into a capital lease for equipment for $64,320 Declared and accrued dividends of $16,112 for preferred stock Series B Issuance of 25,000 shares of common stock valued at $50,000 for consulting services See notes to consolidated financial statements. F-6 BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - - - --------------------------------------------------- Nature of Business - - - --------------------------------------------------- The accompanying consolidated financial statements include the accounts of Bion Environmental Technologies, Inc. ("Biet"), and its wholly owned subsidiaries, Bion Technologies, Inc. ("Bion") and BionSoil, Inc. ("BionSoil"), (collectively the Company). The Company is engaged in the designing, marketing and overseeing the installation and operation of environmentally effective and economically efficient treatment systems (based on proprietary and/or patented processes) for the bio-conversion of wastewater, with customers in New York, Washington, North Carolina and Florida. Additionally, the Company has entered the market with an animal waste management system, BionSoil NMS, which converts flushed or scraped animal wastes into an economically valuable product, BionSoil, which the Company intends to market and sell. Principles of Consolidation - - - ----------------------------- The consolidated financial statements as of June 30, 1997 and 1996 include the accounts of Biet, Bion and BionSoil. All significant intercompany transactions and balances have been eliminated in consolidation. Contract Receivables - - - --------------------- The Company grants credit in the normal course of business to customers who are located primarily in the New York, Florida, North Carolina and Washington state areas. To reduce credit risk, the Company monitors the financial condition and performs credit analysis prior to entering into contracts. Property and Equipment - - - ------------------------ Property and equipment is stated at cost, equipment under capital lease is stated at the lower of fair market value or the net present value of the minimum lease payments at the inception of the lease. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets ranging from three to seven years. For the periods ended June 30, 1997 and 1996, depreciation was recorded in the amounts of $32,854 and $3,108, respectively. Revenue and Cost Recognition - - - ------------------------------- TREATMENT SYSTEM CONTRACTS Revenues from fixed-price system development and construction type contracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated contract costs for each contract. This method is used because the Company considers cost to date to be the best available measure of progress on these contracts. Contract costs include all direct material and labor costs and those indirect costs related to contract performance. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. BIONSOIL CONTRACTS Beginning in fiscal year 1994, the Company entered into contracts for producing BionSoil with fees to be paid through a defined portion of the net profit from the sale of the product. The contractual fees as of June 30, 1997 are $182,500 for these systems. Since the Company is paid from the sales proceeds of BionSoil, all costs and revenue earned with the construction of the systems are deferred until the sale of BionSoil commences. All capitalized BionSoil system costs for each contract are amortized on the unit-of-production method once sale of BionSoil commences using estimates of sales. If the results of an assessment indicate that the contract is impaired, the amount of the impairment is expensed. As of June 30, 1997, no material sales of the product have been consummated and accordingly, no revenue has been recognized in the financial statements on these contracts. At June 30, 1997, no contracts are deemed to be impaired. Income Taxes - - - ------------- Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Patents - - - ------- Patent applications are recorded at cost and are amortized when the patent is issued over a period of the lesser of the patent's estimated economic or legal life. For the periods ended June 30, 1997 and 1996, amortization was recorded in the amount of $2,763 and $1,873, respectively. Research and Development Expenses - - - ------------------------------------ Research and development expenses are expensed as incurred and include both expenses for new technology development and expenses for ongoing efforts to improve existing technologies. Loss Per Common Share - - - ------------------------ Net loss per common share is based on the weighted average number of common shares outstanding. Common stock equivalents were not considered as their inclusion would be antidilutive. Use of Estimates - - - ------------------ The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - CONTINUED OPERATIONS - - - --------------------------------- The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and liquidation of liabilities in the ordinary course of business. In prior years, the Company had been in the development stage and its principal activities had consisted of raising capital, performing research and development activities and the development of their products. The Company has not yet begun earning significant revenue from its planned principal operations. Consequently, as of June 30, 1997, the Company has incurred accumulated losses totaling approximately $8,900,000, resulting in an accumulated stockholders deficit of approximately $187,000. 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 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 3 - COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS - - - ---------------------------------------------------------------------- The Company's costs and estimated earnings on uncompleted treatment system contracts consist of the following:
June 30, 1997 ----------- Costs incurred on contracts $1,434,719 Estimated (losses) (536,858) ----------- 897,861 Less billings to date (833,528) ----------- $64,333 ===========
Included in the accompanying balance sheet under the following captions Costs and estimated earnings in excess of billings on completed contracts $ 2,000 Costs and estimated earnings in excess of billings on uncompleted contracts 166,000 Deferred long-term contract costs 77,333 Less deferred revenue (181,000) ---------- Total costs and estimated earnings in excess of billings on contracts $ 64,333 ==========
Due to uncertainties in the estimation process, it is at least reasonably possible that completion costs could be further revised in the near term, and that the change may be material. NOTE 4 - NOTE PAYABLE - STOCKHOLDER, CAPITAL LEASES AND LINE-OF-CREDIT - - - - ------------------------------------------------------------------------------ STOCKHOLDER - - - ----------- On May 12, 1995, Bion entered into an agreement with a shareholder whereby the Company received 28,572 shares of common stock of Cyclopss Medical Systems, Inc., valued at $125,000 and a convertible promissory note of Delta Petroleum Corporation with a face value of $660,000, valued at $1,220,000 all in exchange for a note payable to the shareholder in the amount of $1,345,000. All of the of Delta Petroleum Corporation promissory note was converted at a rate of $3.30 per share for a total of 200,000 shares. In addition, the Company received 8,042 shares for accrued interest through November 20, 1995. Effective May 6, 1997, the Company converted the entire note balance of $2,146,045 including accrued interest of $80,280 into common stock (Note 5).
June 30, 1997 ---------- Notes payable to stockholders, due on demand, interest ranging from 11% to 12%, payable monthly. $ 82,171 Note payable to individual, interest at 18%, due May 9, 1998 325,000 ---------- 407,171 Less current portion (407,171) ---------- $ - ==========
Capital leases - finance companies; with monthly installments ranging from $362 to $2,287, including interest from 6.5% to 23.8%, maturing from May 1999 through June 2002; collateralized by equipment with a net book value of approximately $225,000.
$ 212,034 Less current portion (62,546) --------- $149,488 =========
Future maturities of notes payable and capital leases.
Year Ending Capital Notes June 30, Lease Payable Total - - - ------------- --------- --------- --------- 1998 $ 86,771 $407,171 $493,942 1999 84,085 - 84,085 2000 54,581 - 54,581 2001 26,193 - 26,193 2002 11,893 - 11,893 ------- ------- ------- 263,523 $407,171 $670,694 ======= ======= Less amount representing interest (51,489) --------- $212,034 =========
Line-of-Credit - Stockholder - - - ------------------------------------------------------------------ Effective October 26, 1996, the Company entered into an agreement with a stockholder whereby the stockholder would provide a $500,000 credit facility to the Company. Interest is at 12% per annum and is due monthly. Principal and interest is due in full on December 31, 1999. The entire outstanding balance may be converted into units, each consisting of one share of common stock and one and one half warrants to purchase common stock at a price of $6 per share for a period commencing at the time of conversion and expiring December 31, 2001. In addition, for each $5 loaned to the Company, the Company will issue one and one half warrants to purchase common stock at a price of $6.00 per share. If the Company pays the entire balance due on or before December 31, 1998, the quantity of warrants issued will be reduced by 50%. As of June 30, 1997, $105,000 was outstanding on the credit facility. NOTE 5 - STOCKHOLDERS' DEFICIT - - - ---------------------------------- Preferred Stock Series B - - - --------------------------- Class B Preferred Stock entitles the holder to convert the Preferred stock at the rate of one Class B Preferred Share for one share of Common Stock of the Company, subject to adjustment from time to time. The holders of the Class B Preferred Stock have the option to convert all the outstanding shares of the stock at any time after December 31, 1994. Class B Preferred Stock holders are entitled to receive, upon conversion, redemption or liquidation, cumulative dividends at the per annum rate of $.54 per share on the issued and outstanding Class B Preferred Stock. The holders of the Series B Convertible Preferred Stock may require the Company to redeem all of the outstanding shares of Series B Preferred Stock at any time on or after December 31, 1996. Series B Preferred Stock holders have liquidation preference to the extent of their par value over holders of common stock and other series of preferred stock. As of June 30, 1997, 18,834 shares were issued and outstanding. Preferred Stock Series A - - - --------------------------- In 1992, the Company established a series of 50,000 shares of no par value preferred stock to have the designation of "Series A Convertible Preferred Stock". Each share can be converted into 50 shares of common stock at the option of the holder or automatically converts into common stock on the earlier of the two years from issuance or upon the effectiveness of a registration statement, which includes the shares of common stock underlying conversion. During the year ended June 30, 1996 the Company converted all 90 shares of Series A convertible preferred stock, then outstanding, into 4,500 shares of common stock at $4.50 per share. NOTE 5 - STOCKHOLDERS' DEFICIT (CONTINUED) - - - ----------------------------------------------- Warrants - - - -------- As of June 30, 1997, the Company has outstanding the following warrants:
Warrant Shares Expiration Date Exercise Price - - - ----------------- --------- ---------------- --------------- Class A 375,000 (2) (1) $ 10.00 Class E-1 4,593,418 (4) (3) 6.00 Class G 25,000 (5) 5.00 Class G-1 25,000 (6) 6.00 Class G-3 50,000 (7) 8.00 Class G-4 25,000 (8) 10.00 Class G-5.1 6,730 (9) 3.00 Class G-5.2 5,550 (10) 3.00 Class G-6 13,837 (11) 6.00 Class G-7 35,000 (12) 4.00 Class G-8 100,000 (13) 6.00 Class H-1 10,000 (14) 5.00 Class H-2 14,500 (15) 3.00 Class K-1 100,000 (16) 6.00 Class K-2 100,000 (17) 8.00 Class K-3 100,000 (18) 10.00 Class L-1 50,000 (19) 6.00 Class L-1.1 50,000 (20) 4.00 Class L-2 50,000 (21) 8.00 NN 550,000 (22) 4.75-20.00 X 1,087,154 (23) 10.00 --------- --------------- 7,366,189 $3.00-20.00 ========= ===============
[FN] (1) Class A Warrants may be exercised to purchase 375,000 shares of common stock for a 12 month period beginning April 9, 1998 and ending April 8, 1999. (2) Two officers of Biet own 125,000 Class A Warrants each. Additionally, 125,000 Class A Warrants are owned by a shareholder. (3) Class E-1 Warrants may be exercised to purchase 4,593,418 shares of common stock for a 12 month period beginning January 1, 2001. (4) Two officers of Biet own 600,000 Class E-1 warrants each. Additionally, 2,969,764 Class E-1 warrants are owned by the majority shareholder. (5) Class G warrants may be exercised to purchase 25,000 shares of common stock for a 36 month period beginning June 20, 1996. (6) Class G-1 warrants may be exercised to purchase 25,000 shares of common stock for a 6 month period beginning June 1, 1998. (7) Class G-3 warrants may be exercised to purchase 50,000 shares of common stock for a 6 month period beginning June 1, 1999. (8) Class G-4 warrants may be exercised to purchase 25,000 shares of common stock for a 19 month period beginning March 1, 2002. (9) Class G5.1 warrants may be exercised to purchase 6,730 shares of common stock for a 60 month period beginning January 22, 1996. (10) Class G5.2 warrants may be exercised to purchase 5,550 shares of common stock for a 60 month period beginning September 13, 1996. (11) Class G6 warrants may be exercised to purchase 13,837 shares of common stock for a 60 month period beginning April 21, 1997. (12) Class G-7 warrants may be exercised to purchase 35,000 shares of common stock for a 25 month period beginning June 5, 1997. (13) Class G-8 warrants may be exercised to purchase 100,000 shares of common stock for a 37 month period beginning June 5, 1997. (14) Class H-1 warrants may be exercised to purchase 10,000 shares of 60 month period beginning August 21, 1996. (15) Class H-2 warrants may be exercised to purchase 14,500 shares of common stock for a 60 month period beginning August 21, 1996. (16) Class K-1 warrants may be exercised to purchase 100,000 shares of common stock for a 19 month period beginning March 1, 1998. (17) Class K-2 warrants may be exercised to purchase 100,000 shares of common stock for a 19 month period beginning March 1, 2000. (18) Class K-3 warrants may be exercised to purchase 100,000 shares of common stock for a 19 month period beginning March 1, 2002. (19) Class L-1 warrants may be exercised to purchase 50,000 shares of common stock for a 6 month period beginning June 1, 1998. (20) Class L1.1 warrants may be exercised to purchase 50,000 shares of common stock for a 6 month period beginning June 1, 1998. (21) Class L-2 warrants may be exercised to purchase 50,000 shares of common stock for a 6 month period beginning June 1, 1999. (22) Class NN warrants may be exercised to purchase 550,000 shares of common stock for an 8 to 59 month period beginning February 1, 1997 and ending December 31, 2001. (23) Class X warrants may be exercised to purchase 1,087,154 shares of common stock for a 12 month period beginning January 1, 2003. During the fourth quarter, the Company issued 100,000 warrants to a consultant and recorded the issuance as an increase to common stock and as consulting expense for approximately $122,000. Such warrants were valued using an option pricing model. The warrants have an exercise price of $6 per share and expire June 30, 2000. In addition, three officers of the Company will be issued class E-1 warrants to purchase 120,000 shares of common stock in conjunction with the issuance of 80,000 shares of subscribed stock. Options - - - ------- The Company established the Fiscal Year 1994 Incentive Plan (the Plan) in July 1993. Under the Plan, incentive stock options can be granted at prices not less than 100% of the Fair Market Value of a share of Common Stock on the date on which the Incentive Stock Option is granted. Options are exercisable within ten years from the date of grant, subject to early termination as provided in the Plan. In 1996, the Company established the 1996 Non-employee Director Stock Plan. The Plan is available to all non-employee directors and provides that each non-employee director will receive annually, an option to purchase 5,000 shares of the Company's common stock at an exercise price of 50% of the average market price of the Company's common stock for the preceding twelve months. Options issued under this Plan are exercisable for five years from the date granted. It is the Company's policy to recognize compensation expense to the extent the fair market value of the stock exceeds the option exercise price on the date of grant. To date, the Company has not recognized any compensation expense as all options have been granted at a price equal to the fair market value of the stock on the date of grant. The following table sets forth information regarding incentive stock options granted under the 1994 and 1996 Plans:
Exercise Option and Price Warrants Per Share ----------- ---------- Balance, June 30, 1995 - $ - Granted . . . . . . . 10,000 1.72 ----------- ---------- Balance, June 30, 1996 10,000 1.72 Granted . . . . . . . 270,000 2.27-6.00 Exercised . . . . . . (89,100) 3.75-5.00 Expired . . . . . . . (90,000) 5.25-6.00 ----------- ---------- Balance, June 30, 1997 100,900 $1.72-6.00 =========== ==========
The Corporation has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, the Corporation's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below.
June 30, ------------ 1997 1996 ------------ ------------ Net loss - as reported. . . . . . . $(2,979,165) $(1,848,895) Net loss - pro forma. . . . . . . . (3,172,756) (1,875,624) Loss per common share - as reported (1.38) (1.16) Loss per common share - pro forma . (1.48) (1.17)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants; dividend yield of 0%; expected volatility of 64% (1997) and 81% (1996); discount rate of 12%; and expected lives of five months to five years. Pursuant to employment agreements, several employees have been guaranteed equity compensation in the form of legended and restricted shares of Biet common stock in quarterly amounts of $24,060, totaling $175,825 at June 30, 1997. As of June 30, 1997, 4,298 shares have been issued. NOTE 6 - RELATED PARTY TRANSACTIONS - - - ---------------------------------------- As of June 30, 1997, there were $135,500 of accrued salaries due to officers included in accrued payroll. During the year ended June 30, 1997, the Company converted $240,000 of accrued salaries to officers into stock subscriptions for 80,000 units, each consisting of one share of subscribed common stock with one and one half warrants to purchase common stock for $6.00 per share beginning January 1, 2001 and ending December 31, 2001. During the year ended June 30, 1997, a shareholder of the Company provided consulting services to the Company in the amount of $28,000. For the period ended June 30, 1997, a shareholder of the Company provided office space to the Company. Rent expense for the year totaled $58,710. During the year ended June 30, 1997, the Company converted four notes payable totaling $2,361,905 plus accrued interest and services totaling $174,207 to four shareholders of the Company into common stock. In conjunction with these transactions, the Company also issued stock for three properties contributed by a shareholder totaling $600,000. In addition, the shareholders received warrants to purchase 937,154 shares of common stock at a price of $6.00 per share beginning January 1, 2001 and ending December 31, 2001, and warrants to purchase 1,087,154 shares of common stock for $10.00 per share beginning January 1, 2003 and ending December 31, 2003. During the year ending June 30, 1997, the Company entered into an agreement with a shareholder to provide a $500,000 revolving line-of-credit to the Company (Note 4). NOTE 7 - INCOME TAXES - - - ------------------------- The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statements and tax basis of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. The principal temporary differences that result in a deferred tax asset are due to the losses generated since inception. The Company has generated a long-term deferred tax asset of approximately $3,150,000 that is fully impaired because of a lack of profitable operating history. Accordingly, there is no net deferred tax asset reflected in the accompanying financial statements. The Company is a taxable corporation and has carry-forward operating losses of approximately $8,640,000 which expire in the following years.
2004 . . . $ 12,000 2005 . . . 242,000 2006 . . . 239,000 2007 . . . 19,000 2008 . . . 338,000 2009 . . . 224,000 Thereafter 7,556,000 ---------- $8,640,000 ==========
NOTE 8 - COMMITMENTS - - - ----------------------- The Company entered into an agreement with an unrelated company (SGS) to provide investment banking services from December 1, 1996 through November 30, 1997. In consideration for their services SGS received a warrant to purchase 50,000 share of BIET common stock at $6.00 per share from June 1, 1998 through December 1, 1998. In addition, if the Company raises $1,000,000, directly or indirectly through the efforts of SGS by December 31, 1997, then SGS will receive a warrant to purchase 50,000 shares of BIET common stock at $4.00 per share from June 1, 1998 through December 1, 1998 and a warrant to purchase 50,000 shares of BIET common stock at $8.00 per share from June 1, 1999 through December 1, 1999. Employment Agreements - - - ---------------------- The Company has entered into two employment agreements with officers for a period commencing July 1, 1993 and ending March 31, 1998. The agreements each provide for base salaries of $150,000 per year and various benefits, with annual reviews for increases, bonuses and benefits. Of the base salaries, $50,000 is accrued annually and payable when the Company has sufficient cash flow from future operations. The Company has entered into an employment agreement with an officer for a period commencing January 1, 1995 and ending December 31, 1997. The agreement provides for a base salary of $120,000 per year and various benefits, with annual reviews for increases, bonuses and benefits. Of this base salary, $30,000 is accrued annually and also payable when the Company has sufficient cash flow from future operations. The Company entered into an agreement with a half time employee whereby the employee was issued warrants to purchase 100,000 shares of BIET Common stock for $6.00 per share beginning March 1, 1998 through October 1, 1999 which will be fully vested if employment continues through October 1, 1997, warrants to purchase 100,000 shares of BIET common stock for $8.00 per share from March 1, 2000 through October 1, 2001 which will be fully vested if employment continues through October 1, 1998 and warrants to purchase 100,000 shares of BIET common stock for $10.00 from March 1, 2002 through October 1, 2003 which will be fully vested if employment continues through October 1, 1999. The Company entered into an agreement with an employee whereby the employee was issued warrants to purchase 200,000 shares of BIET Common stock for $6.00 to $15.00 per share which vest 25% at the date of employment and 25% at the end of each of the first through third full year of employment, exercisable from the date of vesting to December 31, 2001. In addition, the employee has also been granted warrants to purchase 50,000 shares of BIET common stock for $15.00 per share, vesting 33% at the end of each of the first three full years of employment through December 31, 2001 and warrants to purchase 150,000 shares of BIET common stock for $20.00 per share, vesting 33% at the end of each of the first three full years of employment through December 31, 2001. Effective September 1, 1997, the employee resigned and all such warrants outstanding were canceled. NOTE 9 - SUBSEQUENT EVENTS - - - ------------------------------ From July through September 25, 1997, the Company sold 95,349 shares of common stock for $225,221. In July 1997, the Company sold one portion of the Property Held For Resale for $242,000. As a result of this transaction the Company repaid a note payable plus interest in the amount of $145,401, paid closing costs of $14,870 and received cash in the amount of $81,729. In July 1997, the Company entered into a contract with a financial advisor and consultant. In the event that one or more Transactions, excluding debt financing, are consummated from July 1, 1997 through June 30, 1998 then the advisor will be compensated as follows: 6% of funds raised up to $1,000,000 5% of funds raised from $1,000,001 to $2,000,000 4% of funds raised from $2,000,001 to $3,000,000 3% of funds raised from $3,000,001 to $4,000,000 2% of funds raised above $4,000,001 The above fee will be reduced by related fees and commissions, but shall be no less than %. If the transactions are not in the form of cash, BIET may pay the advisors fees in securities of BIET. For transactions involving debt financing, the advisor will be compensated with a fee equal to % of the aggregate consideration. In September 1997, the Company made additional awards to all employees under the 1994 Incentive Stock Option Plan. The Company granted the following options to employees:
Exercise Price Per Options Share - - - ------- ------------------- 27,762 $ 4.00 27,756 6.00 27,754 8.00 10,000 10.00 10,000 12.50 10,000 15.00 - - - ------- ------------------- 113,272 $ 4.00-15.00 ======= ===================
The options vest one-third on the employees first anniversary date or September 15, 1997 whichever occurs later. The remaining two-thirds vest equally over the remaining 24 months from the later of September 15, 1997 or the employees first anniversary date. Additionally, the Company also issued common stock and warrants to purchase common stock of the Company to an officer. The Company issued 10,000 shares of restricted and legended common stock and the following warrants to purchase restricted and legended common stock:
Exercise Price Per Warrants Share Fully Exercisable On - - - ----------------- ------------------ -------------------- 25,000 $ 4.00 September 15, 1997 25,000 6.00 September 15, 1997 20,000 8.00 September 15, 1997 20,000 10.00 September 15, 1998 20,000 12.50 September 15, 1999 20,000 15.00 September 15, 1999 - - - ---------------- ------------------ 130,000 $ 4.00-15.00 ================ ==================
All warrants granted above expire on December 31, 2001. NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS - - - --------------------------------------------- The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Fair value estimates are made at a specific point in time for the Company's financial instruments; they are subjective in nature and involve uncertainties, matters of significant judgment and, therefore, cannot be determined with precision. Fair value estimates do not reflect the total value of the Company as a going concern. Cash and Cash Equivalents, Accounts Payable and Accrued Expenses - - - ------------------------------------------------------------------------ The carrying value approximates fair value due to their liquid or short-term nature. Notes Payable - Stockholders, Capital Lease Obligation and Line-of-Credit - - - - ------------------------------------------------------------------------------ Stockholders - - - ------------ Rates currently available to the Company for debt and capital lease obligations with similar terms and remaining maturities are used to estimate the fair value of existing debt. Carrying values approximate fair value as the stated or implicit rates of these instruments approximate rates available to the Company for instruments with similar terms. EX-27 2
5 12-MOS JUN-30-1997 JUN-30-1997 9,232 0 102,963 30,000 0 850,195 284,222 39,398 1,222,706 0 0 0 95,482 7,983,274 (8,265,360) 1,222,706 0 133,925 439,462 439,462 2,499,205 0 286,387 (2,979,165) 0 (2,979,165) 0 0 0 (2,979,165) (1.38) 0
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