ORGANIZATION, NATURE OF BUSINESS, GOING CONCERN AND MANAGEMENT’S PLANS:

Organization and nature of business:

Bion Environmental Technologies, Inc. (“Bion” or “We” or the “Company”) was incorporated in

1987

in the State of Colorado and has developed and continues to develop patented and proprietary technology and business models that provide comprehensive environmental solutions to a significant source of pollution in United States agriculture, large scale livestock facilities known as Concentrated Animal Feeding Operations (“CAFO’s”). Application of our technology and technology platform can simultaneously remediate environmental problems and improve operational/resource efficiencies by recovering value from the CAFOs’ waste stream that has traditionally been wasted or underutilized, including renewable energy, nutrients (nitrogen and phosphorus)--- in organic and conventional form-- and clean water. Bion’s technologies (and applications related thereto) produce substantial reductions of nutrient releases (primarily nitrogen and phosphorus) to both water and air (including ammonia, which is subsequently re-deposited to the ground) from livestock waste streams based upon our operations and research to date (and

third

party peer review thereof). Our technology simultaneously enables the documentation of the remediation efforts thereby providing the basis for product branding which addresses consumer concerns regarding sustainability and food safety. We are continually involved in research and development to upgrade and improve our technology and technology applications, including integration with

third

party technology. Bion provides comprehensive and cost-effective treatment of livestock waste onsite (and/or at nearby locations), while it is still concentrated and before it contaminates air, soil, groundwater aquifers and/or downstream waters, and, in certain configurations, can be optimized to maximize recovery of marketable nutrients for potential use as fertilizer (organic and/or inorganic) and/or feed additives plus renewable energy (and related environmental credits).

From

2014

through the current

2020

fiscal year, the Company has focused its research and development on augmenting the basic ‘separate and aggregate’ approach of its technology platform to provide additional flexibility and to increase recovery of marketable nutrient by-products (in organic and non-organic forms) and renewable energy production (either/both biogas and/or renewable electricity), thereby increasing potential related revenue streams and reducing dependence of its future projects on the monetization of nutrient reductions (which still remain an important part of project revenue streams). Bion has worked on development of its

third

generation technology (

“3G

Tech”) which is designed to: a) generate significantly greater value from the nutrients and renewable energy recovered from the waste stream, b) treat dry (poultry) waste streams as well as wet waste streams (dairy/beef cattle/swine) while c) maintaining or improving environmental performance. This research and development effort also involves ongoing review of potential “add-ons” and applications to our technology platform for use in different regulatory and/or climate environments. These research and development activities have targeted completion of development of the next generation of Bion’s technology and technology platform. We believe such activities will continue at least through the

2020

fiscal year (and likely longer), subject to availability of adequate financing for the Company’s operations, of which there is

assurance. Such activities

may

include design and construction of an initial, commercial-scale module utilizing our

Tech to assist in optimization efforts before construction of the full Kreider

project (see below) and other Projects.

For the past decade, Bion has been directed toward creating applications of our patented and proprietary waste management technologies and technology platform to pursue JVs in

three

main business opportunities:

)

Installation of Bion systems to retrofit and environmentally remediate existing large CAFOs (“Retrofits” and “Retrofit Projects”) in selected markets where:

a) government policy supports such efforts (such as the Chesapeake Bay watershed, Great Lakes Basin states, and/or other states and watersheds facing EPA ‘total maximum daily load’ (“TMDL”) issues), and/or

b) CAFO’s need our technology to obtain permits to expand or develop without negative environmental consequences.

)

Development of new state-of-the-art large scale waste treatment facilities (now utilizing the Company’s

Tech) which

may

be developed in conjunction with new CAFOs in strategic locations that were previously impracticable due to environmental impacts or to treat the waste streams from

one

or more existing large livestock facilities (“Projects”). Some of these Projects

may

be either a) Integrated Projects as described below, b) ‘central processing facilities’ which receive the waste from multiple livestock facilities, c) Retrofit Projects or d) hybrids with elements of each of these types. Each version will be able to realize revenue from multiple revenue streams potentially generated by our

Tech.

)

Licensing and/or joint venturing of Bion’s technology and applications (primarily) outside North America.

In both categories

) and

) above, the Company intends to directly participate (whether by joint venture agreement or other contractual arrangements) in the revenues of the Retrofits and Projects.

The opportunities described at

) and

) above each require substantial political and regulatory (federal, state and local) efforts on the part of the Company and a substantial part of Bion’s efforts are focused on such political and regulatory matters. Bion currently intends to pursue the international opportunities primarily through the use of consultants with existing relationships in target countries.

At this time, our primary focus is on category

) above using our

Tech to develop new (or expanded) large-scale Projects with strategic partners (including the Kreider

Project) on a joint venture (or other participating contractual form) basis. Bion’s business model opens up the opportunity for JV’s in various forms based upon the revenue generated by our

Tech platform from nutrient reductions, fertilizer co-products and renewable natural gas (which revenue streams will be secured through long term take-off agreements for each of these co-products) providing initial support for financing of required capital expenditures (whether equity or debt). We anticipate that these revenue streams will be supplemented by revenue realized from long-term premium pricing resulting from the sustainable branding opportunity. We believe that the branding opportunity

may

provide the single largest contribution to the economic opportunity over time.

During

2008

the Company commenced actively pursuing the opportunity presented by environmental retrofit and remediation of the waste streams of existing CAFOs which effort has met with very limited success to date. The

first

commercial activity in this area is represented by our agreement with Kreider Farms (“KF”), pursuant to which the Kreider

system to treat KF's dairy waste streams to reduce nutrient releases to the environment while generating marketable nutrient credits and renewable energy was designed, constructed and entered full-scale operation during

2011.

January 26, 2009

the Board of the Pennsylvania Infrastructure Investment Authority (“Pennvest”) approved a

$7.75

million loan to Bion PA

LLC (

“PA1”

), a wholly-owned subsidiary of the Company, for the initial Kreider Farms project (“Kreider

System”). After substantial unanticipated delays, on

August 12, 2010

PA1

received a permit for construction of the Kreider

System. Construction activities commenced during

November 2010.

The closing/settlement of the Pennvest Loan took place on

November 3, 2010.

PA1

finished the construction of the Kreider

System and entered a period of system ‘operational shakedown’ during

May 2011.

The Kreider

System reached full, stabilized operation by the end of the

2012

fiscal year. During

2011

the Pennsylvania Department of Environmental Protection (“PADEP”) re-certified the nutrient credits for this project. The PADEP issued final permits for the Kreider

System (including the credit verification plan) on

August 1, 2012

on which date the Company deemed that the Kreider

System was ‘placed in service’. As a result,

PA1

commenced generating nutrient reduction credits for potential sale while continuing to utilize the Kreider

System to test improvements and add-ons. However, to date liquidity in the Pennsylvania nutrient credit market has been slow to develop significant breadth and depth, which limited liquidity/depth has negatively impacted Bion’s business plans and has resulted in challenges to monetizing the nutrient reductions created by

PA1’s

existing Kreider

System and Bion’s other proposed projects. These difficulties have prevented

PA1

from generating any material revenues from the Kreider

System to date and raise significant questions as to when, if ever,

PA1

will be able to generate such revenues from

the Kreider

System.

PA1

has had sporadic discussions/negotiations with Pennvest related to forbearance and/or re-structuring its obligations pursuant to the Pennvest Loan for more than

five

years. In the context of such discussions/negotiations,

PA1

elected

not

to make interest payments to Pennvest on the Pennvest Loan since

January 2013.

Additionally, the Company has

not

made any principal payments, which were to begin in fiscal

2013,

and, therefore, the Company has classified the Pennvest Loan as a current liability as of

September 30, 2019.

Due to the failure of the Pennsylvania nutrient reduction credit market to develop, the Company determined (on

three

separate occasions) that the carrying amount of the property and equipment related to the Kreider

System exceeded its estimated future undiscounted cash flows based on certain assumptions regarding timing, level and probability of revenues from sales of nutrient reduction credits. Therefore,

PA1

and the Company recorded impairments related to the value of the Kreider

assets totaling

$3,750,000

through

June 30, 2015.

During the

2016

fiscal year,

PA1

and the Company recorded an additional impairment of

$1,684,562

to the value of the Kreider

assets which reduced the value on the Company’s books to zero. This impairment reflects management’s judgment that the salvage value of the Kreider

assets roughly equals

PA1’s

contractual obligations related to the Kreider

System, including expenses related to decommissioning of the Kreider

System, costs associated with needed capital upgrade expenses, and re-certification/ permitting amendments.

September 25, 2014,

Pennvest exercised its right to declare the Pennvest Loan in default and accelerated the Pennvest Loan and demanded that

PA1

pay

$8,137,117

(principal, interest plus late charges) on or before

October 24, 2014.

PA1

did

not

make the payment and does

not

have the resources to make the payments demanded by Pennvest.

PA1

has commenced discussions and negotiations with Pennvest concerning this matter but Pennvest has rejected

PA1’s

proposal made during the fall of

2014.

formal proposals are presently under consideration and only sporadic communication has taken place regarding the matters involved over the last

years. It is

not

possible at this date to predict the outcome of such this matter, but the Company believes that a loan modification agreement (coupled with an agreement regarding an update and re-start of full operations of the Kreider

System)

may

be reached in the future if/when a more robust market for nutrient reductions develops in Pennsylvania, of which there is

assurance.

PA1

and Bion will continue to evaluate various options with regard to Kreider

over the next

180

days.

During

August 2012,

the Company provided Pennvest (and the PADEP) with data demonstrating that the Kreider

System met the ‘technology guaranty’ standards which were incorporated in the Pennvest financing documents and, as a result, the Pennvest Loan has been (and is now) solely an obligation of

PA1

since that date.

The economics (potential revenues, profitability and continued operation) of the Kreider

System are based almost entirely on the long term sale of nutrient (nitrogen and/or phosphorus) reduction credits to meet the requirements of the Chesapeake Bay environmental clean-up.

May 5, 2016,

Bion

PA2

LLC (

“PA2”

) executed a stand-alone joint venture agreement with Kreider Farms covering matters related to development and operation of a system to treat the waste streams from Kreider’s poultry facilities (“Kreider

2”

The Kreider projects are owned and operated by Bion through separate subsidiaries, in which Kreider has the option to acquire a noncontrolling interest. Substantial capital (equity and/or debt) has been and will continue to be expended on these projects. Additional funds will be required for continuing operations and additional capital expenditures for upgrades at Kreider

until sufficient revenues can be generated, of which there is

assurance. The Company anticipates that the Kreider

System will generate revenue primarily from the sale of nutrient reduction (and/or other) environmental credits. A portion of Bion’s research and development activities has taken place at the Kreider

facility.

Kreider Farms –

Tech Project

Bion is completing an envelope of policy change and technology pilots that will allow it to move forward with the

first

commercial large scale

Tech project at Kreider Farms. Having recently received a Notice of Allowance of the initial

Tech patent (and subsequent filing of related additional patent applications/continuations), Bion is focused on

two

key tasks during the remainder of the

2019

calendar year that will ‘complete the envelope’ and allow Bion to launch active development of the Kreider

poultry project (and/or other Projects) in

2020:

Support for adoption of PA SB

575

(successor to SB

799

): This will create a competitively-bid market for nutrient reductions/Credits that we believe will provide support for project financing for Kreider

prior to development of markets for the coproducts from Kreider

are established.

Installation of a small-scale

Tech ammonia recovery system to produce ammonium bicarbonate to be used to make application to OMRI for organic certification (and possibly for grower trials).

The

Tech Kreider

Project is planned for

two

(or more) locations. It is intended to treat the waste from Kreider’s

1,800

dairy cows and approximately

six million

egg layer chickens (with capacity for an additional

three million

layers). The Kreider

Project will be designed with modules with capacity of

450

tons (or more) per day of waste and will remove nitrogen and phosphorus from the waste stream that will be converted into high-value coproducts instead of polluting local and downstream waters. The Kreider

Project is planned to be built in

three

phases and

may

be expanded to include a ‘central processing facility’ with modules that will accept transported waste from the region on fee basis.

Bion has a long-standing relationship with Kreider Farms including a

2016

joint venture agreement related to this facility. Kreider has already made a significant investment in upgrading its poultry facilities to maximize the treatment and recovery efficiencies that can be achieved with Bion’s technology. We are cautiously optimistic that once PA

SB575

(the recently introduced successor to

SB799

) will be passed during the current fiscal year, a market will be put in place for long-term commercial sale of the nutrient reduction credits produced at Kreider

Bion anticipates that it

may

require up to

months after

SB575

becomes law to develop the rules/regulations related to the competitive bidding program. If the competitive bidding program is implemented, we intend to arrange project financing for the Kreider

Project during

2020.

Assuming there are positive developments related to the market for nutrient reductions in Pennsylvania, the Company intends to pursue development, design and construction of the Kreider

poultry waste/renewable energy project with a goal of achieving operational status for its initial modules during

2020.

However, as discussed above, this Project faces challenges related to the current limits of the existing nutrient reduction market and funding of technology-based, verifiable agricultural nutrient reductions which are anticipated to constitute the largest share of its revenues.

Bion’s current long-term goal is to acquire or develop, or have in a development pipeline,

Projects over the next

months.

A significant portion of Bion’s activities concern efforts with private and public stakeholders (at local and state level) in Pennsylvania (and other Chesapeake Bay and Midwest and Great Lakes states) and at the federal level EPA and the Department of Agriculture (“USDA”) (and other executive departments) and Congress) to establish appropriate public policies which will create regulations and funding mechanisms that foster installation of the low cost environmental solutions that Bion (and others) can provide through clean-up of agricultural waste streams. The Company anticipates that such efforts will continue in Pennsylvania and other Chesapeake Bay watershed states throughout the next

months and in various additional states thereafter.

Going concern and management’s plans:

The consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has

not

generated significant revenues and has incurred net losses (including significant non-cash expenses) of approximately

$2,659,000

and

$3,018,000

during the years ended

June 30, 2019

and

2018,

respectively, and a net loss of approximately

$562,000

during the

three

months ended

September 30, 2019.

September 30, 2019,

the Company has a working capital deficit and a stockholders’ deficit of approximately

$11,224,000

and

$15,119,000,

respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do

not

include any adjustments relating to the recoverability or classification of assets or the amounts and classification of liabilities that

may

result should the Company be unable to continue as a going concern. The following paragraphs describe management’s plans with regard to these conditions.

The Company continues to explore sources of additional financing (including potential agreements with strategic partners – both financial and ag-industry) to satisfy its current and future operating and capital expenditure requirements as it is

not

currently generating any significant revenues.

During the years ended

June 30, 2019

and

2018,

the Company received total proceeds of approximately

$897,000

and

$418,000

from the sale of its debt and equity securities. Proceeds during the

2019

and

2018

fiscal years have been lower than in earlier years which reduction has negatively impacted the Company’s business development efforts.

During the

three

months ended

September 30, 2019,

the Company received total proceeds of approximately

$160,000

from the sale of its equity securities and paid approximately

$10,000

in commissions.

During fiscal years

2019

and

2018,

the Company continued to experience difficulty in raising equity funding. As a result, the Company faced, and continues to face, significant cash flow management challenges due to working capital constraints. To partially mitigate these working capital constraints, the Company’s core senior management and several key employees and consultants have been deferring (and continue to defer) all or part of their cash compensation and/or are accepting compensation in the form of securities of the Company (Notes

and

) and members of the Company’s senior management have made loans to the Company (Note

). During the year ended

June 30, 2018,

senior management and certain core employees and consultants agreed to a

one

-time extinguishment of liabilities owed by the Company which in aggregate totaled

$2,404,000.

Additionally, the Company made reductions in its personnel during the years ended

June 30, 2014

and

2015

and again during the year ended

June 30, 2018.

The constraint on available resources has had, and continues to have, negative effects on the pace and scope of the Company’s efforts to develop its business. The Company has had to delay payment of trade obligations and has had to economize in many ways that have potentially negative consequences. If the Company does

not

have greater success in its efforts to raise needed funds during the remainder of the current fiscal year (and subsequent periods), management will need to consider deeper cuts (including additional personnel cuts) and curtailment of operations (including possibly Kreider

operations) and/or research and development activities.

The Company will need to obtain additional capital to fund its operations and technology development, to satisfy existing creditors, to develop Projects (including Integrated Projects and the Kreider

facility) and CAFO Retrofit waste remediation systems and to continue to operate the Kreider

facility. The Company anticipates that it will seek to raise from

$2,500,000

$50,000,000

or more debt and/or equity through joint ventures, strategic partnerships and/or sale of its equity securities (common, preferred and/or hybrid) and/or debt (including convertible) securities, and/or through use of ‘rights’ and/or warrants (new and/or existing) during the next

twelve

months. However, as discussed above, there is

assurance, especially in light of the difficulties the Company has experienced in recent periods and the extremely unsettled capital markets that presently exist (especially for companies like us), that the Company will be able to obtain the funds that it needs to stay in business, complete its technology development or to successfully develop its business and Projects.

There is

realistic likelihood that funds required during the next

twelve

months (or in the periods immediately thereafter) for the Company’s basic operations and/or proposed Projects will be generated from operations. Therefore, the Company will need to raise sufficient funds from external sources such as debt or equity financings or other potential sources. The lack of sufficient additional capital resulting from the inability to generate cash flow from operations and/or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Further, there can be

assurance that any such required funds, if available, will be available on attractive terms or that they will

not

have a significantly dilutive effect on the Company’s existing shareholders. All of these factors have been exacerbated by the extremely limited and unsettled credit and capital markets presently existing for small companies like Bion.