UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly report pursuant section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2009
[ ] Transition report pursuant section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number: 000-19333
BION ENVIRONMENTAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1176672
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation)
Box 566/1774 Summitview Way, Crestone, Colorado 81131
(Address of Principal Executive Offices)
212-758-6622
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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. [X] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the issuer has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. NOT APPLICABLE
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On November 12, 2009, there
were 12,452,111 Common Shares issued and 11,747,802 Common Shares
outstanding.
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated
filed" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
BION ENVIRONMENTAL TECHNOLOGIES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated financial statements (unaudited):
Balance sheets ............................................ 3
Statements of operations .................................. 4
Statements of changes in stockholders' deficit ............ 5
Statements of cash flows .................................. 6
Notes to unaudited consolidated financial statements ...... 7-23
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................. 24
Item 3. Quantitative and Qualitative Disclosures about Market Risk.. 33
Item 4. Controls and Procedures .................................... 34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 34
Item 1A. Risk Factors................................................ 34
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds ................................................... 34
Item 3. Defaults Upon Senior Securities ............................ 34
Item 4. Submission of Matters to a Vote of Security Holders ........ 34
Item 5. Other Information .......................................... 35
Item 6. Exhibits ................................................... 35
Signatures ................................................. 36
2
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2009 2009
------------ -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,381,945 $ 1,695,713
Prepaid rent and expenses 8,223 12,217
Other receivable - affiliate 8,797 8,797
Deposits and other receivables 11,956 11,956
------------ ------------
Total current assets 1,410,921 1,728,683
------------ ------------
Restricted cash (Note 8) 85,973 85,973
Property and equipment, net (Note 4) 599,641 477,229
------------ ------------
Total assets $ 2,096,535 $ 2,291,885
============ ============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 716,541 $ 834,638
Accrued payable - affiliate (Note 7) - 41,647
Loans payable - affiliates (Note 5) - 162,500
Deferred compensation (Note 6) 325,000 175,000
------------ ------------
Total current liabilities 1,041,541 1,213,785
------------ ------------
Deferred compensation (Note 6) - 150,000
Deferred rent (Note 8) 72,692 73,232
------------ ------------
Total liabilities 1,114,233 1,437,017
------------ ------------
Series B Redeemable Convertible Preferred
stock, $.01 par value, 50,000 shares
authorized; 28,170 (September 30, 2009)
and 21,320 (June 30, 2009) shares
issued and outstanding; liquidation
preference of $2,867,916 2,514,582 1,867,716
------------ ------------
Deficit (Note 7):
Bion's stockholders' deficit:
Series A Preferred stock, $0.01 par value,
10,000 shares authorized, no shares issued
and outstanding - -
Common stock, no par value, 100,000,000
shares authorized; 12,418,086 (September 30,
2009) and 12,126,448 (June 30, 2009) shares
issued; 11,713,777 (September 30, 2009) and
11,422,139 (June 30, 2009) shares
outstanding - -
Additional paid-in capital 74,981,805 74,529,507
Accumulated deficit (76,624,704) (75,654,145)
------------ ------------
Total Bion's stockholders' deficit (1,642,899) (1,124,638)
------------ ------------
Noncontrolling interest (Note 3) 110,619 111,790
------------ ------------
Total deficit (1,532,280) (1,012,848)
------------ ------------
Total liabilities and deficit $ 2,096,535 $ 2,291,885
============ ============
See notes to unaudited consolidated financial statements.
3
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
2009 2008
------------ -----------
Revenue $ - $ -
------------ -----------
Operating expenses:
General and administrative (including
stock-based compensation (Note 7)) 900,652 629,675
Research and development (including
stock-based compensation (Note 7)) 72,517 276,340
------------ -----------
Total operating expenses 973,169 906,015
------------ -----------
Loss from operations (973,169) (906,015)
------------ -----------
Other expense (income):
Interest expense 1,515 11,948
Interest income (2,954) (1,464)
------------ -----------
(1,439) 10,484
------------ -----------
Net loss (971,730) (916,499)
Net loss (income) attributable to the
noncontrolling interest 1,171 (13,894)
------------ -----------
Net loss attributable to Bion (970,559) (930,393)
Dividends on preferred stock (63,792) -
------------ -----------
Net loss applicable to Bion's common
stockholders $ (1,034,351) $ (930,393)
============ ===========
Net loss applicable to Bion's common
stockholders per basic and diluted
common share $ (0.09) $ (0.09)
============ ===========
Weighted-average number of common shares
outstanding, basic and diluted 11,605,762 10,366,349
============ ===========
See notes to unaudited consolidated financial statements.
4
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT
THREE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED)
Bion's Shareholders
-------------------------------------------------- Non-
Common Stock Additional Controll-
----------------------- paid-in Accumulated ing Total
Shares Amount capital deficit interest deficit
---------- ----------- ----------- ------------ -------- -----------
Balances, July 1, 2009 12,126,448 $ - $74,529,507 $(75,654,145) $111,790 $(1,012,848)
Vesting and remeasure-
ment of options for
services - - 159,865 - - 159,865
Issuance of common
stock for services 202,774 - 184,577 - - 184,577
Issuance of warrants
for services - - 80,000 - - 80,000
Sale of common stock 8,769 - 13,153 - - 13,153
Dividend on Series B
preferred stock - - (63,792) - - (63,792)
Conversion of debt to
equity 80,095 - 78,495 - - 78,495
Net loss - - - (970,559) (1,171) (971,730)
---------- -------- ----------- ------------ -------- -----------
Balances, September 30,
2009 12,418,086 $ - $74,981,805 $(76,624,704) $110,619 $(1,532,280)
========== ======== =========== ============ ======== ===========
See notes to unaudited consolidated financial statements.
5
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
2009 2008
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (971,730) $ (916,499)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense 3,963 4,287
Accrued interest on convertible notes and debt - 11,948
Stock-based compensation 412,901 243,117
Decrease in prepaid rent and expenses 3,994 1,580
Increase in deposits and other receivables - 111
Decrease in accounts payable and accrued
expenses (81,248) (14,254)
(Decrease) increase in deferred rent (540) 626
Increase in deferred compensation - 178,576
------------ -----------
Net cash used in operating activities (632,660) (490,508)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (114,835) -
------------ -----------
Net cash used in investing activities (114,835) -
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 13,153 -
Proceeds from sale of Series B preferred stock 595,950 -
Repayment of loans payable - affiliates (162,500) -
Payment of Series B preferred dividends (12,876)
Proceeds from notes payable - affiliates - 100,000
------------ -----------
Net cash provided by financing activities 433,727 100,000
------------ -----------
Net decrease in cash and cash equivalents (313,768) (390,508)
Cash and cash equivalents at beginning of year 1,695,713 478,899
------------ -----------
Cash and cash equivalents at end of year $ 1,381,945 $ 88,391
============ ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest and income taxes $ - $ -
Non-cash investing and financing transactions:
Exchange/conversion of debt to common stock $ 78,495 $ -
Issuance of common stock for property and
equipment 11,541 -
See notes to unaudited consolidated financial statements.
6
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009
1. 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.
Bion's patented and proprietary technology provides a comprehensive
environmental solution to a significant source of pollution in US
agriculture, Confined Animal Feeding Operations ("CAFO's"). Bion's technology
produces substantial reductions of both nutrient releases to water and air
emissions including ammonia (which is subsequently re-deposited to the
ground) from livestock waste streams based upon our research to date. Because
Bion's technology reduces the harmful releases and emissions from a CAFO on
which it is utilized, the CAFO can potentially increase its herd
concentration while lowering or maintaining its level of nutrient releases
and atmospheric emissions.
From 2003 through early 2008, the Company primarily focused on
completing re-development of its technology platform and business model. As
such, during that period we elected not to pursue near term revenue
opportunities such as retrofitting existing CAFO's with our waste management
solutions, because such efforts would have diverted scarce management and
financial resources and negatively impacted our ability to complete: 1) re-
development of our technology for environmentally sound treatment of CAFO
waste streams and 2) development of our integrated technology platform in
support of large-scale sustainable Integrated Projects including renewable
energy production.
Bion is now actively pursuing business opportunities in two broad areas:
1) retrofit and environmental remediation of existing CAFOs to clean the air
and water in the surrounding areas (as described below) and 2) development
of "closed loop" Integrated Projects (defined below).
We believe that Bion's technology platform allows the integration of
large-scale CAFO's and their end-product users, renewable energy production
from the CAFO waste stream, on site utilization of the renewable energy
generated and biofuel/ethanol production in an environmentally and
economically sustainable manner while reducing the aggregate capital expense
and operating costs for the entire integrated complex ("Integrated Projects"
or "Projects"). In the context of Integrated Projects, Bion's waste treatment
process, in addition to mitigating polluting releases, generates renewable
energy from cellulosic portions of the CAFO waste stream which renewable
energy can be utilized by integrated facilities including ethanol plants,
CAFO end-product processors (including cheese, ice cream and /or bottling
plants in the case of dairy CAFOs and/or slaughter and/or processing
facilities in the context of beef CAFOs) and/or other users as a natural gas
replacement. Bion is presently involved in pre-development evaluations
regarding opportunities for Integrated Projects in New York (beef), Nebraska
(dairy) and elsewhere.
7
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
1. ORGANIZATION, NATURE OF BUSINESS, GOING CONCERN AND MANAGEMENT'S PLANS
(Continued):
On September 27, 2008, the Company executed an agreement with Kreider
Farms (and its affiliated entities) (collectively "Kreider") to design,
construct and operate (through its wholly-owned subsidiaries, Bion Services
Group, Inc. ("Bion Services") and Bion PA-1 LLC ("LLC")) a Bion system to
treat the waste of the milking dairy cows (milkers, dry cows and heifers) at
the Kreider Dairy, located in Mannheim, Pennsylvania. In addition, the
agreement provides for a second phase which will include a renewable energy
facility ("REF") that will treat the cellulosic solid wastes from Phase 1
together with the waste stream from Kreider's poultry facilities to produce
renewable energy for Bion's waste treatment facility and/or for market sales.
The Phase 1 system will be owned and operated by Bion through LLC, in which
Kreider will have the option to purchase a minority interest. To complete
final design work and all building, zoning and other related pre-construction
matters, substantial capital (equity and/or debt) has been and will continue
to be expended. Additional funds will be expended for construction. Upon
successful construction and operation of these systems, the Company
anticipates that it will earn revenue from the sale of nutrient (and other)
environmental credits related to the Kreider system and through sales of
renewable energy generated by the Kreider systems.
During January 2009, the Board of Pennsylvania Infrastructure Investment
Authority ("Pennvest") approved a loan up to $7.8 million ("Pennvest Loan")
to LLC for development and construction of the Phase 1 System at Kreider.
The Pennvest Loan is structured in phases (pre and post-completion of
permitting/commencement of construction) and Pennvest's disbursements will
take the form of reimbursement of qualified sums expended by LLC. In
connection with the Pennvest Loan, the Company has provided a 'technology
guaranty' regarding nutrient reduction performance of the Kreider System
which will expire when the Kreider System's nutrient reduction performance
has been demonstrated. The Company expects to complete the steps required to
finalize the pre-construction phase of the Pennvest loan during the next 90
days. The Company anticipates that the initial drawdown/reimbursement from
Pennvest pursuant to the Pennvest Loan will also be received in the next 90
days. Bion is in the process of finalizing its design for the Phase 1
Kreider System and has commenced the permitting process. It is anticipated
that construction will commence during the next 90 days and be completed
during the 2010 fiscal year.
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
revenues and has incurred net losses of approximately $1,312,000 and
$1,779,000 during the years ended June 30, 2009 and 2008, respectively, and a
net loss of $971,730 for the three months ended September 30, 2009. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying consolidated financial statements do not
8
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
1. ORGANIZATION, NATURE OF BUSINESS, GOING CONCERN AND MANAGEMENT'S PLANS
(Continued):
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 recently completed an offering of the Company's Series B
Preferred shares, which as of June 30, 2009 resulted in the issuance of
21,320 shares at $100 per share, resulting in net proceeds to the Company of
$1,854,840. Subsequent to June 30, 2009, the Company issued an additional
6,850 shares, resulting in net proceeds to the Company of $595,950.
At September 30, 2009, the Company has a working capital surplus and
stockholders' deficit of approximately $369,000 and $1,642,899, respectively.
The Company continues to explore sources of additional financing to
satisfy its current operating requirements.
While the Company currently does not face a severe working capital
shortage, it is not currently generating any revenues. The Company will need
to obtain additional capital to fund its operations and technology
development, to satisfy existing creditors, to develop Projects and to
construct the Kreider Farm facilities. The Company anticipates that it will
seek to raise from $5,000,000 to $50,000,000 (debt and equity) during the
next twelve months. There is no assurance, especially in the extremely
unsettled capital markets that presently exist, 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.
There can be no assurance that funds required during the next twelve
months or thereafter will be generated from operations or that those funds
will be available from external sources such as debt or equity financings or
other potential sources. The lack of additional capital resulting from the
inability to generate cash flow from operations 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 no 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 unsettled credit and
capital markets presently existing.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Bion Integrated Projects Group,
Inc. (formerly Bion Dairy Corporation ("Projects Group"), Bion Technologies,
9
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued):
Inc., BionSoil, Inc., Bion Services, LLC and its majority owned subsidiary,
Centerpoint Corporation ("Centerpoint") (Note 3). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). The consolidated financial statements reflect
all adjustments (consisting of only normal recurring entries) that, in the
opinion of management, are necessary to present fairly the financial position
at September 30, 2009, and the results of operations and cash flows of the
Company for the three months ended September 30, 2009 and 2008. Operating
results for the three months ended September 30, 2009 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2010.
The unaudited consolidated financial statements should be read in
conjunction with the Company's audited financial statements and footnotes
thereto included in its Annual Report on Form 10-K/A for the year ended June
30, 2009.
Loss per share:
Basic loss per share amounts are calculated using the weighted average
number of shares of common stock outstanding during the period. Diluted loss
per share assumes the conversion, exercise or issuance of all potential
common stock instruments, such as options or warrants, unless the effect is
to reduce the loss per share. During the three months ended September 30,
2009 and 2008, the basic and diluted loss per share is the same, as the
impact of potential dilutive common shares is anti-dilutive.
The following table represents the warrants, options and convertible
securities excluded from the calculation of diluted loss per share:
September 30, September 30,
2009 2008
------------- -------------
Warrants 5,290,616 3,556,667
Options 2,170,833 1,975,333
Convertible debt 333,333 273,283
Preferred stock 1,440,255 -
The following is a reconciliation of the denominators of the basic loss
per share computations for the three months ended September 30, 2009 and
2008.
10
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued):
Three months Three months
ended ended
September 30, September 30,
2009 2008
------------- -------------
Shares issued - beginning of period 12,126,448 11,070,658
Shares held by subsidiaries (Note 7) (704,309) (704,309)
---------- ----------
Shares outstanding - beginning of period 11,422,139 10,366,349
Weighted average shares issued during
the period 183,623 -
Basic weighted average shares - end of ---------- ----------
period 11,605,762 10,366,349
========== ==========
Recent accounting pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") approved
the FASB Accounting Standards Codification ("the Codification") as the single
source of authoritative nongovernmental Generally Accepted Accounting
Principles ("GAAP"). All existing accounting standard documents, such as
FASB, American Institute of Certified Public Accountants, Emerging Issues
Task Force and other related literature, excluding guidance from the SEC,
have been superseded by the Codification. All other non-grandfathered, non-
SEC accounting literature not included in the Codification has become
nonauthoritative. The Codification did not change GAAP, but instead
introduced a new structure that combines all authoritative standards into a
comprehensive, topically organized online database. The Codification is
effective for interim or annual periods ending after September 15, 2009, and
impacts the Company's financial statements, as all future references to
authoritative accounting literature will be referenced in accordance with the
Codification. There have been no changes to the content of the Company's
financial statements or disclosures as a result of implementing the
Codification during the quarter ended September 30, 2009.
As a result of the Company's implementation of the Codification during
the quarter ended September 30, 2009, previous references to new accounting
standards and literature are no longer applicable. In the current quarter
financial statements, the Company will provide reference to both new and old
guidance to assist in understanding the impacts of recently adopted
accounting literature, particularly for guidance adopted since the beginning
of the current fiscal year but prior to the Codification.
In December 2007, the FASB issued ASC 810 (formerly - SFAS No. 160),
"Consolidation" The standard changes the accounting for non-controlling
(minority) interests in consolidated financial statements, including the
requirements to classify non-controlling interests as a component of
consolidated stockholders' equity, and the elimination of minority interest
11
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued):
accounting in results of operations with earnings attributable to non-
controlling interests reported as part of consolidated earnings. Purchases
and sales of non-controlling interests are to be reported in equity similar
to treasury stock transactions. The standard became effective for the Company
on July 1, 2009. As a result the Company now reports noncontrolling interest
as a component of equity in its consolidated balance sheet and below net
(loss) income in its consolidated statement of operations. In addition, the
provisions of ASC 810 require that minority interest be renamed
noncontrolling interest and that a company present a consolidated net income
measure that includes the amount attributable to such noncontrolling
interests for all periods presented. As required by ASC 810, the Company has
retrospectively applied the presentation to all prior year balances
presented.
3. NONCONTROLLING INTEREST OF CENTERPOINT CORPORATION:
In January 2002, Bion purchased a 57.7% majority interest in Centerpoint
from a third party. On April 30, 2008, Centerpoint received and cancelled
126,000 shares of its previously outstanding common stock in connection with
a litigation settlement, which increased Bion's ownership from 57.7% to
58.9%.
During the three months ended September 30, 2009 and 2008, Centerpoint
had losses (earnings) of approximately $2,850 and $(33,800), respectively.
The noncontrolling interest as of September 30, 2009 was $110,619.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
September 30, 2009 June 30, 2009
------------------ -------------
Research and development equipment $ 305,266 $ 305,266
Project construction in progress 546,819 433,179
Leasehold improvement 31,336 31,336
Furniture 28,932 28,932
Computers and office equipment 38,714 31,680
--------- ---------
951,067 830,393
Less accumulated depreciation (351,426) (353,164)
--------- ---------
$ 599,641 $ 477,229
========= =========
Depreciation expense was $3,963 and $4,287 for the three months ended
September 30, 2009 and 2008, respectively.
12
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
5. LOANS PAYABLE - AFFILIATES:
During the year ended June 30, 2009, Dominic Bassani, Vice-President
Special Project and Strategic Planning for the Projects Group, Mark A. Smith,
the Company's President, and a major shareholder loaned the Company
$120,000, $7,500 and $35,000, respectively, for working capital needs. The
loans, totaling $162,500 as of June 30, 2009, were non-interest bearing and
were repaid in July 2009.
6. DEFERRED COMPENSATION:
As of September 30, 2009 the Company owed Brightcap Capital Ltd.
("Brightcap") for services provided by Mr. Bassani, deferred compensation of
$325,000. The Company entered into the Brightcap Agreement (see Note 9),
whereby the deferred compensation of Brightcap owed as of December 31, 2008
totaling $175,000, was made convertible until December 31, 2009 (subsequently
extended to January 14, 2010) into the Company's restricted common stock, at
Brightcap's option, at a price of $0.75 per share, the fair value of the
shares at the date of the agreement. As the conversion price of $0.75 per
shares approximated the fair value of the shares of common stock at the time
the conversion agreement was entered into, no beneficial conversion feature
existed. The Company entered into another agreement with Brightcap in June
2009, whereby the deferred compensation earned by Brightcap from January 1,
2009 through June 30, 2009, totaling $150,000, was made due July 1, 2010 and
convertible until July 1, 2010 into the Company's restricted common stock, at
Brightcap's option, at a price of $1.50 per share, the fair value of the
shares at the date of the agreement. As the conversion price of $1.50 per
share approximated the fair value of the shares at the time the conversion
agreement was entered into, no beneficial conversion feature existed.
7. STOCKHOLDERS' EQUITY:
Series B Preferred stock:
During March 2009, the Company authorized the issuance of 50,000 shares
of Series B Preferred stock which have a par value of $0.01 per share and are
issuable at a price of $100 per share. The Series B Preferred stock is
convertible for three years from the date of issuance at the option of the
holder into shares of the Company's common stock calculated by dividing the
sum of the $100 per share purchase price plus any accrued and unpaid
dividends by $2.00 (the Conversion Rate). The Series B Preferred stock shall
be automatically and mandatorily converted into shares of the Company's
common stock at the Conversion Rate share upon each occasion (at least 30
calendar days apart) after a date of six months subsequent to the initial
issuance of the Series B Preferred stock on which the closing price of the
Company's common stock have been equal or greater than 150% of the Conversion
Rate (initially $3.00) for twenty consecutive trading days with a reported
average daily trading volume of 10,000 shares or more. The Series B
Preferred stock may be redeemable at the option of the Company after one year
from the issuance on 10 days' written notice, at a price equal to $100 per
13
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
7. STOCKHOLDERS' EQUITY (Continued):
share plus any accrued unpaid dividends. During the 10 day period, the
holder may elect to convert the Series B Preferred stock to the Company's
common stock at the Conversion Rate. On the third anniversary of issuance,
the Company shall redeem the outstanding Series B Preferred stock at the
price of $100 per share plus any accrued unpaid dividends. The Series B
Preferred stock accrue dividends at a rate of 2.5% per quarter (10% per year)
and shall be earned and accrued or paid quarterly.
Because the Series B Preferred stock is redeemable in cash at a fixed
price ($100 per share plus accrued unpaid dividends) on a fixed date (the
third anniversary of issuance), the Company has classified the Series B
Preferred stock outside of stockholders' equity. Therefore, the Series B
Preferred stock has been recorded at its current redemption value as
temporary equity in the accompanying consolidated balance sheet. Dividends
on the Series B Preferred stock are reflected as part of the redemption value
with an offset to reduce additional paid-in capital, and are included in the
determination of net loss applicable to common stockholders.
During the three months ended September 30, 2009, the Company concluded
the offering of Series B Preferred stock and issued 6,850 shares of Series B
Preferred stock for cash proceeds of $685,000 (net proceeds of $595,950 after
commissions).
The Company declared dividends on July 29, 2009, for the Series B
Preferred stockholders with a record date of June 30, 2009, totaling $12,876
which were paid on August 15, 2009. The Company declared dividends on
October 28, 2009 for the Series B Preferred stockholders with a record date
of September 30, 2009 totaling $63,792 which are expected to be paid on
November 16, 2009.
Common stock:
Holders of common stock are entitled to one vote per share on all
matters to be voted on by common stockholders. In the event of liquidation,
dissolution or winding up of the Company, the holders of common stock are
entitled to share in all assets remaining after liabilities have been paid in
full or set aside and the rights of any outstanding preferred stock have been
satisfied. Common stock has no preemptive, redemption or conversion rights.
The rights of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of any outstanding series of preferred
stock or any series of preferred stock the Company may designate in the
future.
In January 2009, pursuant to the Smith Agreement (Note 9), the Company
issued 200,000 shares of the Company's restricted common stock at $0.75 per
share as prepayment of Mr. Smith's calendar year 2009 base compensation of
$150,000. The shares are forfeitable if services are not performed and fully
vest through December 2009. Through September 30, 2009, the Company has
recorded $112,500 as compensation expense and $37,500 remains to be expensed
through December 2009.
14
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
7. STOCKHOLDERS' EQUITY (Continued):
From July 2009 through September 2009, the Company issued 72,734 shares
of the Company's restricted common stock ranging from $1.01 to $2.00 per
share for consulting services valued at $98,260 to various consultants.
During September 2009, the Company issued 8,769 shares of the Company's
restricted common stock at $1.50 per share for cash proceeds of $13,153.
In September 2009, the Company issued 55,530 shares of the Company's
restricted common stock in conversion and satisfaction of the Company's
accrued payable of $41,647 to a company controlled by Mr. Salvatore Zizza,
the former Chairman of the Projects Group. The shares were issued pursuant to
an agreement whereby Mr. Zizza had the option to convert the payable into
common shares of the company at $0.75 per share at any time prior to the
obligation being paid by the Company.
In September 2009, the Company issued 24,565 shares of the Company's
restricted common stock in satisfaction of accounts payable of $36,848. The
shares were valued at $1.50 per share which approximated the market value at
the time of the issuance.
In July 2009, the Company issued 130,000 common shares of the Company as
stock bonuses to certain key employees and a consultant at $1.01 per share,
the approximate market value on the date of grant, totaling $131,300. The
stock bonuses are subject to vesting and during the three months ended
September 30, 2009, $48,817 was recorded as compensation expense.
Warrants:
As of September 30, 2009, the Company had the following common stock
warrants outstanding:
Number Exercise
of Shares Price Expiration Date
--------- -------- -----------------
Class SVDB 1-6 800,000 $ 3.00 December 31, 2018
Class DB-1 600,000 1.00 December 31, 2018
Class DB-1A 1,000,000 0.75 December 31, 2018
Class A 1-3 600,000 2.50 December 31, 2018
Class SVMAS-1 67,500 3.50 December 31, 2018
Class SVMAS-1A 40,000 3.50 December 31, 2018
Class SVMAS 2-3 72,500 2.50 December 31, 2018
Class SVB 1-4 125,000 2.50 December 31, 2018
Class SVC 1-5 125,000 4.25 December 31, 2018
Class SV-SEI 1-2 32,292 1.50 December 31, 2012
Class C,D,E 275,000 2.50 April 30, 2015
Class O 100,000 3.00 December 31, 2018
Class DM 150,000 3.00 December 31, 2011
Class MAS 80,000 2.50 December 31, 2018
Class MAS-1 A-K 300,000 0.75 December 31, 2018
Class GK 20,000 2.00 March 31, 2011
Class TO-1 15,000 0.75 December 31, 2018
Class BW 10,000 2.20 June 15, 2012
Class Z 1-3 53,324 1.25 December 31, 2018
Class NCC-1 25,000 2.00 May 31, 2014
Class DB-2 600,000 2.50 January 15, 2019
Class MAS 4-1 200,000 2.50 January 15, 2019
----------
5,290,616
==========
15
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
7. STOCKHOLDERS' EQUITY (Continued):
In September 2009, warrants to purchase 600,000 and 200,000 shares of
the Company's common stock at $2.50 per share were issued pursuant to various
extension agreements with Mr. Bassani and Mr. Smith, respectively (Note 9).
The warrants were determined to have a fair value of $0.10 per warrant and
expire on January 15, 2019. The value placed upon the warrants to purchase
common stock at $2.50 per share was determined to be $0.10 per warrant based
on factors including the evaluation of the Company's value as of the date of
the issuances, consideration of the Company's limited liquid resources and
business prospects, the market price of the Company's stock in its mostly
inactive public market, the concurrent sales of restricted common stock at
$1.50 per share, and the historical valuation and purchases of the Company's
warrants. The Company recorded non-cash compensation of $80,000 related to
the warrant issuances.
The weighted average exercise price for the outstanding warrants is
$2.03, and the weighted average remaining contractual life as of September
30, 2009 is 8.8 years.
Stock options:
Effective June 2006, the Company approved the 2006 Consolidated
Incentive Plan (the "2006 Plan"), which consolidated previous incentive stock
options plans into the 2006 Plan. On November 28, 2008, the 2006 Plan was
amended to increase the maximum number of shares of the common stock of the
Company issuable pursuant to the 2006 Plan from 4,200,000 to 6,000,000
shares. Terms of exercise and expiration of options granted under the 2006
Plan may be established at the discretion of the Board of Directors, but no
option may be exercisable for more than ten years.
In May and June of 2008, the Board of Directors, in an effort to retain
key employees and consultants, approved the modifications of certain options
to certain employees and consultants. The modifications included the
reduction of the exercise price of certain options below the fair market
value on the date of grant, modifications to the vesting terms and extension
of the expiry dates. As a result of the modifications, the Company recorded
incremental compensation expense of $83,428, which was recognized at June 30,
2008 and approximately $282,000 of additional compensation will be recognized
over a weighted average period of approximately 2 years.
The Company recorded compensation expense related to employee stock
options of $94,604 and $62,929 for the three months ended September 30, 2009
and 2008, respectively. The Company granted 175,000 and zero options during
the three months ended September 30, 2009 and 2008, respectively. The fair
value of the options granted during the three months ended September 30, 2009
and 2008 were estimated on the grant date using the Black-Scholes option-
pricing model with the following assumptions:
16
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
7. STOCKHOLDERS' EQUITY (Continued):
Weighted Weighted
Average Range Average Range
September September September September
30, 2009 30, 2009 30, 2008 30, 2008
--------------------- ---------------------
Volatility 99% 99% - -
Dividend yield 0% 0% - -
Risk-free interest rate 1.31% 1.31% - -
Expected term (years) 2.5 2.5 - -
The expected volatility was based on the historical price volatility of
the Company's common stock. The dividend yield represents the Company's
anticipated cash dividend on common stock over the expected term of the stock
options. The U.S. Treasury bill rate for the expected term of the stock
options was utilized to determine the risk-free interest rate. The expected
term of stock options represents the period of time the stock options granted
are expected to be outstanding based upon management's estimates.
A summary of option activity under the 2006 Plan for the three months
ended September 30, 2009 is as follows:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price Life Value
---------------------------------------------
Outstanding at July 1, 2009 1,995,833 $ 3.01 4.3 $ -
Granted 175,000 1.25
Exercised - -
Forfeited - -
Expired - 2.83
---------------------------------------------
Outstanding at September 30,
2009 2,170,833 $ 2.87 4.1 $265,650
=============================================
Exercisable at September 30,
2009 1,897,500 $ 2.95 4.1 $172,650
=============================================
The following table presents information relating to nonvested stock
options as of September 30, 2009:
17
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
7. STOCKHOLDERS' EQUITY (Continued):
Weighted Average
Grant-Date
Options Fair Value
---------- ----------------
Nonvested at July 1, 2009 203,749 $ 1.31
Granted 175,000 0.53
Vested (105,416) (1.03)
Forfeited - -
--------- ------
Nonvested at September 30, 2009 273,333 $ 0.90
========= ======
The total fair value of stock options that vested during the three
months ended September 30, 2009 and 2008 was $108,609 and $68,864,
respectively. As of September 30, 2009, the Company had $159,580 of
unrecognized compensation cost related to stock options that will be recorded
over a weighted average period of one year.
The Company has issued options to non-employees to purchase shares of
the Company's common stock in exchange for services. As of September 30,
2009, non-employee options represented 595,833 of the 2,170,833 options
outstanding under the 2006 Plan. Of the 595,833 non-employee options
outstanding, 92,500 were fully vested and contained no service conditions as
of September 30, 2009. These non-employee options were valued using the
Black-Scholes option-pricing model. The fully vested options have been fully
amortized on the straight-line method and resulted in no expense being
recorded for the three months ended September 30, 2009 and 2008.
The remaining 503,333 non-employee options outstanding include service
conditions and have graded vesting schedules through November 30, 2009. As
of September 30, 2009, 450,000 of these options included service conditions
that were fully vested. Generally for these agreements, the measurement date
of the services occurs when the options vest. Recognition of compensation
cost for reporting periods prior to the measurement date is based on the then
current fair value of the options as of each of the interim reporting dates.
Any subsequent change in fair value is recorded on the measurement date.
The fair value of these options was determined using the Black-Scholes
option-pricing model using the following assumptions at September 30, 2009; a
dividend yield of zero, risk-free interest rates of 3.31%, volatility of
158%, and an expected life of 8.7 years. Consulting cost in connection with
options that are not fully vested as of September 30, 2009, is being
recognized on a straight-line basis over the requisite service period for the
entire award. Non-cash fair value charges of $65,261 and $180,188 were
recorded as expense during the three months ended September 30, 2009 and
2008, respectively.
18
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
7. STOCKHOLDERS' EQUITY (Continued):
Stock-based compensation charges in operating expenses in the Company's
financial statements for the three months ended September 30, 2009 and 2008
are as follows:
Three months Three months
ended ended
September 30, September 30,
2009 2008
------------- -------------
General and administrative:
Fair value remeasurement of options with
service conditions $ 65,261 $ 114,728
Fair value of stock bonuses expensed 37,275 -
Fair value of stock options expensed 87,979 38,049
--------- ---------
Total $ 190,515 $ 152,777
========= =========
Research and development:
Fair value remeasurement of options with
service conditions $ - $ 65,460
Fair value of stock options expensed 6,625 24,880
--------- ---------
Total $ 6,625 $ 90,340
========= =========
8. OPERATING LEASE:
The Company entered into a non-cancellable operating lease commitment
for office space in New York, effective August 1, 2006 and expiring November
30, 2013. In conjunction with the signing of the lease, the Company provided
the lessor with a secured letter of credit. As of September 30, 2009, the
Company has reflected $85,973 as restricted cash related to the secured
letter of credit. The Company's obligations under the lease are partially
guaranteed by Mr. Zizza. The Company has entered into two separate
agreements to sub-lease approximately 32% of the Company's lease obligation
and the tenants have also agreed to reimburse the Company for leasehold
improvements and furnishings. Because the lease contains an escalation
clause, the Company is recognizing rent under the straight-line method
resulting in an average monthly rent expense of $15,820. The Company is also
recognizing the sub-lease rental income from its tenants under the straight-
line method, with a monthly average of $5,250. The difference between the
straight-line method, and the actual lease payments have resulted in a
deferred rent liability of $72,692 as of September 30, 2009. Rent expense,
net of contractual and month to month sub-lease rental income was $7,067 and
$15,354 for the three months ended September 30, 2009 and 2008, respectively.
19
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
8. OPERATING LEASE (Continued):
At September 30, 2009, future minimum rental payments due under non-
cancelable leases and future minimum rental payments to be received under
non-cancelable subleases are:
Operating lease Sublease Net operating
Fiscal year: payments rentals lease payments
------------ --------------- --------- --------------
Nine months ended September 30,
2010 $ 143,988 $ 46,076 $ 97,912
2011 198,602 63,553 135,049
2012 212,775 68,088 144,687
2013 225,756 72,242 153,514
2014 97,219 31,110 66,109
--------- --------- ---------
Total $ 878,340 $ 281,069 $ 597,271
========= ========= =========
Effective January 1, 2009, Mr. Zizza entered into a Master Sublease with
the Company pursuant to which Mr. Zizza became a sublessee and will, for a
one year initial period, make all payments pursuant to the lease and manage
the lease premises. Rental payments from existing sub-tenants are being
deposited into a Company bank account such that Mr. Zizza utilizes those
funds towards the monthly lease payment. Mr. Zizza will have the option on
or before November 15, 2009, at his sole election, to continue the Master
Sublease for the entire term of the lease. If Mr. Zizza fulfills his
obligations under the Master Sublease during the one year initial period, he
shall receive the funds from the next release of the restricted cash securing
the Company's letter of credit approximating $28,000. If Mr. Zizza exercises
the option to continue the Master Sublease for the entire term of the lease,
Mr. Zizza will be entitled to the balance of restricted funds securing the
letter of credit.
9. COMMITMENTS AND CONTINGENCIES:
Employment and consulting agreements:
On January 11, 2009, the Company and Mr. Smith entered into the Smith
Agreement whereby Mr. Smith agreed to continue to hold positions of Director,
President and General Counsel of the Company and its subsidiaries at an
annual salary of $150,000. Pursuant to the Smith Agreement, Mr. Smith was
granted a $37,500 bonus in the form of a warrant (and extension of
outstanding warrants previously issued to Mr. Smith), immediately vested, to
purchase 300,000 shares of the Company's common stock at $0.75 per share
until December 31, 2018 and Mr. Smith agreed to accept pre-payment of his
calendar year 2009 base compensation of $150,000 in the form of 200,000
restricted shares of Company common stock at a price of $0.75 per share. In
addition, Mr. Smith converted his deferred compensation as of December 31,
20
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (Continued):
2008 into shares of the Company's common stock. On September 30, 2009, the
Company and Mr. Smith entered into an extension agreement whereby Mr. Smith
will continue to hold his current position in the Company through a date no
later than December 31, 2010. Commencing January 1, 2010, Mr. Smith will be
paid a monthly salary of $16,000 in addition to a cash bonus of $15,000
payable on January 1, 2010. In addition Mr. Smith was granted a $20,000
bonus payable in warrants to purchase 200,000 shares of the Company's common
stock at a price of $2.50 per share until January 15, 2019.
Effective March 31, 2005, an agreement with Brightcap, through which the
services of Dominic Bassani are provided, was extended through March 31,
2009. Under the terms of the agreement, Brightcap will be paid $300,000
annually for Mr. Bassani's services. On January 11, 2009, the Company
entered in the Brightcap Agreement, which extends Mr. Bassani's services
under the terms of the March 31, 2005 agreement for up to an additional six
months. In addition, Mr. Bassani was granted a bonus of $125,000 in the form
of a) warrant, immediately vested, to purchase 1,000,000 shares of the
Company's common stock at $0.75 per share until December 31, 2018 and b) the
extension of all warrants previously issued to either Brightcap or Mr.
Bassani, now held by their donees, to December 31, 2018. The Brightcap
Agreement also required that upon the consummation of the next financing
received by the Company in excess of $1,000,000 net proceeds, the Company
will no longer defer compensation earned by Brightcap, rather it will be paid
in cash. Since July 2009, Brightcap has been paid in cash. The Brightcap
Agreement grants Brightcap the right to convert its existing deferred
compensation as of December 31, 2008 of $175,000 into 233,334 shares of the
Company's common stock at a price of $0.75 per share until December 31, 2009.
The Brightcap Agreement also extended the maturity date of Mr. Bassani's
$50,000 promissory note to June 30, 2009 and allows for the conversion of the
principal and interest, in whole or in part, at the election of Mr. Bassani,
into the Company's restricted common shares at $0.75 per share. The
promissory note was converted on June 30, 2009. On September 30, 2009, the
Company entered into an extension agreement with Brightcap whereby Mr.
Bassani will provide services to the Company through September 30, 2012 at a
rate of $312,000 annually. In conjunction with the extension agreement, Mr.
Bassani was granted a $60,000 bonus payable in warrants to purchase 600,000
shares of the Company's common stock at a price of $2.50 per share until
January 15, 2019. Mr. Bassani was also granted an extension on the
conversion date of the $175,000 deferred compensation from December 31, 2009
until January 14, 2010.
Effective September 18, 2006, the Company entered into a four-year
employment agreement with Jeremy Rowland whereby Mr. Rowland assumed the
position of Chief Operating Officer of Dairy at an annual salary of $150,000.
In June 2008, the employment agreement terms were extended through July 1,
2012. Mr. Rowland now serves as Chief Operating Officer of the Company's
Services Group subsidiary.
21
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (Continued):
The Company approved an employment agreement contract extension
effective June 30, 2009, with Craig Scott whereby Mr. Scott will continue to
act as Vice President of Capital Markets and Shareholder Relations through
December 31, 2010, at an annual salary of $144,000. The Company will have
the right terminate the agreement with 30 days notice commencing December
2009 with no further liability.
In May 2005 the Company declared contingent deferred stock bonuses of
690,000 shares to its key employees and consultants. The stock bonuses of
492,500 and 197,500 shares are contingent upon the Company's stock price
exceeding $10.00 and $20.00 per share, respectively, and the grantees still
being employed by or providing services to the Company at the time the target
prices are reached. As of September 30, 2009, 422,500 shares remain
outstanding due to the expiry of 125,000 and 62,500 shares to be issued when
and if the Company's stock price exceeds $10.00 and $20.00 per share,
respectively.
In May 2008, the Company approved 250,000 stock options to certain
employees that will be granted upon the execution of new employment
agreements.
Claims contingency:
In May 2002, Arab Commerce Bank Ltd. ("ACB"), an unaffiliated party,
filed a complaint against the Company in the Supreme Court of the State of
New York regarding $100,000 of the Company's convertible bridge notes
("Bridge Notes") that were issued to ACB in March 2000. The complaint
includes a breach of contract claim asserting that the Company owes ACB
approximately $285,000 plus interest of $121,028 plus interest based on ACB's
interpretation of the terms of the Bridge Notes and subsequent amendments.
Effective June 30, 2001, the Company issued ACB 5,034 shares of common stock
in full satisfaction of the Bridge Notes based on the Company's
interpretation of the Bridge Notes, as amended. The Company has filed an
answer to the complaint denying the allegations. No activity has taken place
on this lawsuit since early 2003. The Company believes that the ultimate
resolution of this litigation will not have a material adverse effect on the
Company, its operations or its financial condition.
10. SUBSEQUENT EVENTS:
The Company has evaluated subsequent events through November 12, 2009
for consideration as a subsequent event to be included in its September 30,
2009 financial statements issued November 12, 2009.
Issuance of Common Stock
During October 2009, the Company has issued 34,025 common shares to
consultants for services valued at approximately $66,000.
22
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2009 (CONTINUED)
9. SUBSEQUENT EVENTS (Continued):
Issuance of Options
During October 2009, the board of directors granted 20,000 options that
vested on October 1, 2009 with an exercise price of $2.50 per option and
expire on January 15, 2015.
Declaration of Preferred dividends
The Company declared dividends on October 28, 2009 for the Series B
Preferred stockholders with a record date of September 30, 2009 totaling
$63,792 which are expected to be paid on November 16, 2009.
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the unaudited Consolidated Financial Statements and Notes to Consolidated
Financial Statements filed herein and with the Company's Form 10-K for the
year ended June 30, 2009.
BUSINESS OVERVIEW
For several years, the Company focused on completion of the development
of its second-generation technology which provides a comprehensive
environmental solution to a significant source of pollution in U.S.
agriculture, Confined Animal Feeding Operations ("CAFO's"), which development
is now substantially complete. Currently, Bion is focused on using
applications of its patented waste management technology to pursue two main
business opportunities: 1) environmental retrofit and remediation of the
waste streams of existing CAFOs in selected markets; and 2) to develop
Integrated Projects which will include large CAFOs, such as large dairies,
beef cattle feed lots and hog farms, with Bion waste treatment System modules
processing the aggregate CAFO waste stream from the equivalent of 40,000 or
more beef and/or dairy cows (or the waste stream equivalent of other species)
while producing solids to be utilized for renewable energy production (and
potentially to be marketed as feed and/or fertilizer), integrated with an
ethanol plant capable of producing 40 (or more) million gallons of ethanol
per year and/or with CAFO end product processors.
The Company has commenced actively pursuing the opportunity presented by
environmental retrofit and remediation of the waste streams of existing
CAFOs. The first commercial activity in this area is an agreement with
Kreider Farms ("KF") in Pennsylvania to design, construct and operate Bion
Systems to treat KF's dairy and poultry waste streams to reduce nutrient
releases to the environment while generating marketable nutrient credits and
renewable energy. On January 26, 2009 the Board of the Pennsylvania
Infrastructure Investment Authority approved a $7.8 million loan to Bion PA
1, LLC, a wholly-owned subsidiary of the Company, for the initial stage of
Bion's Kreider Farms project. The Company anticipates that the steps required
to finalize the pre-construction phase of the Pennvest Loan will be completed
during the next 90 days and that the initial drawdown/re-imbursement from
Pennvest pursuant to the Pennvest Loan will be received shortly thereafter.
The Company has commenced permitting for this project and anticipates
construction of this project during the current fiscal year.
Additionally, we believe that Bion's technology platform allows the
integration of large-scale CAFO's and their end-product users, renewable
energy production from the CAFO waste stream, on site utilization of the
renewable energy generated and biofuel/ethanol production in an
environmentally and economically sustainable manner while reducing the
aggregate capital expense and operating costs for the entire integrated
complex ("Integrated Projects" or "Projects"). In the context of Integrated
Projects, Bion's waste treatment process, in addition to mitigating polluting
releases, generates renewable energy from cellulosic portions of the CAFO
waste stream which renewable energy can be utilized by integrated facilities
including ethanol plants, CAFO end-product processors (including cheese, ice
24
cream and /or bottling plants in the case of dairy CAFOs and/or slaughter
and/or processing facilities in the context of beef CAFOs) and/or other users
as a natural gas replacement. Note that an integrated ethanol plant's main
by-product, called distillers grain, can be added to the feed of the animals
in wet form thereby lowering the capital expenditures, operating, marketing
and shipping costs and energy usage of the ethanol production process. In
such cases, the ethanol plant would act as a feed mill for the integrated
CAFO, thus reducing the CAFO's feeding costs and generating revenue to the
ethanol plant, and also provides a market for the renewable energy that
Bion's System produces from the CAFO waste stream. Thus, such Bion Integrated
Projects can be denominated "closed loop". Bion, as developer of and
participant in Integrated Projects, anticipates that it will share in the
cost savings and revenue generated from these activities.
Bion is currently working with local, state and federal officials and
with potential industry participants to evaluate sites in multiple states and
anticipates selecting a site for its initial Project during the 2010 fiscal
year. At present it is possible, but not certain, that the initial Integrated
Project will be located in upstate New York (although locations in other
states are also under review). In addition, Bion intends to choose sites for
additional Projects during the remainder of calendar years 2010-2012 to
create a pipeline of Projects. Management has a 5-year development target
(through calendar year 2015) of approximately 12-24 Integrated Projects. At
the end of the 5-year period, Bion projects that 8 or more of these
Integrated Projects will be in full operation in 3-8 states, and the balance
would be in various stages ranging from partial operation to early permitting
stage. No Integrated Project has been developed to date.
The financial statements for the years ended June 30, 2009 and 2008 have
been prepared assuming the Company will continue as a going concern. The
Company has incurred net losses of approximately $1,312,000 and $1,779,000
during the years ended June 30, 2009 and 2008, respectively. At June 30,
2009, the Company had a working capital surplus and stockholders' deficit of
approximately $515,000 and $1,124,638, respectively. The financial
statements for the three months ended September 30, 2009 and 2008 have also
been prepared assuming the Company will continue as a going concern. The
Company has incurred net losses attributable to Bion stockholders of
approximately $1,034,000 and $930,000 during the three month periods ended
September 30, 2009 and 2008, respectively. At September 30, 2009, the
Company has a working capital surplus and stockholders' deficit of
approximately $369,000 and $1,642,899, respectively. The report of the
independent registered public accounting firm on the Company's consolidated
financial statements as of and for the year ended June 30, 2009 includes a
"going concern" explanatory paragraph which means that the accounting firm
has expressed substantial doubt about the Company's ability to continue as a
going concern. Management's plans with respect to these matters are
described in this section and in our consolidated financial statements, and
this material does not include any adjustments that might result from the
outcome of this uncertainty. There is no guarantee that we will be able to
raise the funds or raise further capital for the operations planned in the
near future.
25
CRITICAL ACCOUNTING POLICIES
Management has identified the following policies below as critical to
our business and results of operations. Our reported results are impacted by
the application of the following accounting policies, certain of which
require management to make subjective or complex judgments. These judgments
involve making estimates about the effect of matters that are inherently
uncertain and may significantly impact quarterly or annual results of
operations. For all of these policies, management cautions that future
events rarely develop exactly as expected, and the best estimates routinely
require adjustment. Specific risks associated with these critical
accounting policies are described in the paragraphs below.
Revenue Recognition
While the Company has not recognized any operating revenues for the past
two fiscal years, the Company anticipates that future revenues will be
generated from product sales, credit sales, technology license fees, annual
waste treatment fees and/or direct ownership interests in Integrated
Projects. The Company expects to recognize revenue from product sales when
there is persuasive evidence that an arrangement exists, when title has
passed, the price is fixed or determinable, and collection is reasonably
assured. The Company expects that technology license fees will be generated
from the licensing of Bion's Systems. The Company anticipates that it will
charge its customers a non-refundable up-front technology license fee, which
will be recognized over the estimated life of the customer relationship. In
addition, any on-going technology license fees will be recognized as earned
based upon the performance requirements of the agreement. Annual waste
treatment fees will be recognized upon receipt. Revenues, if any, from the
Company's interest in Projects will be recognized when the entity in which
the Project has been developed recognizes such revenue.
Compensation Cost for Options with Service Conditions and Graded Vesting
Schedules
The Company has issued non-employee options that include service
conditions and have graded vesting schedules. Generally for these
arrangements, the measurement date of the services occurs when the options
vest. Recognition of compensation cost for reporting periods prior to the
measurement date is based on the then current fair value of the options.
Fair value of the options is determined using a Black-Scholes option-pricing
model. Any subsequent changes in fair value will be recorded on the
measurement date. Compensation cost in connection with options that are not
fully vested is being recognized on a straight-line basis over the requisite
service period for the entire award.
Stock-based Compensation
The Company follows the provisions of ASC 718 (formerly SFAS 123(R)),
which generally requires that share-based compensation transactions be
accounted and recognized in the statement of income based upon their fair
values.
26
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, FASB approved the FASB Accounting Standards Codification
("the Codification") as the single source of authoritative nongovernmental
GAAP. All existing accounting standard documents, such as FASB, American
Institute of Certified Public Accountants, Emerging Issues Task Force and
other related literature, excluding guidance from the Securities and Exchange
Commission ("SEC"), have been superseded by the Codification. All other non-
grandfathered, non-SEC accounting literature not included in the Codification
has become non-authoritative. The Codification did not change GAAP, but
instead introduced a new structure that combines all authoritative standards
into a comprehensive, topically organized online database. The Codification
is effective for interim or annual periods ending after September 15, 2009,
and impacts the Company's financial statements as all future references to
authoritative accounting literature will be referenced in accordance with the
Codification. There have been no changes to the content of the Company's
financial statements or disclosures as a result of implementing the
Codification during the quarter ended September 30, 2009.
As a result of the Company's implementation of the Codification during
the quarter ended September 30, 2009, previous references to new accounting
standards and literature are no longer applicable. In the current quarter
financial statements, the Company will provide reference to both new and old
guidance to assist in understanding the impacts of recently adopted
accounting literature, particularly for guidance adopted since the beginning
of the current fiscal year but prior to the Codification.
In December 2007, the FASB issued ASC 810 (formerly - SFAS No. 160),
"Consolidation" The standard changes the accounting for non-controlling
(minority) interests in consolidated financial statements, including the
requirements to classify non-controlling interests as a component of
consolidated stockholders' equity, and the elimination of minority interest
accounting in results of operations with earnings attributable to non-
controlling interests reported as part of consolidated earnings. Purchases
and sales of non-controlling interests are to be reported in equity similar
to treasury stock transactions. The standard became effective for the Company
on July 1, 2009. As a result the Company now reports noncontrolling interest
as a component of equity in its consolidated balance sheet and below net
(loss) income in its consolidated statement of operations. In addition, the
provisions of ASC 810 require that minority interest be renamed
noncontrolling interest and that a company present a consolidated net income
measure that includes the amount attributable to such noncontrolling
interests for all periods presented. As required by ASC 810, the Company has
retrospectively applied the presentation to all prior year balances
presented.
THREE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2008
General and Administrative
Total general and administrative expenses were $901,000 and $630,000 for
the three months ended September 30, 2009 and 2008, respectively.
27
General and administrative expenses, excluding stock-based compensation
charges of $190,000 and $153,000 for the three months ended September 30,
2009 and 2008, respectively, were $711,000 and $477,000 for the three months
ended September 30, 2009 and 2008, respectively. The primary reason for the
increase in general and administrative expenses were legal expenses/(credits)
for the three months ended September 30, 2009 and 2008 of $148,000 and
($29,000). Legal fees were higher during the first quarter of fiscal year
2010 due to the hiring of an additional law firm to pursue federal
legislative initiatives related to development of our Integrated Projects and
remediation business opportunities in addition to ongoing work related to our
Kreider projects. First quarter fiscal year 2009 legal credits were due to
insurance reimbursements of legal costs relating to the Centerpoint
litigation. The Company also expensed $35,000 in investor relations related
costs due to the increase in shareholders and investing activities.
General and administrative stock-based compensation for the three months
ended September 30, 2009 and 2008 consist of the following:
Three months Three months
ended ended
September 30, September 30,
2009 2008
------------- -------------
General and administrative:
Fair value remeasurement of options with
service conditions $ 65,000 $115,000
Fair value of stock options expensed 88,000 38,000
Fair value of stock bonuses expensed 37,000 -
-------- --------
Total $190,000 $153,000
======== ========
Stock-based compensation charges increased from $153,000 to $190,000 for
the three months ended September 30, 2008 and 2009, respectively. For the
three months ended September 30, 2009 the Company recognized expense relating
to the fair value of stock options for general and administrative employees
of $88,000, compared to $38,000 for the three months ended September 30,
2008. Compensation expense relating to stock options was higher during the
quarter ended September 30, 2009 due to 175,000 options being granted during
the period which were fully vested versus no options being issued during the
same period in the prior fiscal year. The Company also recognized general
and administrative expenses of $37,000 due to the issuance of stock bonuses
during the quarter ended September 30, 2009 which have vesting periods over a
year.
Research and Development
Total research and development expenses were $73,000 and $276,000 for
the three months ended September 30, 2009 and 2008, respectively.
28
Research and development expenses, excluding stock-based compensation
charges of $7,000 and $90,000 for the three months ended September 30, 2009
and 2008 were $66,000 and $186,000, respectively. The primary reason for the
decrease in research and development expenses during the three months ended
September 30, 2009 is due to the shift in the Company's focus from research
and development to pre-commercial and commercial activities related to its
next generation technology applications, therefore costs of various employees
and consultants (and their related activities) that were previously incurred
as research and development expense are now allocated to general and
administrative expense. Salary and payroll related taxes were $24,000 and
$102,000 for the three months ended September 30, 2009 and 2008,
respectively, and the decrease is due to the expensing of previous research
and development employees to general and administrative.
Research and development stock-based compensation for the three months
ended September 30, 2009 and 2008 consist of the following:
Three months Three months
ended ended
September 30, September 30,
2009 2008
------------- -------------
Research and development:
Fair value remeasurement of options with
service conditions $ - $65,000
Fair value of stock options expensed 7,000 25,000
------ -------
Total $7,000 $90,000
====== =======
Stock-based compensation expense decreased from $90,000 for the three
months ended September 30, 2008 to $7,000 for the same period in fiscal year
2010. The Company recorded $65,000 related to the fair value measurement of
options with services conditions during the three months ended September 30,
2008. There was no similar expense during the three months ended September
30, 2009 as the options became fully vested in fiscal year 2009. The Company
recorded stock-based compensation expense of $7,000 and $25,000 for the three
months ended September 30, 2009 and 2008, respectively for options vested to
research and development employees. The decrease is due to expensing options
issued to employees who in the prior year were deemed to be research and
development and in the fiscal year 2009 were primarily allocated to general
and administrative.
Loss from Operations
As a result of the factors described above, the loss from operations was
$973,000 and $906,000 for the three months ended September 30, 2009 and 2008,
respectively.
29
Other Expense and (Income)
Other expense and (income) was $(1,000) and $10,000 for the three months
ended September 30, 2009 and 2008, respectively. Interest expense decreased
to $1,000 for the three months ended September 30, 2009 from $12,000 for the
three months ended September 30, 2008. Interest expense decreased as there
was no interest bearing debt during the three months ended September 30,
2009. Interest income was $3,000 and $1,000 for the three months ended
September 30, 2009 and 2008, respectively.
Net Loss (Income) Attributable to the Noncontrolling Interest
The net loss (income) attributable to the noncontrolling interest was
$1,000 and ($14,000) for the three months ended September 30, 2009 and 2008,
respectively. The decrease was due to the fact during the quarter ended
September 30, 2008, Centerpoint had recognized other income due to the
settlement of litigation and legal expense reimbursements.
Net loss Attributable to Bion's Stockholders
As a result of the factors described above, the net loss attributable to
Bion's stockholders was $1,034,000 and $930,000 for the three months ended
September 30, 2009 and 2008, respectively, representing a $0.01 decrease in
the net loss per basic and diluted common share for the three months ended
September 30, 2009 and 2008 of $0.08 and $0.09, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements for the three months ended September
30, 2009 have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments in
the normal course of business. The Report of our Independent Registered
Public Accounting Firm on the Company's financial statements as of and for
the year ended June 30, 2009 includes a "going concern" explanatory paragraph
which means that the auditors stated that conditions exist that raise
substantial doubt about the Company's ability to continue as a going concern.
As of September 30, 2009, the Company had cash and cash equivalents of
approximately $1,382,000. During the three months ended September 30, 2009,
net cash used in operating activities was $633,000, primarily consisting of
cash operating expenses. As previously noted, the Company is currently not
generating revenue and accordingly has not generated cash flows from
operations. The Company does not anticipate generating sufficient revenues
to offset operating and capital costs for a minimum of one to five years.
While there are no assurances that the Company will be successful in its
efforts to develop and construct its Projects and market its Systems, it is
certain that the Company will require significant funding from external
sources. Given the unsettled state of the current credit and capital markets,
there is no assurance the Company will be able to raise the funds it needs on
reasonable terms.
30
Investing Activities
During the three months ended September 30, 2009 the Company used
$115,000 for the purchase of property and equipment and the design and
permitting of the KF Project which has been capitalized as property and
equipment.
Financing Activities
During the three months ended September 30, 2009, $13,000 of cash was
provided from the sale of the Company's restricted common stock and $596,000
was provided from the sale of the Company's Series B preferred stock. The
Company used $163,000 for the repayment of loans payable to affiliates and
$13,000 was paid for Series B preferred dividends.
As of September 30, 2009 the Company has significant debt obligations
consisting primarily of deferred compensation of $325,000. In addition, the
Company entered into an 88-month operating lease for office space in New York
City in August 2006, with an average monthly lease expense of $15,820. As of
September 30, 2009, the Company has 49 months remaining on the lease.
Plan of Operations and Outlook
As of September 30, 2009 the Company had cash and cash equivalents of
approximately $1,382,000. While the Company currently does not face a severe
working capital shortage, it is not currently generating any revenues. The
Company will need to obtain additional capital to fund its operations and
technology development, to satisfy existing creditors, to develop Projects
and to construct the KF facilities. In January 2009, the Board of
Pennsylvania Infrastructure Investment Authority approved a $7.8 million loan
to the Company for the initial stage of the KF Project. The Company
anticipates it will finalize the documentation for this loan during the next
90 days and intends to permit and construct this project during the 2010
fiscal year.
The Company anticipates that it will seek to raise from $5,000,000 to
$50,000,000 (debt and equity) during the next twelve months. There is no
assurance, especially in the extremely unsettled capital markets that
presently exist, 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.
There can be no assurance that funds required during the next twelve
months or thereafter will be generated from operations or that those funds
will be available from external sources such as debt or equity financings or
other potential sources. The lack of additional capital resulting from the
inability to generate cash flow from operations 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 no 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 unsettled credit and
capital markets presently existing.
31
Currently, Bion is focused on using applications of its patented waste
management technology to pursue two main business opportunities: 1) to
develop Integrated Projects which will include large CAFOs, such as large
dairies, beef cattle feed lots and hog farms, with Bion waste treatment
System modules processing the aggregate CAFO waste stream from the equivalent
of 40,000 or more beef and/or dairy cows (or the waste stream equivalent of
other species) while producing solids to be utilized for renewable energy
production (and potentially to be marketed as feed and/or fertilizer),
integrated with an ethanol plant capable of producing 40 (or more) million
gallons of ethanol per year and/or integrated with CAFO end product
processors, and 2) environmental retrofit and remediation of the waste
streams of existing CAFOs in selected markets.
Bion is currently working with local, state and federal officials and
with potential industry participants to evaluate sites in multiple states and
anticipates selecting a site for its initial Project during the 2010 fiscal
year. At present it is possible, but not certain, that the initial Integrated
Project will be located in upstate New York (although locations in other
states are also under review). In addition, Bion intends to choose sites for
additional Projects during the remainder of calendar years 2010-2012 to
create a pipeline of Projects. Management has a 5-year development target
(through calendar year 2015) of approximately 12-24 Integrated Projects. At
the end of the 5-year period, Bion projects that 8 or more of these
Integrated Projects will be in full operation in 3-8 states, and the balance
would be in various stages ranging from partial operation to early permitting
stage. No Integrated Project has been developed to date.
The Company has also commenced actively pursuing the opportunity
presented by environmental retrofit and remediation of the waste streams of
existing CAFOs in selected markets. The first commercial activity in this
area is the agreement with KF in Pennsylvania.
CONTRACTUAL OBLIGATIONS
We have the following material contractual obligations (in addition to
employment and consulting agreements with management and employees):
1) The Company executed a non-cancelable operating lease for office
space in New York City effective August 1, 2006 and extending to November 30,
2013. The average monthly rent expense under the lease is $15,820. The
Company has provided the lessor with a letter of credit in the amount of
$85,973 in connection with the lease as of September 30, 2009. The Company's
obligations under the lease are partially guaranteed by Salvatore Zizza,
former Chairman of Bion Projects. The Company has entered into sub-leases
with non-affiliated parties for approximately 32% of the obligations under
the lease. Effective January 1, 2009, Mr. Zizza has entered into a Master
Sublease with the Company whereby Mr. Zizza will become a sublessee and will,
for a one year initial period, make all payments pursuant to the lease and
manage the lease premises. Rental payments from existing sub-tenants will be
deposited into a Company bank account such that Mr. Zizza will have use of
those funds towards the monthly lease payment. Mr. Zizza will have the
option on or before November 15, 2009 to continue the Master Sublease for the
entire period of the lease. If Mr. Zizza fulfills his obligations under the
32
Master Sublease during the one year initial period, he shall receive the
funds from the next release from the Company's letter of credit approximating
$28,000. If Mr. Zizza exercises the option to continue the Master Sublease
for the entire term of the lease, Mr. Zizza will be entitled to the balance
of funds held under the letter of credit.
2) On September 27, 2008, the Company executed an agreement with
Kreider Farms (and its affiliated entities) (collectively "Kreider") to
design, construct and operate, through its wholly-owned subsidiaries, Bion
Services Group, Inc. ("Bion Services") and Bion PA-1 LLC ("LLC"), a Bion
system to treat the waste of the dairy cows (milkers, dry cows and heifers)
at the Kreider Dairy, located in Mannheim, Pennsylvania. In addition, the
agreement provides for a second phase which will include a renewable energy
facility that will treat cellulosic solid wastes from Phase 1 together with
the waste stream from Kreider's poultry facilities to produce renewable
energy for Bion's waste treatment facility and/or for market sales. The
system will be owned and operated by Bion through LLC, in which Kreider will
have the option to purchase a minority interest. To complete final design
work and all building, zoning and other related pre-construction matters,
substantial capital (equity and/or debt) has been and will continue to be
expended. Additional funds will be expended for construction. Upon
successful construction and operation of the system, the Company anticipates
that it will receive revenue from the sale of nutrient (and other)
environmental credits related to the Kreider system and through sales of
renewable energy generated at the Kreider system. On January 26, 2009 the
Board of the Pennsylvania Infrastructure Investment Authority (PENNVEST)
approved a $7.8 million loan to Bion for "the construction of a livestock
waste treatment facility at Kreider Farms..." for the Phase 1 dairy portion
of the Kreider Farms projects. The Company anticipates that the steps
required to finalize the pre-construction phase of the Pennvest Loan will
be completed during the next 90 days and that the initial drawdown/reimburse-
ment from Pennvest pursuant to the Pennvest Loan will be received shortly
thereafter.
3) The Company issued 200,000 shares of its restricted stock in January
2009 as prepayment for Mark Smith's calendar year 2009 salary of $150,000,
which the Company will expense as it is earned. As of September 30, 2009,
the Company has $37,500 of expense to recognize through December 31, 2009.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as that term is
defined in Item 303 of Regulation S-K) that are reasonably likely to have a
current or future material effect on our financial condition, revenue or
expenses, results of operations, liquidity, capital expenditures or capital
resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
33
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures.
The term "disclosure controls and procedures" is defined in Rules 13a-
15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). This term refers to the controls and procedures of a company
that are designed to ensure that information required to be disclosed by a
company in the reports that it files under the Exchange Act is recorded,
processed, summarized, and reported within the required time periods. Our
Chief Executive Officer and Principal Financial Officer has evaluated the
effectiveness of the design and operations of our disclosure controls and
procedures as of the end of the period covered by this quarterly report, and
has concluded that, as of that date, our disclosure controls and procedures
were not effective at ensuring that required information will be disclosed on
a timely basis in our reports filed under the Exchange Act, as a result of
the material weakness in internal control over financial reporting discussed
in Item 9(A) of our Form 10-K/A for the year ended June 30, 2009.
(b) Changes in Internal Control over Financial Reporting.
No change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no material developments in the legal proceedings
described in our Form 10-K since filing.
ITEM 1A. RISK FACTORS.
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the quarter ended September 30, 2009 the Company sold 8,769
shares of restricted common stock for $13,000 (not including 202,774 shares
issued valued at $229,560, in aggregate, to certain consultants and/or
employees for services and/or in conversion of outstanding obligations). The
proceeds were used for working capital purposes. Additional shares of
restricted common stock were issued in connection with compensation and other
matters. These shares were issued in reliance on the exemption in Section
4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
34
ITEM 5. OTHER INFORMATION.
Not Applicable
ITEM 6. EXHIBITS.
Exhibit No. Description
10.1 Agreement between Bright Capital, Ltd. and Dominic Bassani and
Bion effective September 30, 2009 - Incorporated by reference
to Exhibit 10.1 Registrant's Form 8-K dated September 30, 2009
10.2 Agreement between Mark A. Smith and Bion effective September 30,
2009 - Incorporated by reference to Exhibit 10.2 Registrant's
Form 8-K dated September 30, 2009
31.1 Certification of CEO and Principal Financial Officer pursuant
to Rule 13a-14(a) or Rule 15d-14(a) - Filed herewith
electronically
32.1 Certification of CEO and Principal Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 -
Filed herewith electronically
35
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Date: November 12, 2009 By:/s/ Mark A. Smith
Mark A. Smith, President (Chief
Executive Officer) and Interim Chief
Financial Officer (Principal Financial
and Accounting Officer)
36