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 March 31, 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)
|
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 May 13, 2009, there were 11,778,644 Common Shares issued and 11,074,335 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 ...... 7-25
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................. 26
Item 3. Quantitative and Qualitative Disclosures about Market Risk.. 39
Item 4. Controls and Procedures .................................... 39
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 40
Item 1A. Risk Factors................................................ 40
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds ................................................... 40
Item 3. Defaults Upon Senior Securities ............................ 40
Item 4. Submission of Matters to a Vote of Security Holders ........ 40
Item 5. Other Information .......................................... 40
Item 6. Exhibits ................................................... 41
Signatures ................................................. 42
-2-
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
2009 2008
------------ -----------
(unaudited)
|
ASSETS
Current assets:
Cash and cash equivalents $ 8,811 $ 478,899
Prepaid expenses 3,476 9,130
Deposits and other receivables 11,957 12,068
------------ ------------
Total current assets 24,244 500,097
------------ ------------
Restricted cash (Note 10) 85,973 128,443
Property and equipment, net (Note 4) 47,573 59,504
------------ ------------
Total assets $ 157,790 $ 688,044
============ ============
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 604,696 $ 567,811
Accrued payable - affiliate (Note 12) 41,647 41,647
Loans payable - affiliates (Note 6) 102,500 -
Notes payable - affiliates (Note 7) 170,218 -
Deferred compensation (Note 8) 250,000 25,000
------------ ------------
Total current liabilities 1,169,061 634,458
------------ ------------
Convertible promissory notes - affiliates
(Note 5) - 784,122
Deferred rent (Note 10) 72,985 71,865
------------ ------------
Total liabilities 1,242,046 1,490,445
------------ ------------
Minority interest (Note 3) 114,558 117,692
------------ ------------
Stockholders' deficit (Note 9):
Series A Preferred stock, $0.01 par value,
10,000 shares authorized, no shares issued
and outstanding - -
Series B Preferred stock, $0.01 par value,
50,000 shares authorized, no shares issued
and outstanding - -
Common stock, no par value, 100,000,000
shares authorized, 11,726,307 and 11,070,658
shares issued, respectively, 11,021,998 and
10,366,349 outstanding, respectively - -
Additional paid-in capital 74,098,100 73,422,195
Accumulated deficit (75,296,914) (74,342,288)
------------ ------------
Total stockholders' deficit (1,198,814) (920,093)
------------ ------------
Total liabilities and stockholders'
deficit $ 157,790 $ 688,044
============ ============
|
See notes to unaudited consolidated financial statements.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
Three months ended March 31, Nine months ended March 31,
2009 2008 2009 2008
----------- ------------ ----------- -----------
Revenue $ - $ - $ - $ -
Operating expenses:
General and administrative
(including stock-based
compensation (Note 9)) 780,987 237,847 1,569,229 546,434
Research and development
(including stock-based
compensation (Note 9)) 46,438 573,721 393,408 1,245,389
----------- ---------- ----------- -----------
Total operating expenses 827,425 811,568 1,962,637 1,791,823
----------- ---------- ----------- -----------
Loss from operations (827,425) (811,568) (1,962,637) (1,791,823)
----------- ---------- ----------- -----------
Other expense (income):
Interest expense 2,722 47,251 30,279 150,870
Interest income 1,109 (4,530) (972) (19,899)
Minority interest (Note 3) (12,830) (12,935) (3,134) 113,930
Forfeiture of deferred
compensation (Note 5) - - (959,184) -
Other, net - - (75,000) (1,258,195)
----------- ---------- ----------- -----------
(8,999) 29,786 (1,008,011) (1,013,294)
----------- ---------- ----------- -----------
Net loss $ (818,426) $ (841,354) $ (954,626) $ (778,529)
=========== ========== =========== ===========
Net loss per basic and
diluted common share $ (0.08) $ (0.10) $ (0.09) $ (0.10)
=========== ========== =========== ===========
Weighted-average number of
common shares outstanding,
basic and diluted 10,723,818 8,351,030 10,501,416 8,197,170
=========== ========== =========== ===========
|
See notes to unaudited consolidated financial statements.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED MARCH 31, 2009
(UNAUDITED)
Total
Common Stock Additional Accumulated stockholders'
Shares Amount paid-in capital deficit deficit
---------- ------ --------------- ------------- --------------
Balances, July 1, 2008 11,070,658 $ - $ 73,422,195 $(74,342,288) $ (920,093)
Vesting and remeasure-
ment of options for
services (Note 9) - - 132,669 - 132,669
Issuance of common
stock for services
(Note 9) 234,214 - 63,160 - 63,160
Issuance of warrants
for services (Note 9) - 164,000 - 164,000
Sale of common stock
(Note 9) 333,333 - 250,000 - 250,000
Conversion of debt to
equity (Note 9) 88,102 - 66,076 - 66,076
Net loss - - - (954,626) (954,626)
---------- ----- ------------ ------------ -----------
Balances, March 31,
2009 11,726,307 $ - $ 74,098,100 $(75,296,914) $(1,198,814)
========== ===== ============ ============ ===========
|
See notes to consolidated financial statements.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
2009 2008
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (954,626) $(778,529)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense 11,931 12,160
Accrued interest on convertible notes and debt 30,280 150,870
Stock-based compensation 359,829 363,683
Forfeiture of deferred compensation (959,184) -
Decrease in fair value of convertible notes - (548,104)
Minority interest (3,134) 113,930
Decrease in prepaid expenses 5,654 18,524
Decrease (increase) in deposits and other
receivables 111 (5,101)
Increase (decrease) in accounts payable and
accrued expenses 36,885 (27,411)
Increase in deferred rent 1,120 4,510
Increase in deferred compensation 441,076 554,280
----------- ---------
Net cash used in operating activities (1,030,058) (141,188)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in restricted cash 42,470 43,502
Proceeds from refund of property and equipment - 5,258
Purchase of property and equipment - (3,078)
----------- ---------
Net cash provided by investing activities 42,470 45,682
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 250,000 -
Proceeds from loans payable - affiliates 102,500 -
Proceeds from notes payable - affiliates 165,000 -
----------- ---------
Net cash provided by financing activities 517,500 -
----------- ---------
Net decrease in cash and cash equivalents (470,088) (95,506)
Cash and cash equivalents at beginning of year 478,899 373,109
----------- ---------
Cash and cash equivalents at end of year $ 8,811 $ 277,603
=========== =========
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 $ 66,076 $ 538,509
=========== =========
|
See notes to unaudited consolidated financial statements.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 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 from livestock waste streams based upon our research to date. Because Bion's technology reduces the harmful emissions from a CAFO on which it is utilized, the CAFO can increase its herd concentration while lowering or maintaining its level of nutrient releases and atmospheric emissions.
Since 2002, the Company has focused on completing development of its technology platform and business model. As such, 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. Bion is now actively pursuing business opportunities in two broad areas: 1) retrofit and environmental remediation of existing CAFOs (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 portions of the CAFO waste stream which renewable energy can be utilized by integrated 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 evaluating opportunities for development of Integrated Projects in New York, Nebraska and elsewhere.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 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 renewable energy facility ("REF") that will provide energy for Bion's waste treatment facility and/or for market sales through the combustion of the cellulose captured in the Bion process. The system will be owned and operated by Bion through LLC, a new entity to be formed and initially 100% owned by Bion Services, in which Kreider will have the option to purchase a minority interest. Additionally, the agreement may expand the REF component to include treatment of Kreider's poultry wastes. Upon completion of final design work and resolution of all building, zoning and other related pre-construction matters, substantial capital (equity and/or debt) will be expended. Upon successful construction and operation of the system, 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 at the Kreider system.
On January 26, 2009, the Board of the Pennsylvania Infrastructure Investment Authority approved a $7.8 million loan to Bion PA 1, LLC for the initial stage of Bion's Kreider Farms project. The Company anticipates that it will be able to complete the steps required to finalize this loan and commence this project during the current 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 incurred net losses of approximately $1,779,000 and $2,549,000 during the years ended June 30, 2008 and 2007, respectively, and a net loss of approximately $955,000 for the nine months ended March 31, 2009. At March 31, 2009, the Company has a working capital deficiency and a stockholders' deficit of approximately $1,145,000 and $1,199,000, 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 to satisfy its current operating requirements.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
1. ORGANIZATION, NATURE OF BUSINESS, GOING CONCERN AND MANAGEMENT'S PLANS (CONTINUED):
The Company currently faces a severe working capital shortage and 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 and to develop Projects. The Company anticipates that it will seek to raise from $3,000,000 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, Inc., BionSoil, Inc., Bion Services Group, Inc., 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. 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 March 31, 2009 and the results of operations and cash flows of the Company for the three and nine months ended March 31, 2009 and 2008. Operating results for the three and nine months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending June 30, 2009.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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-KSB for the year ended June 30, 2008.
Earnings (loss) per share:
Basic earnings (loss) per share amounts are calculated using the weighted average number of shares of common stock outstanding during the period. Diluted earnings (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 or increase earnings per share. The following is a reconciliation of the denominators of the basic earnings per share computations for the three and nine months ended March 31, 2009 and 2008 (a reconciliation of the numerators and denominators of the diluted earnings per share for the three and nine months ended March 31, 2009 and 2008 is not included as they are anti-dilutive):
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2009 2008 2009 2008
---------- ---------- ---------- ----------
Shares issued - beginning of period 11,226,658 9,044,829 11,070,658 8,770,079
Shares held by subsidiaries (Note 9) (704,309) (693,799) (704,309) (693,799)
---------- ---------- ---------- ---------
Shares outstanding - beginning of
period 10,522,349 8,351,030 10,366,349 8,076,280
Weighted average shares issued
during the period 201,469 - 135,067 120,890
---------- --------- ---------- ---------
Basic weighted average shares -
end of period 10,723,818 8,351,030 10,501,416 8,197,170
========== ========= ========== =========
|
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent accounting pronouncements
During October 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS 157"). This statement does not require any new fair value measurements but provides guidance on how to measure fair value and clarifies the definition of fair value under accounting principles generally accepted in the United States of America. The statement also requires new disclosures about the extent to which fair value measurements in financial statements are based on quoted market prices, market-corroborated inputs, or unobservable inputs that are based on management's judgments and estimates. This statement was effective for the Company on July 1, 2008 for all financial assets and liabilities. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Dates of FASB Statement No. 157 (the "FSP"). The FSP amends SFAS 157 to delay its effective date for non- financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). For items within its scope, the FSP defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. As it relates to financial assets and liabilities, the adoption of SFAS 157 did not have an impact on the Company's consolidated financial statements. The Company is still in the process of evaluating the impact that SFAS 157 will have on its non-financial assets and liabilities.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115 ("SFAS 159"). This statement permits entities to choose to measure eligible items at fair value at specified election dates. SFAS 159 was effective for the Company on July 1, 2008. The adoption of SFAS 159 did not have a material impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations ("SFAS 141R"). SFAS 141R continues to require the purchase
method of accounting to be applied to all business combinations, but it
significantly changes the accounting for certain aspects of business
combinations. Under SFAS 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS 141R will
change the accounting treatment for certain specific acquisition related
items including: (1) expensing acquisition related costs as incurred; (2)
valuing non-controlling interests at fair value at the acquisition date; and
(3) expensing restructuring costs associated with an acquired business. SFAS
141R also includes a substantial number of new disclosure requirements. SFAS
141R is to be applied prospectively to business combinations for which the
acquisition date is on or after July 1, 2009 for the Company. The Company
does not expect that the adoption of SFAS 141R will have an impact on its
consolidated financial statements unless the Company enters into business
acquisitions in the future.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements ("SFAS 160"). SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and separate from the parent company's equity. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated statement of operations, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. This statement is effective for the Company on July 1, 2009. The Company is currently evaluating the effect the adoption of this statement may have on its consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133 ("SFAS 161"). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring that the objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The statement is effective for the Company on January 1, 2009. The Company does not expect that the adoption of SFAS 161 will have an impact on its consolidated financial statements.
In June 2008, the FASB ratified Emerging Issues Task Force ("EITF") Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock ("EITF 07-5"). EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Paragraph 11(a) of SFAS No. 133 - specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company's own stock and (b) classified in stockholders' equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer's own stock and thus able to qualify for the SFAS No. 133 paragraph 11(a) scope exception. This statement is effective for the Company on July 1, 2009. The Company is currently evaluating the effect the adoption of this statement may have on its consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position ("FSP") SFAS 107-1 and Accounting Principles Board ("APB") 28-1, Interim Disclosures about Fair Value of Financial Instruments ("FSP 107-1"), which will require that the fair value disclosures required for all financial instruments within the scope of SFAS 107, Disclosures about Fair Value of Financial Instruments, be included in interim financial statements. This FSP also requires entities to disclose the method and significant assumptions used to estimate the fair value of financial instruments on an interim and annual basis and to highlight any changes from prior periods. FSP 107-1 will be effective for interim periods ending after June 15, 2009. The adoption of FSP 107-1 is not expected to have a material impact on the Company's financial statements.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
3. MINORITY 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 and nine months ended March 31, 2009 and 2008, Centerpoint had (losses) earnings of approximately $(31,200) and $(7,600), and $(30,300) and $664,700, respectively. Centerpoint's minority interest holders have a minority interest of $114,558 as of March 31, 2009.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following as of March 31, 2009:
Research and development equipment $ 305,266
Leasehold improvements 31,336
Furniture 28,932
Computers and office equipment 31,680
-----------
397,214
Less accumulated depreciation (349,641)
-----------
$ 47,573
===========
|
Depreciation expense was $3,567 and $4,094 for the three months ended March 31, 2009 and 2008, respectively, and $11,931 and $12,160 for the nine months ended March 31, 2009 and 2008, respectively.
5. CONVERTIBLE PROMISSORY NOTES:
In March and April 2007, the Company sold $800,000 of its Convertible Notes (the "Notes") for cash proceeds. In addition, the Company issued Notes to affiliates totaling $986,521 in exchange for promissory notes with convertible features and deferred compensation (Note 8). The Notes were convertible into shares of the Company's common stock at the price of $4.00 per share until maturity on July 1, 2008, or at the election of the Note holders, and accrued interest at 6% per annum. The Note holders also had the option to exchange the Notes, plus interest, for securities substantially identical to securities the Company sold in any offering prior to the completion of an offering in which the Company raises less than $3,000,000. The Company had the right to require the Notes (principal plus interest) be converted into its common shares at the lesser of $4.00 per share or the price of an offering in which the Company raised $3,000,000 or more.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
5. CONVERTIBLE PROMISSORY NOTES (CONTINUED):
On May 31, 2008, all of the non-affiliate Note holders, at their election per the terms of their original Notes, converted their Notes totaling $856,737 including accrued interest into 428,369 restricted common shares of the Company. Also on May 31, 2008, Notes held by affiliates totaling $650,427 including accrued interest were converted into 325,214 common shares of the Company. These Notes were converted at a price of $2.00 per share, the price at which the Company sold common stock during the same period.
On June 18, 2008, the remaining affiliated holder of the outstanding Notes increased the principal of his Note, maturing on July 1, 2013, by $375,000 to $784,122, which represented the potential deferred compensation (subject to forfeiture) through June 30, 2008. The holder, Salvatore Zizza, Chairman of Projects Group, agreed to add his future compensation from the Company to his Note as it accrued. As of December 31, 2008, the principal and interest on the Note totaled $959,184. Pursuant to an agreement dated December 19, 2008, (the "Zizza Agreement" see Note 11), Mr. Zizza agreed to no longer provide services to the Company effective December 31, 2008. In conjunction with the Zizza Agreement, Mr. Zizza's Note was returned to the Company on December 31, 2008 and it was cancelled, which resulted in the Company's recognition of income due to forfeiture of deferred compensation of $959,184. The deferred compensation underlying the convertible note had not yet vested at the date the Note was cancelled. In addition, the Note was subject to certain risks of forfeiture and/or cancellation.
The Notes accrued interest of $27,626 for the three months ended March 31, 2008 and $25,062 and $82,262 for the nine months ended March 31, 2009 and 2008, respectively.
6. LOANS PAYABLE - AFFILIATES:
As of March 31, 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 have loaned the Company $60,000, $7,500 and $35,000, respectively, for working capital needs. The loans are non-interest bearing and will be repaid when the Company has adequate cash.
7. PROMISSORY NOTES PAYABLE - AFFILIATES:
During September 2008, Mr. Zizza and Mr. Bassani loaned the Company $50,000 each under separate promissory notes. Under the terms of the promissory notes, which allow for additional monies to be loaned, the notes bear interest at 8% per annum and were payable on or before February 1, 2009. Pursuant to the Zizza Agreement (Note 11) and the Brightcap Agreement (Note 11), the terms of the promissory notes were amended to allow for the conversion of the interest and principal of the notes, in whole or in part, into shares of the Company's restricted common stock at a price of $0.75 per share, which was equal to the fair value at the date of the agreements. The maturity dates of the Zizza and Bassani promissory notes were extended to June 30, 2009.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
7. PROMISSORY NOTES PAYABLE - AFFILIATES (CONTINUED):
During October 2008, a major shareholder loaned the Company $65,000 under a promissory note. Under the terms of the promissory note, which allows for additional monies to be loaned, the note bears interest at 8% per annum and was payable on or before March 1, 2009. In January 2009, an agreement was reached whereby the maturity of the $65,000 promissory note was extended to June 30, 2009 in consideration of a) at the election by the note holder, the ability to convert the principal and interest into the Company's restricted common stock at $0.75 per share, the fair value of the shares, at any date prior to repayment and b) the issuance of a warrant to purchase 15,000 shares of the Company's common stock at $0.75 per share until December 31, 2018. The modification of the debt was not materially different from the original debt and there were no beneficial conversion features present with the modification.
The promissory notes had accrued interest expense of $5,218 as of March 31, 2009.
8. DEFERRED COMPENSATION:
The Company accrued $750,000 ($150,000 to Mr. Smith, $300,000 to Brightcap Capital Ltd. ("Brightcap") for services provided by Mr. Bassani, and $300,000 to Mr. Zizza) as deferred compensation during each of the years ended June 30, 2008 and 2007. During fiscal year 2007 the Company entered into agreements converting deferred compensation amounts totaling $975,000 into promissory notes with conversion agreements. Accrued principal and interest owed under the promissory notes with conversion agreements of Mr. Smith and Brightcap were converted to Convertible Promissory Notes in March 2007 (Note 5).
During fiscal year 2008, the Company entered into an agreement with Brightcap converting deferred compensation of $350,000 owed as of May 31, 2008 into a promissory note with a conversion agreement. The convertible note plus accrued interest totaling $350,805 was exchanged for 175,403 common shares at $2.00 per share of the Company on June 15, 2008. In addition, the Company entered into an extension agreement with Mr. Smith which allowed for the conversion of deferred compensation accrued through June 30, 2008 of $179,280 into 89,640 common shares of the Company at $2.00 per share. The Company was in the process of a private placement offering of common shares at $2.00 per share around the time that Brightcap and Mr. Smith converted their deferred compensation into common shares of the Company at $2.00 per share. In addition to the fact that third parties were buying common shares of the Company for cash at $2.00 per share, the quoted market price of the shares at the time was approximately $2.00 per share. Therefore, $2.00 was deemed to be the fair value. As the conversion price of $2.00 per share approximated the fair value of the shares at the time the conversion agreement was entered into, no beneficial conversion feature existed. Also during fiscal year 2008, the Company mutually agreed with Mr. Zizza to convert his deferred compensation earned through June 30, 2008 of $375,000, and his ongoing compensation as it accrues to additional principal to his 2007 Note. Mr. Zizza's 2007 Note was cancelled on December 31, 2008 (see Note 11).
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
8. DEFERRED COMPENSATION (CONTINUED):
As of March 31, 2009 the Company owed Brightcap deferred compensation of $250,000. The Company entered into the Brightcap Agreement (see Note 11), whereby the deferred compensation of Brightcap owed as of December 31, 2008 totaling $175,000, was made convertible until December 31, 2009 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 at the time the conversion agreement was entered into, no beneficial conversion feature existed.
9. STOCKHOLDERS' EQUITY:
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. 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 other series of preferred stock the Company may designate in the future.
As a result of dividends declared in July 2004, Centerpoint holds 693,799 shares of the Company's common stock for the benefit of its shareholders without any beneficial interest. The Company accounts for these shares similar to treasury stock.
As a result of Company common shares being distributed pursuant to a settlement in April 2008, Centerpoint holds 10,510 shares of the Company's common stock for the benefit of its shareholders without any beneficial interest. The Company accounts for these shares similar to treasury stock.
From November 2008 through March 2009, the Company issued 333,333 shares of the Company's restricted common stock at $0.75 per share for cash proceeds of $250,000.
In January 2009, pursuant to the Smith Agreement (Note 11), 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 March 31, 2009, the Company has recorded $37,500 as compensation expense and $112,500 remains to be expensed through December 2009. Also during January 2009, the Company issued 88,102 shares of the Company's restricted common stock at $0.75 per share for deferred compensation owed Mr. Smith at December 31, 2008 of $66,076.
During January and February 2009, the Company issued 12,880 of its restricted common stock at $0.75 per share for consulting services valued at $9,660.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED):
In March 2009, the Company issued 21,334 shares of the Company's restricted common stock at $0.75 per share for services valued at $16,000 to its employees.
Warrants:
As of March 31, 2009, the Company had the following common stock warrants outstanding:
Number of Exercise
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 SV-SEI 3-4 9,375 $ 1.50 June 30, 2009
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
---------
4,421,667
=========
|
During December 2008, 450,000 warrants were cancelled pursuant to the terms of the Zizza Agreement (see Note 11).
In January 2009, warrants to purchase 1,000,000 and 300,000 shares of the Company's common stock at $0.75 per share were issued pursuant to various agreements with Mr. Bassani and Mr. Smith, respectively (Note 11). The warrants were determined to have a fair value of $0.10 per warrant and expire on December 31, 2018. The value placed upon the warrants to purchase common stock at $0.75 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
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED):
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 $0.75 per share, and the historical valuation and purchases of the Company's warrants. Additionally, 2,000,000 and 610,000 warrants originally issued to Mr. Bassani and Mr. Smith, respectively, were extended to December 31, 2018. The Company recorded non-cash compensation of $130,000 and $32,500 related to the warrant issuances and extensions, respectively.
In January 2009, warrants to purchase 15,000 shares of the Company's common stock at $0.75 per share were issued in consideration for the extension of the promissory note owed to a major shareholder of the Company (see Note 7). The warrants were valued at $0.10 per warrant, as described above, and expire on December 31, 2018. The Company recorded non-cash compensation of $1,500 related to the warrant issue.
The weighted average exercise price for the outstanding warrants is $1.96 and the weighted average remaining contractual life as of March 31, 2009 is 9.2 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 and to increase the maximum grant of stock options to a single employee/consultant from 500,000 to 1,000,000 options during a twelve month period. 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, pursuant to SFAS
123(R) "Share-Based Payment", 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.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED):
The Company recorded compensation expense related to employee stock options of $58,086 and $78,925 for the three months ended March 31, 2009 and 2008, respectively, and $205,083 and $443,891 for the nine months ended March 31, 2009 and 2008, respectively. The Company granted 75,000 and 145,000 options during the nine months ended March 31, 2009 and 2008, respectively. During the nine months ended March 31, 2009 and 2008, 262,500 and 45,000 options expired, respectively.
A summary of option activity under the 2006 Plan for the nine months ended March 31, 2009 is as follows:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price Life Value
--------- -------- ----------- ---------
Outstanding at July 1, 2008 2,183,333 $ 3.06 4.6 $ 7,950
Granted 75,000 1.00
Exercised - -
Forfeited - -
Expired (262,500) 2.83
--------- ------ ----- ---------
Outstanding at March 31, 2009 1,995,833 $ 3.01 4.5 $ 18,750
========= ====== ===== =========
Exercisable at March 31, 2009 1,583,334 $ 2.98 4.5 $ 18,750
========= ====== ===== =========
|
The following table presents information relating to nonvested stock options as of March 31, 2009:
Weighted Average
Grant-Date
Options Fair Value
---------- ----------------
Nonvested at July 1, 2008 562,916 $ 1.29
Granted 75,000 0.32
Vested (225,417) (1.09)
Forfeited - -
-------- ------
Nonvested at March 31, 2009 412,499 $ 1.22
======== ======
|
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED):
The total fair value of stock options that vested during the nine months ended March 31, 2009 and 2008 was $245,189 and $443,950, respectively. The intrinsic value of stock options exercised during the nine months ended March 31, 2009 and 2008 was zero as there were no options exercised during these periods. As of March 31, 2009 the Company had $231,693 of unrecognized compensation cost related to stock options that will be recorded over a weighted average period of 1.5 years.
The Company has issued options to non-employees to purchase shares of the Company's common stock in exchange for services. As of March 31, 2009, non-employee options represented 595,833 of the 1,995,833 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 March 31, 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 for the nine months ended March 31, 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 March 31, 2009, 312,500 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. In accordance with Emerging Issues Task Force ("EITF") Issue No. 96-18, 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 March 31, 2009; a dividend yield of zero, risk-free interest rates of 1.98% to 2.71%, volatility of 149% to 154% and an expected life of 6.1 to 9.5 years. Consulting cost in connection with options that are not fully vested as of March 31, 2009 is being recognized on a straight-line basis over the requisite service period for the entire award. Non-cash fair value charges/(credits) of $137,200 and $(10,062) were recorded within expense during the three months ended March 31, 2009 and 2008, respectively and $(72,415) and $(80,208) for the nine months ended March 31, 2009 and 2008, respectively.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED):
Stock-based compensation charges/(credits) in operating expenses in the
Company's financial statements for the three and nine months ended March 31,
2009 and 2008 are as follows:
Three Three Nine Nine
months months months months
ended ended ended ended
March March March March
31, 2009 31, 2008 31, 2009 31, 2008
--------- --------- --------- ---------
General and administrative:
Fair value remeasurement of
convertible notes - affiliates $ - $ - $ - $(237,383)
Fair value remeasurement of
options with service conditions 137,200 - (137,875) -
Fair value of stock options
expensed under SFAS 123(R) 58,086 16,331 172,454 244,776
-------- --------- --------- ---------
Total $195,286 $ 16,331 $ 34,579 $ 7,393
======== ========= ========= =========
Research and development:
Fair value remeasurement of
convertible notes - affiliates $ - $ 50,856 $ - $(310,721)
Fair value remeasurement of
options with service conditions - (10,062) 65,460 (80,208)
Fair value of stock options
expensed under SFAS 123(R) - 62,594 32,630 199,115
-------- --------- --------- ---------
Total $ - $ 103,388 $ 98,090 $(191,814)
======== ========= ========= =========
|
10. 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 March 31, 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.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
10. OPERATING LEASE (CONTINUED):
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 $72,985 as of March 31, 2009. Rent expense, net of contractual and month to month sub-lease rental income was $5,122 and $16,553 and $35,830 and $72,887 for the three and nine months ended March 31, 2009 and 2008, respectively.
At March 31, 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
------------ --------------- --------- --------------
Three months ending June 30,
2009 $ 46,260 $ 14,803 $ 31,457
2010 191,405 61,249 130,156
2011 198,602 63,553 135,049
2012 212,775 68,088 144,687
2013 225,756 72,242 153,514
Thereafter 97,219 31,110 66,109
-------- -------- --------
Total $972,017 $311,045 $660,972
======== ======== ========
|
Effective January 1, 2009, Mr. Zizza has entered into a Master Sublease with the Company whereby Mr. Zizza will become a subleasee 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 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.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES:
Employment and consulting agreements:
The Company had an employment agreement with its president, Mr. Smith, through December 31, 2007 providing $150,000 per year compensation. On November 7, 2007, the Company extended the employment agreement through December 31, 2008. On May 31, 2008, an agreement was reached whereby Mr. Smith would continue his services as president through December 31, 2008 and effective January 1, 2009 (or March 31, 2009 at the latest) through December 31, 2009, he would provide services to the Company in a consulting capacity at his current compensation. On January 11, 2009, the Company and Mr. Smith entered into the Smith Agreement whereby Mr. Smith will continue to hold positions of Director, President and General Counsel of the Company and its subsidiaries. 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, 2008 into shares of the Company's common stock (See Note 9).
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 requires 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 and 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 extends 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.
Effective May 1, 2005, the Company entered into a four-year consulting/employment agreement with a former officer and director of the Company, Salvatore Zizza. As of January 1, 2006, the former officer and director assumed the position of Chairman and director of Dairy, with an annual
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED):
salary of $300,000. Pursuant to an agreement dated December 19, 2008, Mr.
Zizza will no longer provide services to the Company as of December 31, 2008
and the following terms were agreed upon (and subsequently effected): a) Mr.
Zizza's 600,000 warrants were returned to the Company and the Company
reissued a certificate to Mr. Zizza representing 150,000 warrants with no
changes in the terms and conditions of the original warrants, b) all options
owned by Mr. Zizza shall vest on the existing schedule, c) the Company
canceled the 2007 Series AB Convertible Promissory Note owned by Mr. Zizza
which represented accrued deferred compensation from the Company (see Note
5), d) the $50,000 promissory note owed to Mr. Zizza remains outstanding and
has been amended to include the right of Mr. Zizza to convert the principal
and interest, in whole or part, into the Company's common stock at a price of
$0.75 per share at any date prior to the repayment of the Company (see Note
7), e) the Company's existing accrued payable of $41,647 to Mr. Zizza
remains a valid obligation of the Company with the additional right of Mr.
Zizza to convert the accrued payable, in whole or in part, into the Company's
restricted common stock at a price of $0.75 per share (see Note 12) and f)
the Company entered into a Master Sublease as described in Note 10.
Effective May 1, 2005, the Company entered into a four-year consulting/employment agreement with Jeff Kapell. Under the terms of the agreement, Mr. Kapell provided part-time services to the Company through March 2006. In April 2006, Mr. Kapell was appointed Dairy's Vice President- Renewables at a salary of $120,000 per year. In June 2008, the employment agreement terms were extended through July 1, 2012. Mr. Kapell left the employ of the Company effective November 1, 2008 by mutual agreement. Mr. Kapell has performed consulting services for the Company since November 2008.
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.
Effective June 1, 2007, the Company entered into an employment agreement, effective through August 31, 2009, with Craig Scott whereby Mr. Scott was appointed Vice President of Capital Markets/Investor Relations at an annual salary of $120,000.
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 December 31, 2008, 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.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2009 (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED):
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.
12. RELATED PARTY TRANSACTIONS:
The Company has an accrued payable of $41,647 as of March 31, 2009, to a company controlled by Mr. Zizza for rental of office space in 2003. Pursuant to the Zizza Agreement, Mr. Zizza has the option to convert the payable into common shares of the Company's stock at $0.75 per share at any time prior to the obligation being paid by the Company.
13. SUBSEQUENT EVENTS:
On April 29, 2009, the Company amended its Articles of Incorporation to designate the preferences of a class of 50,000 shares of Series B Convertible Preferred Stock ("B Stock") with a par value of $0.01 per share. Each Series B Preferred Stock, once issued, accrues quarterly dividends at a rate of 2.5% per quarter and is convertible into the Company's common stock at $2.00 per share. As of May 13, the Company has issued 4,005 shares of its Series B Preferred shares for gross proceeds of $400,500 and in addition has received $115,000 in subscriptions for 1,150 shares of the Company's Series B Preferred shares.
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-KSB for the year ended June 30, 2008.
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) 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, and 2) environmental retrofit and remediation of the waste streams of existing CAFOs in selected markets.
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 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 28, 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 it will be able to complete the steps required to finalize this loan and commence permitting and 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 portions of the CAFO waste stream which renewable energy can be utilized by integrated 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. 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 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 2009 calendar 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 2009-2010 to create a pipeline of Projects. Management has a 5-year development target (through calendar year 2015) of approximately 12-25 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, 2008 and 2007 have been prepared assuming the Company will continue as a going concern. The Company has incurred net losses of approximately $1,779,000 and $2,549,000 during the years ended June 30, 2008 and 2007, respectively. At June 30, 2008, the Company had a working capital deficiency and a stockholders' deficit of approximately $134,000 and $920,000, respectively. The financial statements for the three and nine months ended March 31, 2009 and 2008 have also been prepared assuming the Company will continue as a going concern. The Company has incurred net losses of approximately $818,000 and $955,000 for the three and nine month periods ended March 31, 2009, respectively. At March 31, 2009, the Company has a working capital deficiency and a stockholders' deficit of approximately $1,145,000 and $1,199,000, 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, 2008 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.
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. In accordance with Emerging Issues Task Force Issue No. 96-18, 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
On July 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised), "Share-Based Payment" ("SFAS 123(R)"), which supersedes Accounting Principles Board Opinion No. 25 ("APB 25"), and generally requires that share-based compensation transactions be accounted and recognized in the statement of income based on their fair values. The Company adopted SFAS 123(R)using the modified prospective application under which all share based awards granted on or after the adoption date and modifications, repurchases or cancellation of prior awards made after the adoption date shall be accounted for under SFAS 123(R). The modified prospective application does not require the Company to restate prior period's financial results to reflect the adoption.
RECENT ACCOUNTING PRONOUNCEMENTS
During October 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS 157"). This statement does not require any new fair value measurements but provides guidance on how to measure fair value and clarifies the definition of fair value under accounting principles generally accepted in the United States of America. The statement also requires new disclosures about the extent to which fair value measurements in financial statements are based on quoted market prices, market-corroborated inputs, or unobservable inputs that are based on management's judgments and estimates. This statement was effective for the Company on July 1, 2008 for all financial assets and liabilities. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Dates of FASB Statement No. 157 (the "FSP"). The FSP amends SFAS 157 to delay its effective date for non- financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). For items within its scope, the FSP defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. As it relates to financial assets and liabilities, the adoption of SFAS 157 did not have an impact on the Company's consolidated financial statements. The Company is still in the process of evaluating the impact that SFAS 157 will have on its non-financial assets and liabilities.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115 ("SFAS 159"). This statement permits entities to choose to measure eligible items at fair value at specified election dates. SFAS 159 was effective for the Company on July 1, 2008. The adoption of SFAS 159 did not have a material impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations ("SFAS 141R"). SFAS 141R continues to require the purchase
method of accounting to be applied to all business combinations, but it
significantly changes the accounting for certain aspects of business
combinations. Under SFAS 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS 141R will
change the accounting treatment for certain specific acquisition related
items including: (1) expensing acquisition related costs as incurred; (2)
valuing non-controlling interests at fair value at the acquisition date; and
(3) expensing restructuring costs associated with an acquired business. SFAS
141R also includes a substantial number of new disclosure requirements. SFAS
141R is to be applied prospectively to business combinations for which the
acquisition date is on or after July 1, 2009 for the Company. The Company
does not expect that the adoption of SFAS 141R will have an impact on its
consolidated financial statements unless the Company enters into business
acquisitions in the future.
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements ("SFAS 160"). SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported
as equity in the consolidated financial statements and separate from the parent company's equity. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated statement of operations, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. This statement is effective for the Company on July 1, 2009. The Company is currently evaluating the effect the adoption of this statement may have on its consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133 ("SFAS 161"). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring that the objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The statement is effective for the Company on January 1, 2009. The Company does not expect that the adoption of SFAS 161 will have an impact on its consolidated financial statements.
In June 2008, the FASB ratified Emerging Issues Task Force ("EITF") Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock ("EITF 07-5"). EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Paragraph 11(a) of SFAS No. 133 - specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company's own stock and (b) classified in stockholders' equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer's own stock and thus able to qualify for the SFAS No. 133 paragraph 11(a) scope exception. This statement is effective for the Company on July 1, 2009. The Company is currently evaluating the effect the adoption of this statement may have on its consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position ("FSP") SFAS 107-1 and Accounting Principles Board ("APB") 28-1, Interim Disclosures about Fair Value of Financial Instruments ("FSP 107-1"), which will require that the fair value disclosures required for all financial instruments within the scope of SFAS 107, Disclosures about Fair Value of Financial Instruments, be included in interim financial statements. This FSP also requires entities to disclose the method and significant assumptions used to estimate the fair value of financial instruments on an interim and annual basis and to highlight any changes from prior periods. FSP 107-1 will be effective for interim periods ending after June 15, 2009. The adoption of FSP 107-1 is not expected to have a material impact on the Company's financial statements.
THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 2008
General and Administrative
Total general and administrative expenses increased from $238,000 to $781,000 for the three months ended March 31, 2008 and 2009, respectively.
General and administrative expenses, excluding stock-based compensation charges of $195,000 and $16,000 for the three months ended March 31, 2009 and 2008, respectively, were $586,000 versus $222,000 for the three months ended March 31, 2009 and 2008, respectively. The primary reason for the increase in general and administrative expenses excluding stock-based compensation during the three months ended March 31, 2009 is due to the shift in the Company's focus from research and development to pre-commercial and commercial business activities related to its next generation technology applications, therefore costs of various employees and consultants (and their activities) that were previously incurred as research and development expense are now allocated to general and administrative expense. Salary and payroll related taxes were $160,000 and $45,000 for the three months ended March 31, 2009 and 2008, respectively, and the increase is due to the expensing of previous research and development employees to general and administrative expense. Consulting expense increased from $50,000 to $70,000 for the three months ended March 31, 2008 and 2009, respectively due to the Company's shift from research and development to general and administrative described above and additional legal, lobbying and public relations consulting during the three months ended March 31, 2009. Compensation costs related to the Company's president and vice-president increased from $38,000 for the three months ended March 31, 2008 to $275,000 for the three months ended March 31, 2009 due to the shift from research and development costs to general and administrative and bonuses awarded of $38,000 and $125,000, respectively, during the three months ended March 31, 2009.
General and administrative stock-based compensation for the three years ended March 31, 2009 and 2008 consist of the following:
Three months Three months
ended ended
March 31, March 31,
2009 2008
------------- -------------
Fair value remeasurement of options
with service conditions $ 137,000 $ -
Fair value of stock options expensed
under SFAS 123(R) 58,000 16,000
--------- --------
Total $ 195,000 $ 16,000
========= ========
|
Stock-based compensation charges increased to $195,000 for the three months ended March 31, 2009 from $16,000 for the three months ended March 31, 2008. The Company recognized as general and administrative expenses $137,000 for the remeasurement of options with service conditions due to the reallocation of research and development related costs and the increase in the fair value of the options from approximately $0.91 to $0.97 per share to approximately $1.14 to $1.22 per share during the three months ended March 31, 2009. For the three months ended March 31, 2009 the Company recognized expense relating to the fair value of stock options for general and administrative employees of $58,000, compared to $16,000 for the three months ended March 31, 2008.
Research and development
Total research and development expenses have decreased $528,000 from $574,000 to $46,000 for the three months ended March 31, 2008 and 2009, respectively.
Research and development expenses, excluding stock-based compensation charges of zero and $103,000 for the three months ended March 31, 2009 and 2008, respectively, were $46,000 and $471,000 for the three months ended March 31, 2009 and 2008, respectively. The primary reason for the decrease in research and development expenses during the three months ended March 31, 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 $40,000 and $188,000 for the three months ended March 31, 2009 and 2008, respectively, and the decrease is due to the expensing of previous research and development employees to general and administrative. Consulting expenses also decreased significantly, from $150,000 to zero for the three months ended March 31, 2008 and 2009, respectively, due to the shift from research and development to general and administrative.
Research and development stock-based compensation for the three months ended March 31, 2009 and 2008 consist of the following:
Three months Three months
ended ended
March 31, March 31,
2009 2008
------------- -------------
Fair value remeasurement of convertible
notes - affiliates $ - $ 51,000
Fair value remeasurement of options with
service conditions - (10,000)
Fair value of stock options expensed
under SFAS 123 (R) - 62,000
--------- ---------
Total $ - $ 103,000
========= =========
|
Stock-based compensation charges decreased from $103,000 for the three months ended March 31, 2008 to zero for the same period in fiscal year 2009. Stock-based compensation fair value adjusted credits of $51,000 for the three months ended March 31, 2008, were recorded to re-measure the fair value of Brightcap's convertible deferred compensation. There was no similar charge for the three months ended March 31, 2009 as the note was converted at May 31, 2008. The Company recorded stock-based compensation expense of $62,000 under the provisions of SFAS 123(R) for the three months ended March 31, 2008 for options vested to research and development employees, while no similar expense occurred for the three months ended March 31, 2009 due to the reallocation to general and administration. The Company also recognized as research and development credits of $(10,000) for the remeasurement of
options with service conditions for the three months ended March 31, 2008 while no expense was recognized for the three months ended March 31, 2009 due to the allocation of such expenses to general and administrative expenses.
Loss from Operations
As a result of the factors described above, the loss from operations was $827,000 and $812,000 for the three months ended March 31, 2009 and 2008, respectively.
Other expense and (income)
Other expense and (income) was $(9,000) and $30,000 for the three months ended March 31, 2009 and 2008, respectively. Interest expense decreased $44,000 from $47,000 for the three months ended March 31, 2008 to $3,000 for the three months ended March 31, 2009. Interest expense decreased for the three months ended March 31, 2009 due to lower debt balances compared to the same period in the prior year as the 2006 and 2007 Series A Notes were settled in fiscal year 2008.
Net loss
As a result of the factors described above, the net loss was $818,000 and $841,000 for the three months ended March 31, 2009 and 2008, respectively, representing a $0.02 decrease in the net loss per basic and diluted common share for the three months ended March 31, 2009 and 2008, respectively.
NINE MONTHS ENDED MARCH 31, 2009 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
2008
General and Administrative
Total general and administrative expenses increased from $546,000 to $1,569,000 for the nine months ended March 31, 2008 and 2009, respectively.
General and administrative expenses, excluding stock-based compensation charges of $34,000 and $7,000 for the nine months ended March 31, 2009 and 2008, respectively, were $1,535,000 versus $539,000 for the nine months ended March 31, 2009 and 2008, respectively. The primary reason for the increase in general and administrative expenses excluding stock-based compensation during the nine months ended March 31, 2009 is due to the shift in the Company's focus from research and development to pre-commercial and commercial business activities related to its next generation technology applications, therefore costs of various employees and consultants (and their activities) that were previously incurred as research and development expense are now allocated to general and administrative expense. Salary and payroll related taxes were $440,000 and $135,000 for the nine months ended March 31, 2009 and 2008, respectively, and the increase is due to the expensing of previous research and development employees to general and administrative expense. Consulting expense increased from $83,000 to $339,000 for the nine months ended March 31, 2008 and 2009, respectively due to the Company's shift from research and development to general and administrative described above and additional lobbying and public relations consulting during the nine
months ended March 31, 2009. Legal costs increased $66,000 for the nine months ended March 31, 2009 due to the fact during the nine months ended March 31, 2008 insurance reimbursements for the Centerpoint litigation of $133,000 were received. The Company also incurred lower rent expense, $36,000 and $73,000 for the nine months ended March 31, 2009 and 2008, respectively, due to additional sub-tenant month to month rentals during the nine months ended March 31, 2009
General and administrative stock-based compensation for the nine years ended March 31, 2009 and 2008 consist of the following:
Nine months Nine months
ended ended
March 31, March 31,
2009 2008
------------- -------------
Fair value remeasurement of
convertible notes - affiliates $ - $(237,000)
Fair value remeasurement of options
with service conditions (138,000) -
Fair value of stock options expensed
under SFAS 123(R) 172,000 245,000
--------- ---------
Total $ 34,000 $ 8,000
========= =========
|
Stock-based compensation charges increased to $34,000 for the nine months ended March 31, 2009 from $8,000 for the nine months ended March 31, 2008. The change in stock-based compensation fair value adjusted expense relating to the President's convertible deferred compensation of $(237,000) is primarily due to the fact his note was converted in December 2007, therefore no remeasurement was required for the nine months ended March 31, 2009. For the nine ended March 31, 2009 the Company recognized expense relating to the fair value of stock options for general and administrative employees of $172,000, compared to $245,000 for the nine months ended March 31, 2008. The Company also recognized as general and administrative expenses $(138,000) for the remeasurement of options with service conditions due to the reallocation of research and development related costs and the decrease in the fair value of the options from approximately $2.06 per share to approximately $1.22 per share during the nine months ended March 31, 2009.
Research and development
Total research and development expenses have decreased $852,000 from $1,245,000 to $393,000 for the nine months ended March 31, 2008 and 2009, respectively.
Research and development expenses, excluding stock-based compensation charges/(credits) of $98,000 and $(192,000) for the nine months ended March 31, 2009 and 2008, respectively, were $295,000 and $1,437,000 for the nine months ended March 31, 2009 and 2008, respectively. The primary reason for the decrease in research and development expenses during the nine months ended March 31, 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 $188,000 and $546,000 for the nine months ended March 31, 2009 and 2008, respectively, and the decrease is due to the expensing of previous research and development employees to general and administrative. Consulting expenses also decreased significantly, from $449,000 to $16,000 for the nine months ended March 31, 2008 and 2009, respectively, due to the shift from research and development to general and administrative.
Research and development stock-based compensation for the nine months ended March 31, 2009 and 2008 consist of the following:
Nine months Nine months
ended ended
March 31, March 31,
2009 2008
------------- -------------
Fair value remeasurement of convertible
notes - affiliates $ - $(311,000)
Fair value remeasurement of options with
service conditions 65,000 (80,000)
Fair value of stock options expensed
under SFAS 123 (R) 33,000 199,000
-------- ---------
Total $ 98,000 $(192,000)
======== =========
|
Stock-based compensation charges/(credits) increased from $(192,000) for the nine months ended March 31, 2008 to $98,000 for the same period in fiscal year 2009. Stock-based compensation fair value adjusted credits of $(311,000) for the nine months ended March 31, 2008, were recorded to re- measure the fair value of Brightcap's convertible deferred compensation. There was no similar charge for the nine months ended March 31, 2009 as the note was converted at May 31, 2008. The Company recorded stock-based compensation expense of $33,000 and $199,000 under the provisions of SFAS 123(R) for the nine months ended March 31, 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. The Company also recognized as research and development credits of $(80,000) for the remeasurement of options with service conditions for the nine months ended March 31, 2008 while $65,000 was expensed for the nine months ended March 31, 2009 due to the allocation of such expenses to general and administrative expenses.
Loss from Operations
As a result of the factors described above, the loss from operations was $1,963,000 and $1,792,000 for the nine months ended March 31, 2009 and 2008, respectively.
Other expense and (income)
Other expense and (income) was $(1,008,000) and $(1,013,000) for the nine months ended March 31, 2009 and 2008, respectively. Interest expense decreased $121,000 from $151,000 for the nine months ended March 31, 2008 to $30,000 for the nine months ended March 31, 2009. Interest expense decreased for the nine months ended March 31, 2009 due to lower interest bearing debt balances as the 2006 and 2007 Series A Notes were settled in fiscal year 2008. For the nine months ended March 31, 2009, the Company recognized other income of $1,034,000 due to the forfeiture of deferred compensation relating the cancellation of Mr. Zizza's Notes of $959,000 and a $75,000 settlement with the Company's director's and officer's liability insurance providers. For the nine months ended March 31, 2008, the Company recognized other income of $1,258,000 due to the receipts of $828,000 from litigation settlements and $430,000 from release of previously escrowed funds owed to Centerpoint. The receipts of the litigation settlement proceeds and the escrowed funds resulted in a positive net equity position for the Company's majority held subsidiary, Centerpoint, which resulted in the recording of the $114,000 minority interest expense of Centerpoint for the nine months ended March 31, 2008 while for the nine months ended March 31, 2009 the amount was $(3,000).
Net loss
As a result of the factors described above, the net loss was $955,000 and $779,000 for the nine months ended March 31, 2009 and 2008, respectively, representing a $0.01 decrease in the net loss per basic and diluted common share for the nine months ended March 31, 2009 and 2008, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2009, the Company had cash and cash equivalents equal to $9,000. During the nine months ended March 31, 2009, net cash used in operating activities was $1,030,000, 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.
Investing Activities
During the nine months ended March 31, 2009 the Company provided $42,000 of cash due to the release of restricted cash related to the New York office operating lease.
Financing Activities
During the nine months ended March 31, 2009, $165,000 of cash was provided by financing activities from short-term promissory notes - affiliates, $250,000 of cash was provided from the sale of the Company's restricted common stock and $102,500 of cash was provided from short-term loans - affiliates.
As of March 31, 2009 the Company has significant debt obligations consisting primarily of deferred compensation of $250,000, loans payable - affiliates of $102,500, and promissory notes - affiliates of $170,000. In addition, the Company has entered into an 88-month operating lease for office space in New York City, with an average monthly lease expense of $15,820. Subsequent to March 31, 2009, the Company received $405,000 for the issuance of 4,050 shares of its Series B Preferred stock and $115,000 in subscriptions for 1,150 shares of its Series B Preferred stock.
Plan of Operations and Outlook
As of March 31, 2009 the Company had cash and cash equivalents of approximately $9,000. Based on our operating plan, management believes that existing cash on hand will not be sufficient to fund the Company's basic overhead through the end of the 2009 fiscal year.
The Company currently faces a severe working capital shortage and 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 and to develop Projects. The Company anticipates that it will seek to raise from $3,000,000 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.
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 2009 calendar 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 2009-2010 to create a pipeline of Projects. Management has a 5-year development target (through calendar year 2015) of approximately 12-25 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 Kreider Farms 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 December 31, 2008. The Company's obligations under the lease are partially guaranteed by Salvatore Zizza, Chairman of Bion Dairy. 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 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 subsidiary, Bion Services Group, Inc. ("Bion Services"), 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 an integrated renewable energy facility that will provide energy for Bion's waste treatment facility through the combustion of the cellulose captured in the Bion process. The system will be owned and operated by Bion through Bion PA 1, LLC, a new entity initially 100% owned by the Company, in which Kreider will have the option to purchase a minority interest. Upon completion of final design work and resolution of all building, zoning and other related pre-construction matters, it will be necessary to raise substantial capital (equity and/or debt) to construct and operate the Kreider system, which may be difficult to do on reasonable terms due to the current unsettled condition of the capital markets. 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 dairy portion of the Kreider Farms project. Definitive agreements regarding this loan have not yet been executed.
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 March 31, 2009, the Company has $112,500 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.
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 8A(T) of our Form 10-KSB for the year ended June 30, 2008.
(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-KSB since filing.
ITEM 1A. RISK FACTORS.
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the quarter ended March 31, 2009 the Company sold 193,333 shares of restricted common stock for $145,000 (not including shares issued to certain consultants and/or employees for services). The proceeds were used for working capital purposes. Additional shares of restricted common stock were issued in connection with compensation and other matters. See Notes to Financial Statements included herein.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable
ITEM 6. EXHIBITS.
Exhibit No. Description
3.3 Articles of Amendment including Statement of Designation and
Determination of Preferences of Series B Convertible
Preferred Stock - Filed herewith electronically
10.1 Agreement between Bright Capital, Ltd. and Dominic Bassani and
Bion effective January 11, 2009 - Incorporated by reference
to Exhibit 10.1 Registrant's Form 8-K dated January 12, 2009
10.2 Agreement between Mark A. Smith and Bion effective January 12,
2009 - Incorporated by reference to Exhibit 10.2 Registrant's
Form 8-K dated January 12, 2009
10.3 Orphanos Extension Agreement dated January 13, 2009 -
Incorporated by reference to Exhibit 10.3 Registrant's Form 8-K
dated January 12, 2009
10.4 Description of Engineers Services with Primus Builders, Inc.
dated April 23, 2009 - Filed herewith electronically
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
|
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: May 14, 2009 By:/s/ Mark A. Smith
Mark A. Smith, President (Chief
Executive Officer) and Interim Chief
Financial Officer (Principal Financial
and Accounting Officer)
|
EXHIBIT 3.3
STATEMENT OF DESIGNATION AND DETERMINATION OF PREFERENCES
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
BION ENVIRONMENTAL TECHNOLOGIES, INC.
TO THE SECRETARY OF STATE OF THE STATE OF COLORADO:
Pursuant to the provisions of the Colorado Corporation Code, the undersigned Mark A. Smith and Jon Northrop, President and Secretary, respectively, of Bion Environmental Technologies, Inc. (the "Corporation"), a Colorado corporation, submit the following Statement of Designation and Determination of Preferences of Series B Convertible Preferred Stock.
FIRST: The name of the Corporation is Bion Environmental Technologies, Inc., a Colorado corporation.
SECOND: At a meeting of the Board of Directors of the Corporation held on March 27, 2009 at which a quorum was duly present and acting throughout, the following resolution was unanimously adopted:
WHEREAS the Articles of Incorporation of the Corporation, as amended, authorize a class of preferred shares of stock consisting of 10,000,000 shares having a par value of $.001 per share, issuable from time to time in one or more series: and
WHEREAS the Board of Directors of the Corporation is authorized, subject to limitations prescribed by law and by the provisions of Article IV of the Corporation's Articles of Incorporation, to establish and fix the number of shares to be included in any series of preferred stock and the designation, rights, preferences and limitation of the shares to be included in any series of preferred stock and the designation, rights, preferences and limitations of the shares of such series; and
WHEREAS it is the desire of this Board of Directors to issue, establish and fix a series of preferred stock and the designation, rights, preferences and limitations of the shares of such series.
NOW THEREFORE BE IT RESOLVED that pursuant to Article FOURTH of the Corporation's Articles of Incorporation there is hereby established a series of 50,000 shares of preferred stock of the Corporation, to have the designation, rights, preferences and limitations set forth in such Article IV as modified in paragraphs (1) through (6) below:
(1) Designation. The 50,000 shares of such series shall be designated "Series B Convertible Preferred Stock". Such series shall hereinafter be referred to as the "Series B Preferred Stock." The Series B Preferred Stock shall have a par value of $0.01 and shall be issued at a purchase price of $100 per share.
(2) Conversion Rights. (a) For a period commencing Midnight, M.S.T., on a date of issuance and terminating three years after issuance, each of the shares of Series B Preferred Stock shall be convertible at any time and from time to time at the option of the respective holders thereof into fully paid and non-assessable shares of the Corporation's common stock (the "Common Stock") upon the terms and conditions set forth in the following subparagraphs of this paragraph ("Elective Conversion"); or as provided in subparagraph (d) below.
(b) Each share of Series B Preferred Stock shall be convertible into shares of Common Stock calculated by dividing the sum of the $100 per share purchase price ("Purchase Price") plus any accrued and unpaid dividends divided by $2.00(or into such greater or lesser number of such shares as may be determined pursuant to any adjustment required by the provisions of subparagraph (c) of this paragraph). The number of shares of Common Stock issuable at any time upon conversion of one share of Series B Preferred Stock is hereinafter referred to as the "Conversion Rate."
(c)(i) In any of the following events, occurring hereafter, appropriate and equitable adjustment shall be made in the Conversion Rate, so as to maintain the proportionate interest of each holder of the Series B Preferred Stock: (A) any declaration of a dividend on the Common Stock, payable in Common Stock or securities convertible into Common Stock;(B) any decrease in the number of outstanding shares of the Common Stock by a combination, consolidation or reclassification of shares; (C) any increase in the number of outstanding shares of the Common Stock by a split-up or reclassification of shares; or (D) any distribution by the Corporation to any of the holders of the Common Stock, qua shareholders, of any corporate property (excluding cash dividends payable out of funds legally available therefore).
(ii) If there shall be effected any consolidation or merger of the Corporation with another corporation (other than consolidation or merger in which the Corporation is the continuing corporation) or the sale of all or substantially all of the Corporation's assets to another corporation in exchange for stock, then, as a condition of such consolidation, merger or sale, lawful and fair provision shall be made whereby the Corporation shall redeem the outstanding Series B Preferred Stock at a price of $100 per share plus any accrued unpaid dividends or at the sole election of the Series B Preferred Stock Holder, the holder of any share or shares of Series B Preferred Stock shall be treated as having converted all shares of Series B Preferred stock immediately prior to any such consolidation, merger or sale of assets.
(iii) No adjustment in the Conversion Rate shall be made if, at the same time as the Corporation issues shares of Common Stock as a dividend which, as provided in (i) above, would otherwise call for an adjustment in the Conversion Rate, the Corporation shall issue shares of Common Stock as a dividend or distribution on the outstanding shares of Series B Preferred Stock equal to the dividend or distribution of the shares of Common Stock into which the Series B Preferred Stock is then convertible.
(iv) Except as otherwise specifically provided in (i) above, no adjustment in the Conversion Rate shall be made by reason of the issuance of shares of Common Stock or any security convertible into shares of Common stock in exchange for cash, property or services.
(v) Notwithstanding any other provision of this subparagraph (c) of paragraph (2), the Corporation shall not be required, except as hereinafter provided, to make any adjustment of the Conversion Rate in any case in which the amount by which such Conversion Rate would be increased would be 1ess than five one-hundredths (5/100) of a share of Common Stock, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and made at the time and together with any and all such adjustments so carried forward, shall amount to one (1) one-twentieth (l/20) of a share of Common Stock, in the event of any subdivision or combination of shares of common stock such amount of one-twentieth (1/20) (as theretofore decreased or increased) shall be proportionately decreased or increased.
(vi) No fraction of a share of Common Stock shall be issued upon conversion, but in lieu thereof the corporation shall, notwithstanding any other provision of this paragraph (2), pay for such fraction an appropriate amount in cash.
(vii) Whenever the Conversion Rate is adjusted, the Corporation shall deliver prompt written notice to each holder of the Series B Preferred Stock, containing a statement signed by two officers of the Corporation, stating the adjusted Conversion Rate and sufficient facts to show the reason for and the manner of computing the adjustments.
(viii) Neither the purchase or other acquisition by the Corporation of any shares of common Stock nor the sale or other disposition by the Corporation of any shares of common Stock at any time theretofore purchased or otherwise acquired by it shall result in any adjustment of the Conversion Rate or be taken into account in computing any subsequent adjustment of the Conversion Rate.
(d)(i) A portion (up to 100% as calculated below) of each share of Series B Preferred Stock shall be automatically and mandatorily converted, prorata, into shares of Corporation's restricted Common Stock at the Conversion Rate upon each occasion (at least thirty calendar days apart) after a date six months subsequent to the initial issuance of shares of Series B Preferred Stock on which the closing price of the Corporation's publicly traded common stock shall have been equal or greater than 150% of the Conversion Rate (initially $3.00)for twenty (20) consecutive trading days with a reported average daily trading volume of 10,000 shares or more.
(ii) On each occasion for mandatory conversion as set forth at subparagraph (d)(i) immediately above, a sufficient portion of the outstanding shares of Series B Preferred Stock shall be prorata converted so that the holders of the Series B Preferred Stock receive an aggregate number of shares of the Corporation's restricted Common Stock equal to seven and one half (7.5) times the average reported daily volume of trading in the Corporation's publicly traded Common Stock for the applicable twenty (20) day period.
(e) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of shares of Series B Preferred Stock, the full number of whole shares of Common Stock then deliverable upon the conversion of all shares of Series B Preferred Stock at the time outstanding.
(f) The Series B Preferred Stock shall be convertible at the office of any transfer agent therefore (or at such other place as may be designated by the Corporation) on the earlier of the appropriate date set forth at subparagraph (d) above or, in the event of an Elective Conversion pursuant to subparagraph (a) above, upon surrender of the certificate or certificates therefore, duly endorsed for transfer. Such Elective Conversion shall be deemed to have been made as of the date of such surrender of certificates representing shares of Series B Preferred Stock for conversion and the person entitled to receive the Common Stock issuable on such conversion shall be treated for all purposes as having become the record holder of such Common Stock on such date. The Corporation shall make no payment or adjustment on account of any dividends accrued on the shares of Series A Preferred Stock surrendered for conversion, except that all dividends accrued and unpaid on such shares up to the dividend payment date immediately preceding such surrender for conversion shall be included in the conversion procedures in calculation of the Conversion Rate.
(3) Liquidation/Redemption. In the event of a liquidation or dissolution (or similar event) of the Corporation prior to redemption or conversion of the Series B Preferred Stock, the Corporation shall redeem the outstanding Series B Preferred Stock at a price of $100 per share plus any accrued unpaid dividends or, at the sole election of the Series B Preferred Stock Holder, the Series B Preferred Stock shall be treated as if it has been converted to Common Stock for all purposes related to such liquidation, dissolution or similar event. On any date more than one year after the initial issuance of the Series B Preferred Stock, the Corporation shall have the right to call the outstanding Series B Preferred Stock for redemption, in whole or in part (on a prorata basis), on 10 days' written notice to the holders, at a price equal to $100 plus any accrued unpaid dividends, during which ten (10) day period, the holders may elect to convert the Series B Preferred Stock to the Corporation's common stock pursuant to paragraph (2) above. Unless redeemed or converted at an earlier date, the Corporation shall redeem the outstanding Series B Preferred Stock at a price of $100 per share plus any accrued unpaid dividends on the third anniversary of issuance.
(4) Dividend Rights/Liquidation Amount. The Series B Preferred Stock shall accrue dividends at a rate of 2.5% per quarter (10.0% annually) which dividend shall be earned and accrued or paid quarterly (or partial quarter as applicable). Any accrued but unpaid dividends shall be included in the calculation of the Conversion Rate. The Purchase Price of the Series B Preferred Stock, plus any accrued but unpaid dividends shall be the Liquidation Amount for the Series B Preferred Stock. Upon liquidation of the Corporation, the Liquidation Amount shall be included in the calculation of the Conversion Rate.
(5) Covenants of the Corporation. So long as at least fifty percent (50%) of the Series B Preferred Stock that are initially issued remain outstanding, the Corporation shall not, without the approval of a majority of the holders of the then outstanding Series B Preferred Stock, which approval shall not be unreasonably withheld:
(a) Alter or amend its certificate of incorporation or bylaws or recapitalize or reclassify any class of stock including through a merger, in each case, in a manner that would adversely effect the rights of the holders of the Series B Preferred Stock, or in any way change the rights of the Series B Preferred Stock;
(b) Create or issue any class of voting securities that are senior to the Series B Preferred Stock;
(c) Increase or decrease the authorized number of Series B Preferred Stock (other than through conversion);
(d) Enter into any agreement that restricts the Corporation's ability to satisfy its obligations to under the Series B Preferred Stock or honor the exercise of conversion rights thereof;
(e) Declare a dividend or distribution or redeem or repurchase capital stock (in each case, other than in accordance with the terms of the Series B Preferred Stock, or a redemption of employee shares), unless, simultaneously therewith, the Corporation shall redeem or repurchase all of the then outstanding Series B Preferred Stock for the aggregate Liquidation Amount;
(f) The Corporation shall not sell, lease or convey (other than by mortgage) all or substantially all of the property or business of the Corporation and shall not effect any merger or consolidation with any other company unless as a result thereof and after giving effect thereto (a) the Corporation shall be the surviving corporation, (b) the Series B Preferred Stock shall continue to be outstanding, (c) there shall be no change in the preference, privileges or other rights and restrictions with respect to the Series B Preferred Stock and (d) there shall not be created or thereafter exist as a result of thereof any new class of shares having preference over the Series B Preferred Stock with respect to dividends, distribution of assets or rights upon liquidation.
(g) The Corporation shall not incur any additional debt for borrowed money in excess of debt in an aggregate amount of up to $20 million as direct loans to the Corporation (expressly excluding interest accruals related to current Corporation debt and compensation accruals pursuant to existing agreements) and excluding any debt related to financing specifically related to individual projects.
(h) Conduct transactions with affiliates, unless the terms and conditions of any such transaction are at least as favorable to the Corporation as in an arms length transaction and are approved by a majority of the disinterested members of the Board of Directors; and
(i) Enter into any agreement, or form or permit any subsidiary, to do any of the foregoing.
(6) The Series B Preferred Stock shall have no other preferences over the Common Stock except those specifically set forth above.
IN WITNESS WHEREOF the undersigned Corporation has caused this Statement to be prepared, executed and verified by its duly authorized president and secretary.
Dated: March 27, 2009 Bion Environmental Technologies, Inc.
By: /s/ Mark A. Smith
President
By: /s/ Kathleen Paradise
Secretary
|
EXHIBIT 10.4
Description of Engineers Services
April 23, 2009
Primus Builders Inc. (PBI) will provide the following Scope of Services, based on Bion PA 1 LLC (LLC) (a wholly-owned subsidiary of Bion Environmental Technologies, Inc (Bion)) request for Preliminary Engineering Services for its Biological Nutrient Removal Waste Treatment Facility at the Kreider Farm in Lancaster, PA.
General Description of Project
LLC, through its designated agent, Bion Services Group, Inc. (BSG) is working with Kreider Farms (KF) on the planning, design, construction and operation of a biological nutrient removal waste treatment facility at the KF dairy. The project will be designed to process waste water under three separate waste flow and loading scenarios as follows:
Phase 1-Approximately 1,200 milk cows
Phase 2-Current herd including 1,200 milk cows plus support stock
Phase 3-Current herd plus an additional 400 milk cows
The facility will be operated under Phase l loadings for performance monitoring and verification.
Scope Provided
Primus Builders Inc, working in collaboration with BSG and its staff and Primus Design Services, LLC, shall to prepare and issue a Request for Proposal Document for certain Pre-Design Tasks, and Preliminary Design work that culminates with the preparation of a Design Basis Report, each as described in Bion's - Kreider Farms Project Implementation Task Outline, dated March 13, 2009.
Specific tasks Included:
1. Predesign
2. Preliminary Design
3. Permitting (cost of actual permits are not included)
Preparation of The Request for Proposal (RFP)
Qualified engineering firms will be asked to provide professional fee and rate structures to complete the work as described in the Request for Proposal (RFP) Document. In support of issuance of the RFP, Primus will prepare:
1. Schematic level site and building layouts
2. Schematic level process flow diagrams (PFDs)
3. Preliminary equipment list
4. Preliminary Project Schedule
5. Scope narrative with a detailed listing of the required deliverables.
Post RFP Services
Upon bid receipt, Primus will provide LLC with the following post RFP services, the cost of which is included in this proposal:
1. Interview, review and analysis of received proposals including a written
bid summary and recommendations for final selection.
2. The costs of the engineering firm selected are not included in this order.
A change order in the amount equal to those total costs incurred by the
selected engineering firm (retained by Primus) will be issued by BSG on
behalf of LLC to Primus as necessary for Primus to complete the scope of
this assignment.
3. Supervision and management of the selected engineering firm.
4. Coordination and integration of other engineers and consultants working at
the direction of BSG.
5. Administration of the Pre-design, Preliminary Design and Design Basis
Report to achieve compliance with those reporting requirements of the
Pennsylvania Infrastructure Investment Authority (PENNVEST).
Schedule
1. The RFP will be issued on or about April 30. Contractor selection will be
on or about May 11.
2. Submit for PA DEP Water Quality Management Permit. Necessary for permit,
but not limited shall be PFD's, tank modification details (by Red Barn)
site plan, and overall project and process descriptions - June 1st, 2009.
3. Completion and presentation of Design Basis Report (DBR) - June 1, 2009.
Compensation
We have the desired team assembled and are prepared to start work immediately.
We are pleased to offer the following lump sum fee of $40,000.00 (forty- thousand dollars) for each step of the assignment as outlined above, plus reimbursable expenses billed at cost (such as travel, plotting, drawing reproduction, mailing charges, etc.).
Your authorized signature in the space provided below will allow us to proceed with the project as outlined in this proposal.
Accepted by:
Bion PA 1, LLC
By: /s/ Jeremy Rowland Title: Chief Operating Officer Date: May 6, 2009 |
This document has important legal consequences: consultation with an attorney is encouraged with respect to its use or modification. This document should he adapted to the particular Circumstances Of the Contemplated Project and the Controlling Law.
SHORT FORM OF AGREEMENT
BETWEEN OWNER AND ENGINEER
FOR
PROFESSIONAL SERVICES
Prepared by
ENGINEERS JOINT CONTRACT DOCUMENTS COMMITTEE
and
Issued and Published Jointly by
ACEC P/E National Society of ASCE American Society Professional Engineers of Civil Engineers
PROFESSIONAL ENGINEERS IN PRIVATE PRACTICE
a practice division of the
NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS
AMERICAN COUNCIL OF ENGINEERING COMPANIES
AMERICAN SOCIETY OF CIVIL ENGINEERS
This Agreement has been prepared for use with the Standard General Conditions of the Construction Contract (No. C-700.2002 Edition) of the Engineers Joint Contract Documents Committee. Their provisions are interrelated, and a change in one may necessitate a change in the other.
SHORT FORM OF AGREEMENT
BETWEEN OWNER AND ENGINEER
FOR
PROFESSIONAL SERVICES
THIS IS AN AGREEMENT effective as of May 6, 2009 ("Effective Date") between Bion PA I, LLC (through its operating agent Bion Services Group, LLC) ("Owner") and Primus Builders, Inc. ("Engineer"). Engineer agrees to provide the services described below to Owner for the Kreider Farms installation ("Project"). Description of Engineer's Services: Scope as detailed in PBI's April 29 scope of work and the Bion Environmental Technologies, Inc.'s March 13, 2009 Kreider Farms Implementation Task Outline memo.
Owner and Engineer further agree as follows:
1.01 Basic Agreement
A. Engineer shall provide, or cause to be provided, the services set forth in this Agreement, and Owner shall pay Engineer for such Services as set forth in Paragraph 9.01.
2.01 Payment
A. Preparation of Invoices. Engineer will prepare a monthly invoice in accordance with Engineer's standard invoicing practices and submit the invoice to Owner.
B. Payment of Invoices. Invoices are due and payable within 30 days of receipt. If Owner fails to make any payment due Engineer for services and expenses within 30 days after receipt of Engineer's invoice, the amounts due Engineer will be increased at the rate of 1.0% per month (or the maximum rate of interest permitted by law, if less) from said thirtieth day. In addition, Engineer may, without liability, after giving seven days written notice to Owner, suspend services under this Agreement until Engineer has been paid in full all amounts due for services, expenses, and other related charges. Payments will be credited first to interest and then to principal.
3.01 Additional Services
A. If authorized by Owner, or if required because of changes in the Project, Engineer shall furnish services in addition to those set forth above.
B. Owner shall pay Engineer for such additional services as follows:
For additional services of Engineer's employees engaged directly on the
Project an amount equal to the cumulative hours charged to the Project by
each class of Engineer's employees times standard hourly rates for each
applicable billing class, plus reimbursable expenses and Engineer's
consultants' charges, if any.
4.01 Termination
A. The obligation to provide further services under this Agreement may be terminated:
1. For cause,
a. by either party upon 30 days written notice in the event of substantial failure by the other party to perform in accordance with the Agreement's terms through no fault of the terminating party.
b. By Engineer:
1) upon seven days written notice if Engineer believes that Engineer is being requested by Owner to furnish or perform services contrary to Engineer's responsibilities as a licensed professional; or
2) upon seven days written notice if the Engineer's services for the project are delayed or suspended for more than 90 days for reasons beyond Engineer's control.
3) Engineer shall have no liability to Owner on account of such termination.
c. Notwithstanding the foregoing, this Agreement will not terminate as a result of a substantial failure under paragraph 4.01.A.1.a if the party receiving such notice begins, within seven days of receipt of such notice, to correct its failure and proceeds diligently to cure such failure within no more than 30 days of receipt of notice; provided, however, that if and to the extent such substantial failure cannot be reasonably cured within such 30 day period, and if such party has diligently attempted to cure the same and thereafter continues diligently to cure the same, then the cure period provided for herein shall extend up to, but in no case no more than, 60 days after the date of receipt of the notice.
2. For convenience, by Owner effective upon the receipt of notice by Engineer.
B. The terminating party under paragraphs 4.01.A.1 or 4.01.A.2 may set the effective date of termination at a time up to 30 days later than otherwise provided to allow Engineer to demobilize personnel and equipment from the Project site, to complete tasks whose value would otherwise be lost, to prepare notes as to the status of completed and uncompleted tasks, and to assemble Project materials in orderly files.
5.01 Controlling Law
A. This Agreement is to be governed by the law of the state in which the Project is located.
6.01 Successors, Assigns and Beneficiaries
A. Owner and Engineer each is hereby bound and the partners, successors, executors, administrators, and legal representatives of Owner and Engineer (and to the extent permitted by paragraph 6.01.B the assigns of Owner and Engineer) are hereby bound to the other party to this Agreement and to the partners, successors, executors, administrators, and legal representatives (and said assignees) of such other party, in respect of all covenants, agreements, and obligations of this Agreement.
B. Neither Owner nor Engineer may assign, sublet, or transfer any rights under or interest (including, but without limitation, moneys that are due or may become due) in this Agreement without the written consent of the other, except to the extent that any assignment, subletting, or transfer is mandated or restricted by law. Unless specifically stated to the contrary in any written consent to an assignment, no assignment will release or discharge the assignor from any duty or responsibility under this Agreement.
7.01 General Considerations
A. The standard of care for all professional engineering and related services performed or furnished by Engineer under this Agreement will be the care and skill ordinarily used by members of the subject profession practicing under similar circumstances at the same time and in the same locality. Engineer makes no warranties, express or implied, under this Agreement or otherwise, in connection with Engineer's services. Engineer and its consultants may use or rely upon the design services of others, including, but not limited to, contractors, manufacturers and suppliers.
B. Engineer shall not at any time supervise, direct, or have control over any contractor's work, nor shall Engineer have authority over or responsibility for the means, methods, techniques, sequences, or procedures of construction selected or used by any contractor, for safety precautions and programs incident to a contractor's work progress, nor for any failure of any contractor to comply with laws and regulations applicable to contractor's work.
C. Engineer neither guarantees the performance of any contractor nor assumes responsibility for any contractor's failure to furnish and perform its work in accordance with the contract between Owner and such contractor.
D. Engineer shall not be responsible for the acts or omissions of any contractor, subcontractor, or supplier, or of any contractor's agents or employees or any other persons (except Engineer's own employees and/or affiliates) at the Project site or otherwise furnishing or performing any of construction work; or for any decision made on interpretations or clarifications of the construction contract given by Owner without consultation and advice of Engineer.
E. The general conditions for any construction contract documents prepared hereunder are to be the "Standard General Condition of the Construction Contracts as prepared by the Engineers Joint Contract Documents Committee (No. C-700, 2002 Edition).
F. All design documents prepared or furnished by Engineer are instruments of service, and Engineer retains an ownership and property interest (including the copyright and the right of reuse) in such documents, whether or not the Project is completed.
G. To the fullest extent permitted by law, Owner and Engineer (1) waive against each other, and the other's employees, officers, directors, agents, insurers, partners, and consultants, any and all claims for or entitlement to special, incidental, indirect, or consequential damages arising out of, resulting from, or in any way related to the Project; and (2) agree that Engineer's total liability to Owner under this Agreement shall be limited to $50,000 or the total amount of compensation received by Engineer, whichever is greater.
H. The parties acknowledge that Engineer's scope of services does not
include any services related to a Hazardous Environmental Condition (the
presence of asbestos, PCBs, petroleum, hazardous substances or waste and
radioactive materials). If Engineer or any other party encounters a
Hazardous Environmental Condition, Engineer may, at its option and without
liability for consequential or any other damages, suspend performance of
services on the on the portion of the Project affected thereby until Owner:
(i) retains appropriate specialist consultants or contractors to identify
and, as appropriate, abate, remediate, or remove the Hazardous Environmental
Condition; and (ii) warrants that the Site is in full compliance with
applicable Laws and Regulations.
8.01 Total Agreement
A. This Agreement (consisting of pages 1 to 4 inclusive together with any expressly incorporated appendix), constitutes the entire agreement between Owner and Engineer and supersedes all prior written or oral understandings. This Agreement may only be amended, supplemented, modified, or canceled by a duly executed written instrument.
9.01 Payment (Lump Sum Basis)
A. Using the procedures set forth in paragraph 2.01, Owner shall pay Engineer as follows:
1. A Lump Sum amount of $40,000.
B. The Engineer's compensation is conditioned on the time to complete construction not exceeding ___ months. Should the time to complete construction be extended beyond this period, total compensation to Engineer shall be appropriately adjusted.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, the Effective Date of which is indicated on page 1.
OWNER: Bion PA 1, LLC ENGINEER:
By: /s/ Jeremy Rowland By: /s/ Richard O'Connell
Title: Chief Operating Officer of Title: President
BSG, Owner's Designated
Agent
|
Date Signed: May 6, 2009 Date Signed: May 4, 2009
License or Certificate No. and
State ___________
Address for giving notices: Address for giving notices:
1035 South Gaylord Street 8294 Highway 92, Suite 210
Denver, CO 80209 Woodstock, GA 30189
Fax: 303-845-9651 Fax: 770-928-6548
Email: jrowland@biontech.com Email:roconnell@primusbuilders.com
|
Exhibit 31.1
SECTION 302 CERTIFICATION
I, Mark A. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bion Environmental Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 14, 2009 /s/ Mark A. Smith Mark A. Smith Chief Executive Officer and Principal Financial Officer |
Exhibit 32.1
CERTIFICATION OF CEO AND CFO PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Form 10-Q of Bion Environmental Technologies, Inc., a company duly formed under the laws of Colorado (the "Company"), for the quarter ended March 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Mark A. Smith, President (Chief Executive Officer) and Interim Chief Financial Officer (Principal Accounting Officer) of the Company, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 14, 2009 /s/ Mark A. Smith
Mark A. Smith
Chief Executive Officer and
Principal Financial Officer
|
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to Bion Environmental Technologies, Inc. and will be retained by Bion Environmental Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.