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 December 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)
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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 February 9, 2010, there were 12,720,285 Common Shares issued and 12,015,976 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 equity (deficit) ................. 5
Statements of cash flows .................................. 6
Notes to unaudited consolidated financial statements ...... 7-26
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................. 27
Item 3. Quantitative and Qualitative Disclosures about Market Risk.. 40
Item 4. Controls and Procedures .................................... 40
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 41
Item 1A. Risk Factors................................................ 41
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds ................................................... 41
Item 3. Defaults Upon Senior Securities ............................ 41
Item 4. Submission of Matters to a Vote of Security Holders ........ 41
Item 5. Other Information .......................................... 41
Item 6. Exhibits ................................................... 41
Signatures ................................................. 42
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BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2009 2009
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,197,670 $ 1,695,713
Prepaid rent and expenses 7,678 12,217
Other receivable - affiliate 8,797 8,797
Deposits and other receivables 11,956 11,956
------------ ------------
Total current assets 1,226,101 1,728,683
------------ ------------
Restricted cash (Note 8) 57,315 85,973
Property and equipment, net (Note 4) 732,105 477,229
------------ ------------
Total assets $ 2,015,521 $ 2,291,885
============ ============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 677,577 $ 834,638
Accrued payable - affiliate (Note 7) - 41,647
Loans payable - affiliates (Note 5) - 162,500
Deferred compensation (Note 6) 325,000 175,000
------------ ------------
Total current liabilities 1,002,577 1,213,785
------------ ------------
Deferred compensation (Note 6) - 150,000
Deferred rent (Note 8) 72,299 73,232
------------ ------------
Total liabilities 1,074,876 1,437,017
------------ ------------
Series B Redeemable Convertible Preferred
stock, $0.01 par value, 50,000 shares
authorized; 28,170 (December 31, 2009) and
21,320 (June 30, 2009) shares issued and
outstanding; liquidation preference of
$2,887,425 2,521,215 1,867,716
------------ ------------
Deficit (Note 7):
Bion's stockholders' deficit:
Series A Preferred stock, $0.01 par value,
10,000 shares authorized, no shares issued
and outstanding - -
Series C Convertible Preferred stock,
$0.01 par value, 60,000 shares authorized;
4,650 (December 31, 2009) and nil
(June 30, 2009) shares issued and outstanding;
liquidation preference of $465,800 405,350 -
Common stock, no par value, 100,000,000 shares
authorized, 12,455,178 (December 31, 2009) and
12,126,448 (June 30, 2009) shares issued;
11,750,869 (December 31, 2009) and 11,422,139
(June 30, 2009) shares outstanding - -
Additional paid-in capital 75,169,764 74,529,507
Accumulated deficit (77,265,411) (75,654,145)
------------ ------------
Total Bion's stockholders' deficit (1,690,297) (1,124,638)
------------ ------------
Noncontrolling interest (Note 3) 109,727 111,790
------------ ------------
Total equity (1,580,570) (1,012,848)
------------ ------------
Total liabilities and equity $ 2,015,521 $ 2,291,885
============ ============
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See notes to consolidated financial statements.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
Three months Six months
ended December 31, ended December 31,
-------------------------- --------------------------
2009 2008 2009 2008
----------- ----------- ----------- -----------
Revenue $ - $ - $ - $ -
----------- ----------- ----------- -----------
Operating expenses:
General and administrative (including
stock-based compensation (Note 7)) 609,685 158,567 1,510,337 788,242
Research and development (including
stock-based compensation (Note 7)) 35,319 70,630 107,836 346,970
----------- ----------- ----------- -----------
Total operating expenses 645,004 229,197 1,618,173 1,135,212
----------- ----------- ----------- -----------
Loss from operations (645,004) (229,197) (1,618,173) (1,135,212)
----------- ----------- ----------- -----------
Other expense (income):
Interest expense - 15,609 1,515 27,557
Interest income (3,405) (617) (6,359) (2,081)
Forfeiture of deferred compensation - (959,184) - (959,184)
Other, net - (75,000) - (75,000)
----------- ----------- ----------- -----------
(3,405) (1,019,192) (4,844) (1,008,708)
----------- ----------- ----------- -----------
Net (loss) income (641,599) 789,995 (1,613,329) (126,504)
Net loss (income) attributable to the
noncontrolling interest 892 4,198 2,063 (9,696)
----------- ----------- ----------- -----------
Net (loss) income attributable to Bion (640,707) 794,193 (1,611,266) (136,200)
Dividends on preferred stock (71,225) - (135,017) -
----------- ----------- ----------- -----------
Net (loss) income applicable to Bion's
common stockholders $ (711,932) $ 794,193 $(1,746,283) $ (136,200)
=========== =========== =========== ===========
Net (loss) income applicable to Bion's
common stockholders per basic common
share $ (0.06) $ 0.08 $ (0.15) $ (0.01)
=========== =========== =========== ===========
Net (loss) income applicable to Bion's
common stockholders per diluted common
share $ (0.06) $ 0.08 $ (0.15) $ (0.01)
=========== =========== =========== ===========
Weighted-average number of common
shares outstanding,
Basic 11,744,697 10,418,914 11,675,229 10,392,632
=========== =========== =========== ===========
Diluted 11,744,697 10,432,149 11,675,229 10,392,632
=========== =========== =========== ===========
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See notes to consolidated financial statements.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
SIX MONTHS ENDED DECEMBER 31, 2009
(UNAUDITED)
Bion's Shareholders
---------------------------------------------------------------
Series C Non-
Preferred Stock Common Stock Additional controll- Total
---------------- ------------------ paid-in Accumulated ing equity/
Shares Amount Shares Amount capital deficit interest (deficit)
------ -------- ---------- ------ ----------- ------------ -------- -----------
Balances, July 1, 2009 - $ - 12,126,448 $ - $74,529,507 $(75,654,145) $111,790 $(1,012,848)
Vesting and remeasure-
ment of options for
services - - - - 259,908 - - 259,908
Issuance of common
stock for services
and project con-
struction services - - 237,846 - 342,203 - - 342,203
Issuance of warrants
for services - - - - 80,000 - - 80,000
Sale of common stock - - 8,769 - 13,153 - - 13,153
Sale of Series C
preferred stock, net 4,650 404,550 - - - - - 404,550
Dividend on Series B
preferred stock - - - - (134,217) - - (134,217)
Dividend on Series C
preferred stock - 800 - - (800) - - -
Conversion of debt to
equity - - 82,115 - 80,010 - - 80,010
Net loss - - - - - (1,611,266) (2,063) (1,613,329)
------ -------- ---------- ------ ----------- ------------ -------- -----------
Balances, December 31,
2009 4,650 $405,350 12,455,178 $ - $75,169,764 $(77,265,411) $109,727 $(1,580,570)
===== ======== ========== ====== =========== ============ ======== ===========
See notes to consolidated financial statements.
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BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008
(UNAUDITED)
2009 2008
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,613,329) $ (126,504)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense 8,198 8,364
Accrued interest on convertible notes and debt 1,515 27,557
Stock-based compensation 656,348 (50,618)
Forfeiture of deferred compensation - (959,184)
Decrease in prepaid rent and expenses 4,539 2,995
Decrease in deposits and other receivables - 111
Decrease in accounts payable and accrued expenses (120,214) (24,073)
(Decrease) increase in deferred rent (933) 873
Increase in deferred compensation - 366,076
----------- ------------
Net cash used in operating activities (1,063,876) (754,403)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in restricted cash 28,658 42,470
Purchase of property and equipment (237,310) -
----------- ------------
Net cash (used in) provided by investing
activities (208,652) 42,470
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 13,153 105,000
Proceeds from sale of Series B preferred stock 595,950 -
Proceeds from sale of Series C preferred stock 404,550 -
Repayment of loans payable - affiliates (162,500) -
Payment of Series B preferred dividends (76,668) -
Proceeds from notes payable - affiliates - 165,000
----------- ------------
Net cash provided by financing activities 774,485 270,000
Net decrease in cash and cash equivalents (498,043) (441,933)
Cash and cash equivalents at beginning of year 1,695,713 478,899
----------- ------------
Cash and cash equivalents at end of period $ 1,197,670 $ 36,966
=========== ============
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 $ 80,010 $ -
Issuance of common stock in exchange for
project construction services 25,764 -
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See notes to consolidated financial statements.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 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 including ammonia (which is subsequently re-deposited to the ground) from livestock waste streams based upon our research to date. Because Bion's technology reduces the harmful releases and emissions from a CAFO on which it is utilized, the CAFO can potentially increase its herd concentration while lowering or maintaining its level of nutrient releases and atmospheric emissions.
From 2003 through early 2008, the Company primarily focused on completing re- development of its technology platform and business model. As such, during that period we elected not to pursue near term revenue opportunities such as retrofitting existing CAFO's with our waste management solutions, because such efforts would have diverted scarce management and financial resources and negatively impacted our ability to complete: 1) re-development of our technology for environmentally sound treatment of CAFO waste streams and 2) development of our integrated technology platform in support of large-scale sustainable Integrated Projects including renewable energy production.
Bion is now actively pursuing business opportunities in two broad areas: 1) retrofit and environmental remediation of existing CAFOs to reduce nutrient (nitrogen and phosphorus) releases and gaseous emissions (ammonia, greenhouse gases, volatile organic compounds, etc.) in order to clean the air and water in the surrounding areas (as described below) and 2) development of "closed loop" Integrated Projects (defined below).
We believe that Bion's technology platform allows the integration of large- scale CAFO's and their end-product users, renewable energy production from the CAFO waste stream, on site utilization of the renewable energy generated and biofuel/ethanol production in an environmentally and economically sustainable manner while reducing the aggregate capital expense and operating costs for the entire integrated complex ("Integrated Projects" or "Projects"). In the context of Integrated Projects, Bion's waste treatment process, in addition to mitigating polluting releases, generates renewable energy from cellulosic portions of the CAFO waste stream which renewable energy can be utilized by integrated facilities including ethanol plants, CAFO end-product processors (including cheese, ice cream and /or bottling plants in the case of dairy CAFOs and/or slaughter and/or processing
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
1. ORGANIZATION, NATURE OF BUSINESS, GOING CONCERN AND MANAGEMENT'S PLANS (CONTINUED):
facilities in the context of beef CAFOs) and/or other users as a natural gas replacement. Bion is presently involved in the very early development stage regarding a beef-based Integrated Project in New York and is involved in pre- development evaluations regarding opportunities for Integrated Projects in Nebraska (dairy) and elsewhere.
On September 27, 2008, the Company executed an agreement with Kreider Farms (and its affiliated entities) (collectively "Kreider") to design, construct and operate (through its wholly-owned subsidiaries, Bion Services Group, Inc. ("Bion Services") and Bion PA-1 LLC ("LLC") a Bion system to treat the waste of the milking dairy cows (milkers, dry cows and heifers) at the Kreider Dairy, located in Mannheim, Pennsylvania. In addition, the agreement provides for a second phase which will include a renewable energy facility ("REF") that will treat the cellulosic solid wastes from Phase 1 together with the waste stream from Kreider's poultry facilities to produce renewable energy for Bion's waste treatment facility and/or for market sales. The Phase 1 system will be owned and operated by Bion through LLC, in which Kreider will have the option to purchase a noncontrolling interest. To complete final design work and all building, zoning and other related pre-construction matters, substantial capital (equity and/or debt) has been and will continue to be expended. Additional funds will be expended for construction. Upon successful construction and operation of these systems, the Company anticipates that it will earn revenue from the sale of nutrient (and other) environmental credits related to the Kreider system and through sales of renewable energy generated by the Kreider systems.
During January 2009, the Board of Pennsylvania Infrastructure Investment Authority ("Pennvest") approved a loan up to $7.8 million ("Pennvest Loan") to LLC for development and construction of the Phase 1 System at Kreider. The Pennvest Loan is structured in phases (pre and post-completion of permitting/commencement of construction) and Pennvest's disbursements will take the form of reimbursement of qualified sums expended by LLC. In connection with the Pennvest Loan, the Company has provided a 'technology guaranty' regarding nutrient reduction performance of the Kreider System which will expire when the Kreider System's nutrient reduction performance has been demonstrated. The Company expects to complete the steps required to finalize the pre-construction phase of the Pennvest loan during the next 90 days. The Company anticipates that the initial drawdown/reimbursement from Pennvest pursuant to the Pennvest Loan will also be received in the next 90 days. Bion is in the process of finalizing its design for the Phase 1 Kreider System and has commenced the permitting process. It is anticipated that construction will commence during the next 90 days and be completed during the 2010 calendar year.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
1. ORGANIZATION, NATURE OF BUSINESS, GOING CONCERN AND MANAGEMENT'S PLANS (CONTINUED):
Going concern and management's plans:
The consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has not generated revenues and has incurred net losses of approximately $1,312,000 and $1,779,000 during the years ended June 30, 2009 and 2008, respectively, and a net loss of approximately $1,613,000 for the six months ended December 31, 2009. 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.
During the quarter ended December 31, 2009, the Company sold 4,650 shares of the Company's Series C Preferred shares at $100 per share, which resulted net proceeds to the Company of $404,550 after commissions.
During prior periods the Company completed an offering of the Company's Series B Preferred shares, which as of June 30, 2009 resulted in the issuance of 21,320 shares at $100 per share resulting in net proceeds to the Company of $1,854,840. Subsequent to June 30, 2009, the Company issued an additional 6,850 shares resulting in net proceeds to the Company of $595,950.
At December 31, 2009, the Company has a working capital surplus and stockholders' deficit of approximately $224,000 and $1,690,000, respectively.
The Company continues to explore sources of additional financing to satisfy its current operating requirements. While the Company currently does not face a severe working capital shortage, it is not currently generating any revenues. The Company will need to obtain additional capital to fund its operations and technology development, to satisfy existing creditors, to develop Projects and to construct the Kreider Farm facilities. The Company anticipates that it will seek to raise from $5,000,000 to $50,000,000 (debt and equity) during the next twelve months. There is no assurance, especially in the extremely unsettled capital markets that presently exist, that the Company will be able to obtain the funds that it needs to stay in business, complete its technology development or to successfully develop its business.
There can be no assurance that funds required during the next twelve months or thereafter will be generated from operations or that those funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
1. ORGANIZATION, NATURE OF BUSINESS, GOING CONCERN AND MANAGEMENT'S PLANS (CONTINUED):
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, LLC and its majority owned subsidiary, Centerpoint Corporation ("Centerpoint") (Note 3). All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The consolidated financial statements reflect all adjustments (consisting of only normal recurring entries) that, in the opinion of management, are necessary to present fairly the financial position at December 31, 2009 and the results of operations and cash flows of the Company for the three and six months ended December 31, 2009 and 2008. Operating results for the three and six months ended December 31, 2009 are not necessarily indicative of the results that may be expected for the year ending June 30, 2010.
The unaudited consolidated financial statements should be read in conjunction with the Company's audited financial statements and footnotes thereto included in its Annual Report on Form 10-K/A for the year ended June 30, 2009.
Loss per share:
Basic loss per share amounts are calculated using the weighted average number of shares of common stock outstanding during the period. Diluted loss per share assumes the conversion, exercise or issuance of all potential common stock instruments, such as options or warrants, unless the effect is to reduce the loss per share. During the three and six months ended December 31, 2009, the basic and diluted loss per share is the same, as the impact of potential dilutive common shares is anti-dilutive.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The following table represents the warrants, options and convertible securities excluded from the calculation of diluted loss per share:
December 31, 2009 December 31, 2008
----------------- -----------------
Warrants 5,290,616 3,106,667
Options 2,190,833 2,048,333
Convertible debt 333,334 442,197
Convertible preferred stock 1,676,613 -
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The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three months ended December 31, 2008 (a reconciliation of the numerators and denominators of the basic and diluted earnings per share for the six months ended December 31, 2008 are not included as they are anti-dilutive):
Weighted
Average
Three months ended December 31, 2008 Income Shares EPS
------------------------------------ -------- ---------- -----
Net income - basic $794,193 10,418,914 $0.08
Effect of dilutive securities:
Stock options and warrants - 13,235 -
-------- ---------- -----
Net income - diluted $794,193 10,432,149 $0.08
======== ========== =====
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The following potential shares of common stock and their effect on net income were excluded from the diluted EPS calculations because their effect would have been anti-dilutive:
a) The 8% convertible promissory note-affiliate convertible into 67,731 common shares.
b) The convertible accrued payable-affiliate of $41,647 convertible into 55,529 common shares.
The following is a reconciliation of the denominators of the basic loss per share computations for the three and six months ended December 31, 2009 and 2008:
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Three Three Six Six
months ended months ended months ended months ended
December 31, December 31, December 31, December 31,
2009 2008 2009 2008
------------ ------------ ------------ ------------
Shares issued - beginning
of period 12,418,086 11,070,658 12,126,448 11,070,658
Shares held by subsidiaries
(Note 7) (704,309) (704,309) (704,309) (704,309)
---------- ---------- ---------- ----------
Shares outstanding -
beginning of period 11,713,777 10,366,350 11,422,139 10,366,349
Weighted average shares
issued during the period 30,920 52,565 253,090 26,283
---------- ---------- ---------- ----------
Basic weighted average
shares - end of period 11,744,697 10,418,915 11,675,229 10,392,632
========== ========== ========== ==========
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Recent accounting pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") approved the FASB Accounting Standards Codification ("the Codification") as the single source of authoritative nongovernmental Generally Accepted Accounting Principles ("GAAP"). All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the SEC, have been superseded by the Codification. All other non-grandfathered, non- SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company's financial statements, as all future references to authoritative accounting literature are now referenced in accordance with the Codification. There have been no changes to the content of the Company's financial statements or disclosures as a result of implementing the Codification during the quarter ended September 30, 2009.
As a result of the Company's implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, the Company provides reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
In December 2007, the FASB issued ASC 810 (formerly - SFAS No. 160),
"Consolidation". The standard changes the accounting for non-controlling
(minority) interests in consolidated financial statements, including the
requirements to classify non-controlling interests as a component of
consolidated stockholders' equity, and the elimination of minority interest
accounting in results of operations, with earnings attributable to non-
controlling interests reported as part of consolidated earnings. Purchases
and sales of non-controlling interests are to be reported in equity similar
to treasury stock transactions. The standard became effective for the Company
on July 1, 2009. As a result the Company now reports noncontrolling interest
as a component of equity in its consolidated balance sheet and below net
(loss) income in its consolidated statement of operations. In addition, the
provisions of ASC 810 require that minority interest be renamed
noncontrolling interest and that a company present a consolidated net income
measure that includes the amount attributable to such noncontrolling
interests for all periods presented. As required by ASC 810, the Company has
retrospectively applied the presentation to all prior year balances
presented.
3. NONCONTROLLING INTEREST OF CENTERPOINT CORPORATION:
In January 2002, Bion purchased a 57.7% majority interest in Centerpoint from a third party. On April 30, 2008, Centerpoint received and cancelled 126,000 shares of its previously outstanding common stock in connection with a litigation settlement, which increased Bion's ownership from 57.7% to 58.9%.
During the three and six months ended December 31, 2009 and 2008, Centerpoint had losses (earnings) of approximately $2,200 and $5,000, and $10,200 and $(126,100), respectively. The noncontrolling interest as of December 31, 2009 was $109,727.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31, 2009 June 30, 2009
----------------- -------------
Research and development equipment $ 305,266 $ 305,266
Project construction in progress 683,518 433,179
Leasehold improvement 31,336 31,336
Furniture 28,932 28,932
Computers and office equipment 38,714 31,680
----------- ---------
1,087,766 830,393
Less accumulated depreciation (355,661) (353,164)
----------- ---------
$ 732,105 $ 477,229
=========== =========
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BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
4. PROPERTY AND EQUIPMENT (CONTINUED):
Depreciation expense was $4,235 and $4,077 for the three months ended December 31, 2009 and 2008, respectively, and $8,198 and $8,364 for the six months ended December 31, 2009 and 2008, respectively.
5. LOANS PAYABLE - AFFILIATES:
During the year ended June 30, 2009, Dominic Bassani, Vice-President Special Project and Strategic Planning for the Projects Group, Mark A. Smith, the Company's President, and a major shareholder loaned the Company $120,000, $7,500 and $35,000, respectively, for working capital needs. The loans, totaling $162,500 as of June 30, 2009, were non-interest bearing and were repaid in July 2009.
6. DEFERRED COMPENSATION:
As of December 31, 2009 the Company owed Brightcap Capital Ltd. ("Brightcap") for services provided by Mr. Bassani, deferred compensation of $325,000. The Company entered into the Brightcap Agreement (see Note 9), whereby the deferred compensation of Brightcap owed as of December 31, 2008 totaling $175,000, was made convertible until December 31, 2009 (subsequently extended to January 14, 2010) into the Company's restricted common stock, at Brightcap's option, at a price of $0.75 per share, the fair value of the shares at the date of the agreement. As the conversion price of $0.75 per shares approximated the fair value of the shares of common stock at the time the conversion agreement was entered into, no beneficial conversion feature existed. Effective January 14, 2010 this obligation was converted into 233,334 shares of the Company's restricted common stock pursuant to its terms. The Company entered into another agreement with Brightcap in June 2009, whereby the deferred compensation earned by Brightcap from January 1, 2009 through June 30, 2009, totaling $150,000, was made due July 1, 2010 and convertible until July 1, 2010 into the Company's restricted common stock, at Brightcap's option, at a price of $1.50 per share, the fair value of the shares at the date of the agreement. As the conversion price of $1.50 per share approximated the fair value of the shares at the time the conversion agreement was entered into, no beneficial conversion feature existed.
7. STOCKHOLDERS' EQUITY:
Series B Preferred stock:
In March 2009, the Company authorized the issuance of 50,000 shares of Series B Preferred stock; which have a par value of $0.01 per share and are issuable at a price of $100 per share. The Series B Preferred stock is convertible for three years from the date of issuance at the option of the holder into
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
7. STOOCKHOLDERS' EQUITY (CONTINUED):
shares of the Company's common stock calculated by dividing the sum of the $100 per share purchase price plus any accrued and unpaid dividends by $2.00 (the Conversion Rate). The Series B Preferred stock shall be automatically and mandatorily converted into shares of the Company's common stock at the Conversion Rate upon each occasion (at least 30 calendar days apart) after a date of six months subsequent to the initial issuance of the Series B Preferred stock on which the closing price of the Company's common stock has been equal or greater than 150% of the Conversion Rate (initially $3.00) for twenty consecutive trading days with a reported average daily trading volume of 10,000 shares or more. The Series B Preferred stock may be redeemable at the option of the Company after one year from the issuance on 10 days' written notice, at a price equal to $100 per share plus any accrued unpaid dividends. During the 10 day period, the holder may elect to convert the Series B Preferred stock to the Company's common stock at the Conversion Rate. On the third anniversary of issuance, the Company shall redeem the outstanding Series B Preferred stock at the price of $100 per share plus any accrued unpaid dividends. The Series B Preferred stock accrues dividends at a rate of 2.5% per quarter (10% per year) and shall be earned and accrued or paid quarterly.
Because the Series B Preferred stock is redeemable in cash at a fixed price ($100 per share plus accrued unpaid dividends) on a fixed date (the third anniversary of issuance), the Company has classified the Series B Preferred stock outside of stockholders' equity. Therefore, the Series B Preferred stock has been recorded at its current redemption value as "temporary equity" in the accompanying consolidated balance sheet. Dividends on the Series B Preferred stock are reflected as part of the redemption value with an offset to reduce additional paid-in capital, and are included in the determination of net loss applicable to common stockholders.
During the six months ended December 31, 2009, the Company concluded the offering of Series B Preferred stock and issued 6,850 shares of Series B Preferred stock for cash proceeds of $685,000 (net proceeds of $595,950 after commissions).
The Company declared dividends on July 29, 2009, for the Series B Preferred stockholders with a record date of June 30, 2009, totaling $12,876, which were paid on August 15, 2009. The Company declared dividends on October 28, 2009 for the Series B Preferred stockholders with a record date of September 30, 2009 totaling $63,792, which were paid on November 16, 2009. The Company declared dividends on February 1, 2010 for the Series B Preferred stockholders with a record date of December 31, 2009, totaling $70,425, which are expected to be paid on February 16, 2010.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
7. STOCKHOLDERS' EQUITY (CONTINUED):
Series C Preferred stock:
During December 2009, the Company authorized the issuance of 60,000 shares of Series C Preferred stock, which have a par value of $0.01 per share and are issuable at a price of $100 per share. The Series C Preferred stock is convertible at the option of the holder at any time from the date of issuance, into shares of the Company's common stock calculated by dividing the sum of the $100 per share purchase price plus any accrued and unpaid dividends by $4.00 (the Conversion Rate), provided the shares have not been redeemed into common shares by the Company at is sole election. A portion (up to 100% as calculated below) of each shares of Series C Preferred stock shall be automatically and mandatorily converted into shares of the Company's common stock at the Conversion Rate upon each occasion (at least 30 calendar days apart) after a date of six months subsequent to the initial issuance of the Series C Preferred stock on which the closing price of the Company's common stock has been equal or greater than 150% of the Conversion Rate (initially $6.00) for twenty consecutive trading days with a reported average daily trading volume of 10,000 shares or more. On each occasion for mandatory conversion as set forth above, a sufficient portion of the outstanding shares of Series C Preferred stock shall be prorata converted so that the holders of the Series C Preferred stock receive an aggregate number of shares of the Company's restricted common stock equal to 7.5 times the average reported daily volume of trading in the Company's publicly traded common stock for the applicable twenty day period and each outstanding share shall thereafter be proportionately reduced in its rights to represent the effect of the partial conversions. The Series C Preferred stock accrues dividends at a rate of 2.5% per quarter (10% per year) and shall be earned and accrued or paid quarterly.
Dividends on the Series C Preferred stock are reflected as part of the redemption value with an offset to reduce additional paid-in capital, and are included in the determination of net loss applicable to common stockholders.
During the six months ended December 31, 2009, the Company issued 4,650 shares of Series C Preferred stock for cash proceeds of $465,000 (net proceeds of $404,550 after commissions).
The Company declared dividends on February 1, 2010 for the Series C Preferred stockholders with a record date of December 31, 2009 totaling $800; which are expected to be paid on February 16, 2010.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
7. STOCKHOLDERS' EQUITY (CONTINUED):
Common stock:
Holders of common stock are entitled to one vote per share on all matters to be voted on by common stockholders. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share in all assets remaining after liabilities have been paid in full or set aside and the rights of any outstanding preferred stock have been satisfied. Common stock has no preemptive, redemption or conversion rights. The rights of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of any outstanding series of preferred stock or any series of preferred stock the Company may designate in the future.
In January 2009, pursuant to the Smith Agreement (Note 9), the Company issued 200,000 shares of the Company's restricted common stock at $0.75 per share as prepayment of Mr. Smith's calendar year 2009 base compensation of $150,000. As of December 31, 2009, the shares are fully vested and the Company has recorded $150,000 as compensation expense.
From July 2009 through December 2009, the Company issued 107,846 shares of the Company's restricted common stock at prices ranging from $1.01 to $2.25 per share for consulting services valued at $169,570 to various consultants.
During September 2009, the Company issued 8,769 shares of the Company's restricted common stock at $1.50 per share for cash proceeds of $13,153.
In September 2009, the Company issued 55,530 shares of the Company's restricted common stock in conversion and satisfaction of the Company's accrued payable of $41,647 to a company controlled by Mr. Salvatore Zizza, the former Chairman of the Projects Group. The shares were issued pursuant to an agreement whereby Mr. Zizza had the option to convert the payable into common shares of the company at $0.75 per share at any time prior to the obligation being paid by the Company.
In September 2009, the Company issued 24,565 shares of the Company's restricted common stock in satisfaction of accounts payable of $36,848. The shares were valued at $1.50 per share which approximated the market value at the time of the issuance.
In October 2009, the Company issued 2,020 shares of the Company's restricted common stock in satisfaction of accrued interest on convertible loans payable from affiliates totaling $1,515. The shares were valued at $0.75 per share which approximated the market value at the date of loan payable agreements.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
7. STOCKHOLDERS' EQUITY (CONTINUED):
In July 2009, the Company issued 130,000 common shares of the Company as stock bonuses to certain key employees and a consultant at $1.01 per share, the approximate market value on the date of grant, totaling $131,300. The stock bonuses are subject to vesting and during the six months ended December 31, 2009, $71,869 was recorded as compensation expense and $25,764 was capitalized as project construction in progress as it directly related to construction services provided by employees and consultants.
Warrants:
As of December 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 C,D,E 275,000 2.50 April 30, 2015
Class O 100,000 3.00 December 31, 2018
Class DM 150,000 3.00 December 31, 2011
Class MAS 80,000 2.50 December 31, 2018
Class MAS-1 A-K 300,000 0.75 December 31, 2018
Class GK 20,000 2.00 March 31, 2011
Class TO-1 15,000 0.75 December 31, 2018
Class BW 10,000 2.20 June 15, 2012
Class Z 1-3 53,324 1.25 December 31, 2018
Class NCC-1 25,000 2.00 May 31, 2014
Class DB-2 600,000 2.50 January 15, 2019
Class MAS 4-1 200,000 2.50 January 15, 2019
---------
5,290,616
=========
|
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
7. STOCKHOLDERS' EQUITY (CONTINUED):
In September 2009, warrants to purchase 600,000 and 200,000 shares of the Company's common stock at $2.50 per share were issued pursuant to various extension agreements with Mr. Bassani and Mr. Smith, respectively (Note 9). The warrants were determined to have a fair value of $0.10 per warrant and expire on January 15, 2019. The value placed upon the warrants to purchase common stock at $2.50 per share was determined to be $0.10 per warrant based on factors including the evaluation of the Company's value as of the date of the issuances, consideration of the Company's limited liquid resources and business prospects, the market price of the Company's stock in its mostly inactive public market, the concurrent sales of restricted common stock at $1.50 per share, and the historical valuation and purchases of the Company's warrants. The Company recorded non-cash compensation of $80,000 related to the warrant issuances.
The weighted average exercise price for the outstanding warrants is $2.03, and the weighted average remaining contractual life as of December 31, 2009 is 8.5 years.
Stock options:
The Company's 2006 Consolidated Incentive Plan (the "2006 Plan"), as amended, provides for the issuance of options to purchase up to 6,000,000 shares of the Company's common stock. Terms of exercise and expiration of options granted under the 2006 Plan may be established at the discretion of the Board of Directors, but no option may be exercisable for more than ten years.
In May and June of 2008, the Board of Directors, in an effort to retain key employees and consultants, approved the modifications of certain options to certain employees and consultants. The modifications included the reduction of the exercise price of certain options below the fair market value on the date of grant, modifications to the vesting terms and extension of the expiry dates. As a result of the modifications, the Company recorded incremental compensation expense of $83,428, which was recognized at June 30, 2008 and approximately $282,000 of additional compensation is being recognized over a weighted average period of approximately 2 years.
The Company recorded compensation expense related to employee stock options of $73,473 and $84,068 for the three months ended December 31, 2009 and 2008, respectively and $168,077 and $146,997 for the six months ended December 2009 and 2008, respectively. The Company granted 195,000 and 75,000 options during the six months ended December 31, 2009 and 2008, respectively. The fair value of the options granted during the six months ended December 31, 2009 and 2008 were estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
7. STOCKHOLDERS' EQUITY (CONTINUED):
Weighted Weighted
Average Range Average Range
December 31, December 31, December 31, December 31,
2009 2009 2008 2008
------------ ------------ ------------ ------------
Volatility 100% 99%-104% 99% 73%-151%
Dividend yield - - - -
Risk-free interest rate 1.29% 1.12%-1.31% 1.97% 1.63%-2.64%
Expected term (years) 2.5 2.5 4 3-6
|
The expected volatility was based on the historical price volatility of the Company's common stock. The dividend yield represents the Company's anticipated cash dividend on common stock over the expected term of the stock options. The U.S. Treasury bill rate for the expected term of the stock options was utilized to determine the risk-free interest rate. The expected term of stock options represents the period of time the stock options granted are expected to be outstanding based upon management's estimates.
A summary of option activity under the 2006 Plan for the six months ended December 31, 2009 is as follows:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price Life Value
---------------------------------------------
Outstanding at July 1, 2009 1,995,833 $ 3.01 4.3 $ -
Granted 195,000 1.38
Exercised - -
Forfeited - -
Expired - -
---------------------------------------------
Outstanding at December 31, 2009 2,190,833 $ 2.87 3.8 $ 252,450
=============================================
Exercisable at December 31, 2009 2,002,083 $ 2.94 3.9 $ 163,450
=============================================
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BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
7. STOCKHOLDERS' EQUITY (CONTINUED):
The following table presents information relating to nonvested stock options
as of December 31, 2009:
Weighted Average
Grant-Date
Options Fair Value
----------------------------
Nonvested at July 1, 2009 203,749 $ 1.31
Granted 195,000 0.60
Vested (209,999) (1.26)
Forfeited - -
----------------------------
Nonvested at December 31, 2009 188,750 $ 0.61
============================
|
The total fair value of stock options that vested during the six months ended December 31, 2009 and 2008 was $264,438 and $233,377, respectively. As of December 31, 2009, the Company had $98,608 of unrecognized compensation cost related to stock options that will be recorded over a weighted average period of one year.
The Company has issued options to non-employees to purchase shares of the Company's common stock in exchange for services. As of December 31, 2009, non-employee options represented 595,833 of the 2,190,833 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 December 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 being recorded for the six months ended December 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 December 31, 2009, all of the 503,333 options that included service conditions are fully vested. Generally for these agreements, the measurement date of the services occurs when the options vest. Recognition of compensation cost for reporting periods prior to the measurement date is based on the then current fair value of the options as of each of the interim reporting dates. Any subsequent change in fair value is recorded on the measurement date. The fair value of these options was determined using the Black-Scholes option-pricing model using the following assumptions at November 30, 2009; a dividend yield of zero, risk-free interest rates of 3.21%, volatility of 158%, and an expected life of 8.5 years. Non-cash fair value charges/(credits) of $26,571 and $(389,803) were recorded as expense during the three months ended December 31, 2009 and 2008, respectively and $91,831 and $(209,615) for the six months ended December 31, 2009 and 2008, respectively.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
7. STOCKHOLDERS' EQUITY (CONTINUED):
Stock-based compensation charges in operating expenses in the Company's
financial statements for the three and six months ended December 31, 2009 and
2008 are as follows:
Three months Three months Six months Six months
ended ended ended ended
December 31, December 31, December 31, December 31,
2009 2008 2009 2008
------------ ------------ ------------ ------------
General and administrative:
Fair value remeasurement of
options with service conditions $ 26,571 $(389,803) $ 91,831 $(275,075)
Fair value of stock bonuses
expensed 29,418 - 61,658 -
Fair value of stock options
expensed 73,473 76,318 161,452 114,367
-------- --------- -------- ---------
Total $129,462 $(313,485) $314,941 $(160,708)
======== ========= ======== =========
Research and development:
Fair value remeasurement of
options with service conditions $ - $ - $ - $ 65,460
Fair value of stock bonuses
expensed 5,176 - 10,211 -
Fair value of stock options
expensed - 7,750 6,625 32,630
-------- --------- -------- ---------
Total $ 5,176 $ 7,750 $ 16,836 $ 98,090
======== ========= ======== =========
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8. OPERATING LEASE:
The Company entered into a non-cancellable operating lease commitment for office space in New York, effective August 1, 2006 and expiring November 30, 2013. In conjunction with the signing of the lease, the Company provided the lessor with a secured letter of credit. As of December 31, 2009, the Company has reflected $57,315 as restricted cash related to the secured letter of credit. The Company's obligations under the lease are partially guaranteed by Mr. Salvatore Zizza, a former officer and director of the Company. The Company has entered into two separate agreements to sub-lease approximately 32% of the Company's lease obligation, and the tenants have also agreed to reimburse the Company for leasehold improvements and furnishings. Because the lease contains an escalation clause, the Company is recognizing rent under the straight-line method resulting in an average monthly rent expense of $15,820. The Company is also recognizing the sub-lease rental income from its tenants under the straight-line method, with a monthly average of $5,250.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
8. OPERATING LEASE (CONTINUED):
The difference between the straight-line method, and the actual lease payments has resulted in a deferred rent liability of $72,299 as of December 31, 2009. Rent expense, net of contractual and month to month sub-lease rental income was $8,753 and $12,504 for the three months ended December 31, 2009 and 2008, respectively and $12,971 and $25,008 for the six months ended December 31, 2009 and 2008, respectively.
At December 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
------------ --------------- -------- --------------
Six months ending June 30, 2010 $ 95,992 $ 30,717 $ 65,275
2011 198,602 63,553 135,049
2012 212,775 68,088 144,687
2013 225,756 72,242 153,514
2014 97,219 31,110 66,109
-------- -------- --------
Total $830,344 $265,710 $564,634
======== ======== ========
|
Effective January 1, 2009, Mr. Zizza entered into a Master Sublease with the Company pursuant to which Mr. Zizza became a sublessee and for a one year initial period, made all payments pursuant to the lease and managed the lease premises. Rental payments from existing sub-tenants are being deposited into a Company bank account such that Mr. Zizza utilizes those funds towards the monthly lease payment. During November 2009, Mr. Zizza exercised his option to continue the Master Sublease for the entire term of the lease. Mr. Zizza fulfilled his obligations under the Master Sublease during the one-year initial period and in January 2010, he received the funds from the release of the restricted cash securing the Company's letter of credit of $28,658. Since Mr. Zizza exercised the option to continue the Master Sublease for the entire term of the lease, Mr. Zizza will be entitled to the balance of restricted funds securing the letter of credit of approximately $57,000 if he fulfills his obligations pursuant to the Master Sublease.
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
9. COMMITMENTS AND CONTINGENCIES:
Employment and consulting agreements:
On January 11, 2009, the Company and Mr. Smith entered into the Smith Agreement whereby Mr. Smith agreed to continue to hold positions of Director, President and General Counsel of the Company and its subsidiaries at an annual salary of $150,000. Pursuant to the Smith Agreement, Mr. Smith was granted a $37,500 bonus in the form of a warrant (and extension of outstanding warrants previously issued to Mr. Smith), immediately vested, to purchase 300,000 shares of the Company's common stock at $0.75 per share until December 31, 2018, and Mr. Smith agreed to accept pre-payment of his calendar year 2009 base compensation of $150,000 in the form of 200,000 restricted shares of Company common stock at a price of $0.75 per share. In addition, Mr. Smith converted his deferred compensation as of December 31, 2008 into shares of the Company's common stock. On September 30, 2009, the Company and Mr. Smith entered into an extension agreement whereby Mr. Smith will continue to hold his current position in the Company through a date no later than December 31, 2010. Commencing January 1, 2010, Mr. Smith will be paid a monthly salary of $16,000 in addition to a cash bonus of $15,000 paid in January 2010. In addition Mr. Smith was granted a $20,000 bonus payable in warrants to purchase 200,000 shares of the Company's common stock at a price of $2.50 per share until January 15, 2019.
Effective March 31, 2005, an agreement with Brightcap, through which the services of Dominic Bassani are provided, was extended through March 31, 2009. Under the terms of the agreement, Brightcap will be paid $300,000 annually for Mr. Bassani's services. On January 11, 2009, the Company entered in the Brightcap Agreement, which extends Mr. Bassani's services under the terms of the March 31, 2005 agreement for up to an additional six months. In addition, Mr. Bassani was granted a bonus of $125,000 in the form of a) warrant, immediately vested, to purchase 1,000,000 shares of the Company's common stock at $0.75 per share until December 31, 2018 and b) the extension of all warrants previously issued to either Brightcap or Mr. Bassani, now held by their donees, to December 31, 2018. The Brightcap Agreement also required that upon the consummation of the next financing received by the Company in excess of $1,000,000 net proceeds, the Company would no longer defer compensation earned by Brightcap, rather it will be paid in cash. Since July 2009, Brightcap has been paid in cash. The Brightcap Agreement granted 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 which right was extended to January 14, 2010, on which date the conversion took place (Note 10). The Brightcap Agreement also extended the maturity date of Mr. Bassani's $50,000 promissory note to June 30, 2009 and allowed 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
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
9. COMMITMENTS AND CONTINGENCIES (CONTINUED):
shares at $0.75 per share. The promissory note was converted on June 30, 2009. On September 30, 2009 the Company entered into an extension agreement with Brightcap pursuant to which Mr. Bassani will provide services to the Company through September 30, 2012 for $312,000 annually. In conjunction with the extension agreement, Mr. Bassani was granted a $60,000 bonus payable in warrants to purchase 600,000 shares of the Company's common stock at a price of $2.50 per share until January 15, 2019. Mr. Bassani was also granted an extension on the conversion date of the $175,000 deferred compensation from December 31, 2009 until January 14, 2010.
Effective September 18, 2006, the Company entered into a four-year employment agreement with Jeremy Rowland whereby Mr. Rowland assumed the position of Chief Operating Officer of Dairy at an annual salary of $150,000. In June 2008, the employment agreement terms were extended through July 1, 2012. Mr. Rowland now serves as Chief Operating Officer of the Company's Services Group subsidiary.
The Company approved an employment agreement contract extension effective June 30, 2009, with Craig Scott whereby Mr. Scott will continue to act as Vice President of Capital Markets and Shareholder Relations through December 31, 2010, at an annual salary of $144,000. The Company will have the right terminate the agreement with 30 days notice commencing December 2009, with no further liability.
In May 2005 the Company declared contingent deferred stock bonuses of 690,000 shares to its key employees and consultants. The stock bonuses of 492,500 and 197,500 shares are contingent upon the Company's stock price exceeding $10.00 and $20.00 per share, respectively, and the grantees still being employed by or providing services to the Company at the time the target prices are reached. As of December 31, 2009, 422,500 shares remain outstanding due to the expiry of 125,000 and 62,500 shares to be issued when and if the Company's stock price exceeds $10.00 and $20.00 per share, respectively.
In May 2008, the Company approved 250,000 stock options to certain employees that will be granted upon the execution of new employment agreements.
Claims contingency:
In May 2002, Arab Commerce Bank Ltd. ("ACB"), an unaffiliated party, filed a complaint against the Company in the Supreme Court of the State of New York regarding $100,000 of the Company's convertible bridge notes ("Bridge Notes") that were issued to ACB in March 2000. The complaint includes a breach of
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
9. COMMITMENTS AND CONTINGENCIES (CONTINUED):
contract claim asserting that the Company owes ACB approximately $285,000 plus interest of $121,028 plus interest based on ACB's interpretation of the terms of the Bridge Notes and subsequent amendments. Effective June 30, 2001, the Company issued ACB 5,034 shares of common stock in full satisfaction of the Bridge Notes based on the Company's interpretation of the Bridge Notes, as amended. The Company has filed an answer to the complaint denying the allegations. No activity has taken place on this lawsuit since early 2003. The Company believes that the ultimate resolution of this litigation will not have a material adverse effect on the Company, its operations or its financial condition.
10. SUBSEQUENT EVENTS:
The Company has evaluated subsequent events through February 8, 2010 for consideration as a subsequent event to be included in its December 31, 2009 financial statements issued February 9, 2010.
Issuance of Common Stock
During January 2010, the Company has issued 31,773 common shares to consultants for services valued at approximately $70,000 and has satisfied deferred compensation owed Brightcap of $175,000 by issuing 233,334 shares of the Company's common shares.
Issuance of Series C Preferred Stock
From January 1, 2010 through February 8, 2010, the Company has closed on the sale of 3,250 shares of its Series C Preferred Stock for net proceeds of $282,750.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and Notes to Consolidated Financial Statements filed herein and with the Company's Form 10-K/A for the year ended June 30, 2009.
BUSINESS OVERVIEW
For several years, the Company focused on completion of the development of its second-generation technology which provides a comprehensive environmental solution to a significant source of pollution in U.S. agriculture, Confined Animal Feeding Operations ("CAFO's"), which development is now substantially complete. Currently, Bion is focused on using applications of its patented waste management technology to pursue two main business opportunities: 1) environmental retrofit and remediation of the waste streams of existing CAFOs in selected markets; and 2) to develop Integrated Projects which will include large CAFOs, such as large dairies, beef cattle feed lots and hog farms, with Bion waste treatment System modules processing the aggregate CAFO waste stream from the equivalent of 40,000 or more beef and/or dairy cows (or the waste stream equivalent of other species) while producing solids to be utilized for renewable energy production (and potentially to be marketed as feed and/or fertilizer), integrated with an ethanol plant capable of producing 40 (or more) million gallons of ethanol per year and/or with CAFO end product processors.
The Company has commenced actively pursuing the opportunity presented by environmental retrofit and remediation of the waste streams of existing CAFOs. The first commercial activity in this area is an agreement with Kreider Farms ("KF") in Pennsylvania to design, construct and operate Bion Systems to treat KF's dairy and poultry waste streams to reduce nutrient releases to the environment while generating marketable nutrient credits and renewable energy. On January 26, 2009 the Board of the Pennsylvania Infrastructure Investment Authority approved a $7.8 million loan to Bion PA 1, LLC, a wholly-owned subsidiary of the Company, for the initial stage of Bion's Kreider Farms project. The Company anticipates that the steps required to finalize the pre-construction phase of the Pennvest Loan will be completed during the next 90 days and that the initial drawdown/re-imbursement from Pennvest pursuant to the Pennvest Loan will be received shortly thereafter. The Company has commenced permitting for this project and anticipates construction of this project during the current calendar year.
Additionally, we believe that Bion's technology platform allows the integration of large-scale CAFO's and their end-product users, renewable energy production from the CAFO waste stream, on site utilization of the renewable energy generated and biofuel/ethanol production in an environmentally and economically sustainable manner while reducing the aggregate capital expense and operating costs for the entire integrated complex ("Integrated Projects" or "Projects"). In the context of Integrated Projects, Bion's waste treatment process, in addition to mitigating polluting
releases, generates renewable energy from cellulosic portions of the CAFO waste stream which renewable energy can be utilized by integrated facilities including ethanol plants, CAFO end-product processors (including cheese, ice cream and /or bottling plants in the case of dairy CAFOs and/or slaughter and/or processing facilities in the context of beef CAFOs) and/or other users as a natural gas replacement. Note that an integrated ethanol plant's main by-product, called distillers grain, can be added to the feed of the animals in wet form thereby lowering the capital expenditures, operating, marketing and shipping costs and energy usage of the ethanol production process. In such cases, the ethanol plant would act as a feed mill for the integrated CAFO, thus reducing the CAFO's feeding costs and generating revenue to the ethanol plant, and also provides a market for the renewable energy that Bion's System produces from the CAFO waste stream. Thus, such Bion Integrated Projects can be denominated "closed loop". Bion, as developer of and participant in Integrated Projects, anticipates that it will share in the cost savings and revenue generated from these activities.
Bion is currently working with local, state and federal officials and with potential industry participants to evaluate sites in multiple states. The Company has tentatively selected the Town of Schroeppel, Oswego County, New York for its initial Project and anticipates optioning land in that area during the 2010 fiscal year or soon thereafter (although other locations in upstate New York and in other states are also under review). In addition, Bion intends to choose sites for additional Projects during the remainder of calendar years 2010-2012 to create a pipeline of Projects. Management has a 5-year development target (through calendar year 2016) of approximately 12-24 Integrated Projects. At the end of that period, Bion projects that 8 or more of these Integrated Projects will be in full operation in 3-8 states, and the balance would be in various stages ranging from partial operation to early permitting stage. No Integrated Project has been developed to date.
The financial statements for the years ended June 30, 2009 and 2008 have been prepared assuming the Company will continue as a going concern. The Company has incurred net losses of approximately $1,312,000 and $1,779,000 during the years ended June 30, 2009 and 2008, respectively. At June 30, 2009, the Company had a working capital surplus and stockholders' deficit of approximately $515,000 and $1,125,000, respectively. The financial statements for the three and six months ended December 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 $642,000 and $1,613,000 during the three and six month periods ended December 31, 2009, respectively. At December 31, 2009, the Company has a working capital surplus and stockholders' deficit of approximately $224,000 and $1,690,000, 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, 2009 includes a "going concern" explanatory paragraph which means that the accounting firm has expressed substantial doubt about the Company's ability to continue as a going concern. Management's plans with respect to these matters are described in this section and in our consolidated financial
statements, and this material does not include any adjustments that might result from the outcome of this uncertainty. There is no guarantee that we will be able to raise the funds or raise further capital for the operations planned in the near future.
CRITICAL ACCOUNTING POLICIES
Management has identified the following policies below as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the paragraphs below.
Revenue Recognition
While the Company has not recognized any operating revenues for the past two fiscal years, the Company anticipates that future revenues will be generated from product sales, credit sales, technology license fees, annual waste treatment fees and/or direct ownership interests in Integrated Projects. The Company expects to recognize revenue from product sales when there is persuasive evidence that an arrangement exists, when title has passed, the price is fixed or determinable, and collection is reasonably assured. The Company expects that technology license fees will be generated from the licensing of Bion's Systems. The Company anticipates that it will charge its customers a non-refundable up-front technology license fee, which will be recognized over the estimated life of the customer relationship. In addition, any on-going technology license fees will be recognized as earned based upon the performance requirements of the agreement. Annual waste treatment fees will be recognized upon receipt. Revenues, if any, from the Company's interest in Projects will be recognized when the entity in which the Project has been developed recognizes such revenue.
Compensation Cost for Options with Service Conditions and Graded Vesting Schedules
The Company has issued non-employee options that include service conditions and have graded vesting schedules. Generally for these arrangements, the measurement date of the services occurs when the options vest. Recognition of compensation cost for reporting periods prior to the measurement date is based on the then current fair value of the options. Fair value of the options is determined using a Black-Scholes option-pricing model. Any subsequent changes in fair value will be recorded on the measurement date. Compensation cost in connection with options that are not fully vested is being recognized on a straight-line basis over the requisite service period for the entire award.
Stock-based compensation
The Company follows the provisions of ASC 718 (formerly SFAS 123(R)), which generally requires that share-based compensation transactions be accounted and recognized in the statement of income based upon their fair values.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, FASB approved the FASB Accounting Standards Codification ("the Codification") as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission ("SEC"), have been superseded by the Codification. All other non- grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company's financial statements, as all future references to authoritative accounting literature are now referenced in accordance with the Codification. There have been no changes to the content of the Company's financial statements or disclosures as a result of implementing the Codification during the quarter ended September 30, 2009.
As a result of the Company's implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, the Company provides reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.
In December 2007, the FASB issued ASC 810 (formerly - SFAS No. 160),
"Consolidation". The standard changes the accounting for non-controlling
(minority) interests in consolidated financial statements, including the
requirements to classify non-controlling interests as a component of
consolidated stockholders' equity, and the elimination of minority interest
accounting in results of operations, with earnings attributable to non-
controlling interests reported as part of consolidated earnings. Purchases
and sales of non-controlling interests are to be reported in equity similar
to treasury stock transactions. The standard became effective for the Company
on July 1, 2009. As a result the Company now reports noncontrolling interest
as a component of equity in its consolidated balance sheet and below net
(loss) income in its consolidated statement of operations. In addition, the
provisions of ASC 810 require that minority interest be renamed
noncontrolling interest and that a company present a consolidated net income
measure that includes the amount attributable to such noncontrolling
interests for all periods presented. As required by ASC 810, the Company has
retrospectively applied the presentation to all prior year balances
presented.
THREE MONTHS ENDED DECEMBER 31, 2009 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 2008
General and Administrative
Total general and administrative expenses were $610,000 and $159,000 for the three months ended December 31, 2009 and 2008, respectively.
General and administrative expenses, excluding stock-based compensation charges/(credits) of $129,000 and $(314,000) for the three months ended December 31, 2009 and 2008, respectively, were $481,000 and $473,000 for the three months ended December 31, 2009 and 2008, respectively. While there was only a small increase in general and administrative expenses for the period, there were some variations of note. Salaries and related payroll tax expense were approximately $108,000 and $161,000 for the three months ended December 31, 2009 and 2008, respectively. The decrease in salaries and related payroll taxes is due to the fact that approximately $56,000 of salary cost was capitalized as a direct cost of the KF project. Consulting costs were approximately $100,000 and $199,000 for the three months ended December 31, 2009 and 2008, respectively, with the decrease being attributable to the absence of certain key consultants in the second quarter 2010 that no longer provide services to the Company. Legal expenses for the three months ended December 31, 2009 and 2008 were approximately $129,000 and $24,000, respectively. Legal fees were higher during the second quarter of fiscal year 2010 due to the hiring of an additional law firm to pursue federal legislative initiatives related to development of our Integrated Projects and remediation business opportunities in addition to ongoing work related to our Kreider projects. The Company also expensed $18,000 in investor relations related costs due to the increase in shareholders and investing activities.
General and administrative stock-based compensation for the three months ended December 31, 2009 and 2008 consist of the following:
Three Three
months months
ended ended
December December
31, 2009 31, 2008
-------- --------
General and administrative:
Fair value remeasurement of options with service
conditions $ 26,000 $(390,000)
Fair value of stock options expensed under
ASC 718 73,000 76,000
Fair value of stock bonuses expensed 30,000 -
-------- ---------
Total $129,000 $(314,000)
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Stock-based compensation charges/(credits) increased from $(314,000) to $129,000 for the three months ended December 31, 2008 and 2009, respectively. The Company recognized as general and administrative expenses/(credits) of $26,000 and $(390,000) for the remeasurement of options with service conditions. The increase is due primarily to decrease in the fair value of the options from approximately $2.10 per share to approximately $0.97 per share during the three months ended December 31, 2008. For the three months ended December 31, 2009 the Company recognized expense relating to the fair value of stock options for general and administrative employees of $73,000, compared to $76,000 for the three months ended December 31, 2008. Compensation expense relating to stock options was lower during the quarter ended December 31, 2009 due to 20,000 options being granted during the period which were fully vested versus 75,000 fully vested options being issued during the same period in the prior fiscal year. The Company also recognized general and administrative expenses of $30,000 due to the vesting of stock bonuses during the quarter ended December 31, 2009 which have vesting periods over a year.
Research and development
Total research and development expenses were $35,000 and $71,000 for the three months ended December 31, 2009 and 2008, respectively.
Research and development expenses, excluding stock-based compensation charges of $5,000 and $8,000 for the three months ended December 31, 2009 and 2008 were $30,000 and $63,000, respectively. The primary reason for the decrease in research and development expenses during the three months ended December 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 $27,000 and $45,000 for the three months ended December 31, 2009 and 2008, respectively, and the decrease is due to the expensing of previous research and development employees to general and administrative.
Research and development stock-based compensation for the three months ended December 31, 2009 and 2008 consist of the following:
Three Three
months months
ended ended
December December
31, 2009 31, 2008
-------- --------
Research and development:
Fair value of stock options expensed under ASC 718 $ - $8,000
Fair value of stock bonuses expensed 5,000 -
------ ------
Total $5,000 $8,000
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Stock-based compensation expense decreased from $8,000 for the three months ended December 31, 2008 to $5,000 for the same period in fiscal year 2010. The decrease is due to expensing options issued to employees who in the prior year were deemed to be research and development and in the fiscal year 2009 were primarily allocated to general and administrative.
Loss from Operations
As a result of the factors described above, the loss from operations was $645,000 and $229,000 for the three months ended December 31, 2009 and 2008, respectively.
Other expense (income)
Other expense (income) was $(3,000) and $(1,019,000) for the three months ended December 31, 2009 and 2008, respectively. Interest expense decreased to zero for the three months ended December 31, 2009 from $16,000 for the three months ended December 31, 2008. Interest expense decreased as there was no interest bearing debt during the three months ended December 31, 2009. Interest income was $3,000 and $1,000 for the three months ended December 31, 2009 and 2008, respectively. For the three months ended December 31, 2008, 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 directors and officers liability insurance providers.
Net loss attributable to the noncontrolling interest
The net loss attributable to the noncontrolling interest was $1,000 and $4,000 for the three months ended December 31, 2009 and 2008, respectively.
Net loss (income) attributable to Bion's common stockholders
As a result of the factors described above, the net loss (income) attributable to Bion's common stockholders was $712,000 and $(794,000) for the three months ended December 31, 2009 and 2008, respectively, representing a $0.14 decrease in the net loss (income) per basic and diluted common share for the three months ended December 31, 2009 and 2008 of $0.06 and $(0.08), respectively.
SIX MONTHS ENDED DECEMBER 31, 2009 COMPARED TO THE SIX MONTHS ENDED DECEMBER
31, 2008
General and Administrative
Total general and administrative expenses were $1,510,000 and $788,000 for the six months ended December 31, 2009 and 2008, respectively.
General and administrative expenses, excluding stock-based compensation charges/(credits) of $315,000 and $(161,000) for the six months ended December 31, 2009 and 2008, respectively, were $1,195,000 and $949,000 for the six months ended December 31, 2009 and 2008, respectively, representing a
$246,000 increase. Legal expenses for the six months ended December 31, 2009 and 2008 were approximately $277,000 and $(5,000), respectively. Legal fees were higher during the second quarter of fiscal year 2010 due to the hiring of an additional law firm to pursue federal legislative initiatives related to development of our Integrated Projects and remediation business opportunities in addition to ongoing work related to our Kreider projects. Legal credits for the six months ended December 31, 2008 were due to insurance reimbursements of legal costs relating to the Centerpoint litigation. The Company also expensed $53,000 in investor relations related costs due to the increase in shareholders and investing activities.
General and administrative stock-based compensation for the six months ended December 31, 2009 and 2008 consist of the following:
Six Six
months months
ended ended
December December
31, 2009 31, 2008
-------- --------
General and administrative:
Fair value remeasurement of options with
service conditions $ 92,000 $(275,000)
Fair value of stock options expensed under
ASC 718 161,000 114,000
Fair value of stock bonuses expensed 62,000 -
-------- ---------
Total $315,000 $(161,000)
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Stock-based compensation charges/(credits) increased from $(161,000) to $315,000 for the six months ended December 31, 2008 and 2009, respectively. The Company recognized as general and administrative expenses/(credits) of $92,000 and $(275,000) for the remeasurement of options with service conditions. The increase is due primarily to decrease in the fair value of the options from approximately $2.06 per share to approximately $0.97 per share during the six months ended December 31, 2008. For the six months ended December 31, 2009 the Company recognized expense relating to the fair value of stock options for general and administrative employees of $161,000, compared to $114,000 for the six months ended December 31, 2008. Compensation expense relating to stock options was higher during the six months ended December 31, 2009 due to 195,000 options being granted during the period versus 75,000 options being issued during the same period in the prior fiscal year. The Company also recognized general and administrative expenses of $62,000 due to the issuance of stock bonuses during the six months ended December 31, 2009 which have vesting periods over a year.
Research and development
Total research and development expenses were $108,000 and $347,000 for the six months ended December 31, 2009 and 2008, respectively.
Research and development expenses, excluding stock-based compensation charges of $17,000 and $98,000 for the six months ended December 31, 2009 and 2008 were $91,000 and $249,000, respectively. The primary reason for the decrease in research and development expenses during the six months ended December 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 $51,000 and $147,000 for the six months ended December 31, 2009 and 2008, respectively, and the decrease is due to the expensing of previous research and development employees to general and administrative.
Research and development stock-based compensation for the six months ended December 31, 2009 and 2008 consist of the following:
Six Six
months months
ended ended
December December
31, 2009 31, 2008
-------- --------
Research and development:
Fair value remeasurement of options with
service conditions $ - $65,000
Fair value of stock bonuses expensed 10,000 -
Fair value of stock options expensed
under ASC 718 7,000 33,000
------- -------
Total $17,000 $98,000
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Stock-based compensation expense decreased from $98,000 for the six months ended December 31, 2008 to $17,000 for the same period in fiscal year 2010. The decrease is due to expensing options issued to employees who in the prior year were deemed to be research and development and in the fiscal year 2009 were primarily allocated to general and administrative.
Loss from Operations
As a result of the factors described above, the loss from operations was $1,618,000 and $1,135,000 for the six months ended December 31, 2009 and 2008, respectively.
Other expense (income)
Other expense (income) was $(5,000) and $(1,009,000) for the six months ended December 31, 2009 and 2008, respectively. Interest expense decreased to $2,000 for the six months ended December 31, 2009 from $28,000 for the six months ended December 31, 2008. Interest expense decreased as there was no interest bearing debt during the six months ended December 31, 2009. Interest income was $6,000 and $2,000 for the six months ended December 31, 2009 and 2008, respectively. For the six months ended December 31, 2008, 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 directors and officers liability insurance providers.
Net loss (income) attributable to the noncontrolling interest
The net loss (loss) attributable to the noncontrolling interest was $2,000 and $(10,000) for the six months ended December 31, 2009 and 2008, respectively.
Net loss attributable to Bion's common stockholders
As a result of the factors described above, the net loss attributable to Bion's common stockholders was $1,746,000 and $136,000 for the six months ended December 31, 2009 and 2008, respectively, representing a $0.14 decrease in the net loss per basic and diluted common share for the six months ended December 31, 2009 and 2008 of $0.15 and $0.01, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements for the six months ended December 31, 2009 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Report of our Independent Registered Public Accounting Firm on the Company's financial statements as of and for the year ended June 30, 2009 includes a "going concern" explanatory paragraph which means that the auditors stated that conditions exist that raise substantial doubt about the Company's ability to continue as a going concern.
As of December 31, 2009, the Company had cash and cash equivalents of approximately $1,198,000. During the six months ended December 31, 2009, net cash used in operating activities was $1,064,000, 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 six months ended December 31, 2009 the Company used $237,000 for the purchase of property and equipment and the design and permitting of the KF Project which has been capitalized as property and equipment. Cash of $29,000 was provided due to the release of restricted funds during the six months ended December 31, 2009.
Financing Activities
During the six months ended December 31, 2009, $13,000 of cash was provided from the sale of the Company's restricted common stock, $596,000 was provided from the sale of the Company's Series B preferred stock and $405,000 was provided from the sale of the Company's Series C preferred stock. The Company used $163,000 for the repayment of loans payable to affiliates and $77,000 was paid for Series B preferred dividends.
As of December 31, 2009 the Company has significant debt obligations consisting primarily of deferred compensation of $325,000. In addition, the Company entered into an 88-month operating lease for office space in New York City in August 2006, with an average monthly lease expense of $15,820. As of December 31, 2009, the Company has 46 months remaining on the lease.
Plan of Operations and Outlook
As of December 31, 2009 the Company had cash and cash equivalents of approximately $1,198,000. While the Company currently does not face a severe working capital shortage, it is not currently generating any revenues. The Company will need to obtain additional capital to fund its operations and technology development, to satisfy existing creditors, to develop Projects and to construct the KF facilities. In January 2009, the Board of Pennsylvania Infrastructure Investment Authority approved a $7.8 million loan to the Company for the initial stage of the KF Project. The Company anticipates it will finalize the documentation for this loan during the next 90 days and intends to permit and construct this project during the 2010 calendar year.
The Company anticipates that it will seek to raise from $5,000,000 to $50,000,000 (debt and equity) during the next twelve months. There is no assurance, especially in the extremely unsettled capital markets that presently exist, that the Company will be able to obtain the funds that it needs to stay in business, complete its technology development or to successfully develop its business.
There can be no assurance that funds required during the next twelve months or thereafter will be generated from operations or that those funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease
operations and would, therefore, have a material adverse effect on its business. Further, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significantly dilutive effect on the Company's existing shareholders. All of these factors have been exacerbated by the extremely unsettled credit and capital markets presently existing.
Currently, Bion is focused on using applications of its patented waste management technology to pursue two main business opportunities: 1) to develop Integrated Projects which will include large CAFOs, such as large dairies, beef cattle feed lots and hog farms, with Bion waste treatment System modules processing the aggregate CAFO waste stream from the equivalent of 40,000 or more beef and/or dairy cows (or the waste stream equivalent of other species) while producing solids to be utilized for renewable energy production (and potentially to be marketed as feed and/or fertilizer), integrated with an ethanol plant capable of producing 40 (or more) million gallons of ethanol per year and/or integrated with CAFO end product processors, and 2) environmental retrofit and remediation of the waste streams of existing CAFOs in selected markets.
Bion is currently working with local, state and federal officials and with potential industry participants to evaluate sites in multiple states and anticipates selecting a site for its initial Project during the 2010 fiscal year. The Company has tentatively selected the Town of Schroeppel, Oswego County, New York for its initial Project and anticipates optioning land in that area during the 2010 fiscal year or soon thereafter (although other locations in upstate New York and in other states are also under review). At present it is possible, but not certain, that the initial Integrated In addition, Bion intends to choose sites for additional Projects during the remainder of calendar years 2010-2012 to create a pipeline of Projects. Management has a 5-year development target (through calendar year 2016) of approximately 12-24 Integrated Projects. At the end of that period, Bion projects that 8 or more of these Integrated Projects will be in full operation in 3-8 states, and the balance would be in various stages ranging from partial operation to early permitting stage. No Integrated Project has been developed to date.
The Company has also commenced actively pursuing the opportunity presented by environmental retrofit and remediation of the waste streams of existing CAFOs in selected markets. The first commercial activity in this area is the agreement with KF in Pennsylvania.
CONTRACTUAL OBLIGATIONS
We have the following material contractual obligations (in addition to employment and consulting agreements with management and employees):
1) The Company executed a non-cancelable operating lease for office space in New York City effective August 1, 2006 and extending to November 30, 2013. The average monthly rent expense under the lease is $15,820. The
Company has provided the lessor with a letter of credit in the amount of $57,315 in connection with the lease as of December 31, 2009. The Company's obligations under the lease are partially guaranteed by Salvatore Zizza, former Chairman of Bion Projects. The Company has entered into sub-leases with non-affiliated parties for approximately 32% of the obligations under the lease. Effective January 1, 2009, Mr. Zizza entered into a Master Sublease with the Company pursuant to which Mr. Zizza became a sublessee and for a one year initial period, made all payments pursuant to the lease and managed the lease premises. Rental payments from existing sub-tenants are being deposited into a Company bank account such that Mr. Zizza utilizes those funds towards the monthly lease payment. During November 2009, Mr. Zizza exercised his option to continue the Master Sublease for the entire period of the lease. Mr. Zizza fulfilled his obligations under the Master Sublease during the one year initial period and in January 2010; he received the funds from the release from the Company's letter of credit of $28,658. Since Mr. Zizza exercised 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 of approximately $57,000 if he fulfills his obligations pursuant to the Master Sublease.
2) On September 27, 2008, the Company executed an agreement with Kreider Farms (and its affiliated entities) (collectively "Kreider") to design, construct and operate, through its wholly-owned subsidiaries, Bion Services Group, Inc. ("Bion Services") and Bion PA-1 LLC ("LLC"), a Bion system to treat the waste of the dairy cows (milkers, dry cows and heifers) at the Kreider Dairy, located in Mannheim, Pennsylvania. In addition, the agreement provides for a second phase which will include a renewable energy facility that will treat cellulosic solid wastes from Phase 1 together with the waste stream from Kreider's poultry facilities to produce renewable energy for Bion's waste treatment facility and/or for market sales. The system will be owned and operated by Bion through LLC, in which Kreider will have the option to purchase a minority interest. To complete final design work and all building, zoning and other related pre-construction matters, substantial capital (equity and/or debt) has been and will continue to be expended. Additional funds will be expended for construction. Upon successful construction and operation of the system, the Company anticipates that it will receive revenue from the sale of nutrient (and other) environmental credits related to the Kreider system and through sales of renewable energy generated at the Kreider system. On January 26, 2009 the Board of the Pennsylvania Infrastructure Investment Authority (PENNVEST) approved a $7.8 million loan to Bion for "the construction of a livestock waste treatment facility at Kreider Farms..." for the Phase 1 dairy portion of the Kreider Farms projects. The Company anticipates that the steps required to finalize the pre-construction phase of the Pennvest Loan will be completed during the next 90 days and that the initial drawdown/reimbursement from Pennvest pursuant to the Pennvest Loan will be received shortly thereafter.
3) The Company issued 200,000 shares of its restricted stock in January 2009 as prepayment for Mark Smith's calendar year 2009 salary of $150,000, which the Company expensed as it was earned. As of December 31, 2009, the Company has recognized all the expense related to the share issuance.
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 9(A) of our Form 10-K/A for the year ended June 30, 2009.
(b) Changes in Internal Control over Financial Reporting.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no material developments in the legal proceedings described in our Form 10-K since filing.
ITEM 1A. RISK FACTORS.
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the quarter ended December 31, 2009 the Company sold 0 shares of restricted common stock for $0 (not including 37,092 shares issued valued at $72,825, in aggregate, to certain consultants and/or employees for services and/or in conversion of outstanding obligations). These shares were issued in reliance on the exemption in Section 4(2) of the Securities Act of 1933. In addition the Company sold 4,650 shares of its Series C Preferred Stock for $404,550 (net of commissions and offering expenses). The proceeds were used for working capital purposes. These shares were issued in reliance on the exemptions provided by Regulation D of the Securities Act of 1933. Additional shares of restricted common stock were issued in connection with compensation and other matters. These shares were issued in reliance on the exemptions provided by Regulation D and/or Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable
ITEM 6. EXHIBITS.
Exhibit No. Description
3.3 Statement of Designation of Preferences of Series C Preferred Stock - Filed herewith electronically
10.1 Zizza notice re Master Sublease option exercise (November 20, 2009) - Incorporated by reference to Exhibit 10.1 to Form 8-K dated November 20, 2009
31.1 Certification of CEO and Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) - Filed herewith electronically
32.1 Certification of CEO and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Filed herewith electronically
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: February 9, 2010 By:/s/ Mark A. Smith
Mark A. Smith, President (Chief
Executive Officer) and Interim Chief
Financial Officer (Principal Financial
and Accounting Officer)
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EXHIBIT 3.3
STATEMENT OF DESIGNATION AND DETERMINATION OF PREFERENCES
OF
SERIES C 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 C 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 December 21, 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 60,000 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 60,000 shares of such series shall be designated "Series C Convertible Preferred Stock". Such series shall hereinafter be referred to as the "Series C Preferred Stock." The Series C 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, each of the shares of Series C 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 C 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 $4.00(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 C 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 C 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 C Preferred Stock at a price of $100 per share plus any accrued unpaid dividends or at the sole election of the Series C Preferred Stock Holder, the holder of any share or shares of Series C Preferred Stock shall be treated as having converted all shares of Series C 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 C Preferred Stock equal to the dividend or distribution of the shares of Common Stock into which the Series C 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 C 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 C 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 C 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 $6.00)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 C Preferred Stock shall be prorata converted so that the holders of the Series C 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 C Preferred Stock, the full number of whole shares of Common Stock then deliverable upon the conversion of all shares of Series C Preferred Stock at the time outstanding.
(f) The Series C 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 C 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 C 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 C Preferred Stock, the Corporation shall redeem the outstanding Series C Preferred Stock at a price of $100 per share plus any accrued unpaid dividends or, at the sole election of the Series C Preferred Stock Holder, the Series C 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. For all purposes related to liquidation, the Series C Preferred Stock shall be of equal priority/preference with the Company's Series B Preferred Stock. On any date more than one year after the initial issuance of the Series C Preferred Stock, the Corporation shall have the right to call the outstanding Series C Preferred Stock for redemption, in whole or in part (on a prorata basis), on 10 business days' written notice to the holders, at a price equal to $100 plus any accrued unpaid dividends, during which ten (10) business day period, the holders may elect to convert the Series C Preferred Stock to the Corporation's common stock pursuant to paragraph (2) above.
(4) Dividend Rights/Liquidation Amount. The Series C 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 C Preferred Stock, plus any accrued but unpaid dividends shall be the Liquidation Amount for the Series C 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 C 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 C 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 C Preferred Stock, or in any way change the rights of the Series C Preferred Stock;
b) Create or issue any class of voting securities that are senior to the Series C Preferred Stock;
c) Increase or decrease the authorized number of Series C 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 C 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 C Preferred Stock, or a redemption of employee shares), unless, simultaneously therewith, the Corporation shall redeem or repurchase all of the then outstanding Series C 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 C 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 C 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 C 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 C 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: December 21, 2009.
Bion Environmental Technologies, Inc.
By: /s/ Mark A. Smith
President
By: /s/ Kathleen Paradise
Assistant Secretary
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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: February 9, 2010 /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 December 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: February 9, 2010 /s/ Mark A. Smith
Mark A. Smith
Chief Executive Officer and
Principal Financial Officer
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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.