SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 OR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number 0-19333
Bion Environmental Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 84-1176672
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18 East 50th Street 10th Floor N.Y., N.Y. 10022
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(Address of principal executive offices) (Zip Code)
(212) 758-6622
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No___
The number of shares outstanding of registrant's classes of common stock, as
of May 14, 2002: Common Stock, No Par Value, 41,877,349.
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
TABLE OF CONTENTS
PART I - Financial Information
Item 1. Financial Statements
Consolidated Financial Statements:
Consolidated Balance Sheet as of March 31, 2002
(unaudited) F-1 - F-2
Unaudited Consolidated Statements of Operations for
the Nine Months Ended March 31, 2002 and 2001 F-3
Unaudited Consolidated Statements of Operations for
the Three Months Ended March 31, 2002 and 2001 F-4
Unaudited Consolidated Statement of Changes in
Stockholders' Deficit for the Nine Months Ended
March 31, 2002 F-5
Unaudited Consolidated Statements of Cash Flows for
the Nine Months Ended March 31, 2002 and 2001 F-6 - F-7
Notes to Unaudited Consolidated Financial Statements F-8 - F-19
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3-7
PART II - Other Information
Items 1 - 6 8-9
Exhibit List 9
Reports on Form 8-K 9
Signature Page 10
2
Bion Environmental Technologies, Inc. and
Subsidiaries
Consolidated Balance Sheet
March 31,
2002
(Unaudited)
-----------
Assets
Current:
Cash and cash equivalents $2,882,222
Accounts receivable, less allowance of $2,000
for possible losses 10,453
Prepaid expenses 130,981
----------
Total current assets 3,023,656
----------
Property and equipment:
Furniture and equipment 359,954
Computer equipment 75,845
Leasehold Improvement 30,174
----------
465,973
Less accumulated depreciation 314,637
----------
Net property and equipment 151,336
----------
Other assets:
Note receivable 55,000
Patents, net of accumulated amortization of $24,001 30,945
Claims receivable 1,339,154
Deposits and other 135,859
----------
Total other assets 1,560,958
----------
Total Assets $4,735,950
==========
See accompanying notes to unaudited consolidated financial statements.
F-1
Bion Environmental Technologies, Inc. and
Subsidiaries
Consolidated Balance Sheet
March 31,
2002
(Unaudited)
-----------
Liabilities and Stockholders' Deficit
Current:
Accounts payable $ 485,957
Current portion of capital lease obligations 3,522
Accrued expenses 45,660
-----------
Total current liabilities 535,139
-----------
Long-term liabilities:
Long-term portion of capital lease obligations 1,142
-----------
Total long-term liabilities 1,142
-----------
Total liabilities 536,281
-----------
Minority interest 486,919
-----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 100,000,000 shares authorized,
41,853,349 shares issued and outstanding 59,189,135
Accumulated deficit (55,476,385)
-----------
Total stockholders' equity 3,712,750
-----------
Total Liabilities and Stockholders' Equity $ 4,735,950
============
See accompanying notes to unaudited consolidated financial statements.
F-2
Bion Environmental Technologies, Inc. and
Subsidiaries
Unaudited Consolidated Statements of Operations
Nine Months Ended March 31, 2002 2001
----------------------------- ------------ ------------
Revenues:
Soil sales $ 49,857 $ 43,244
System contract revenues - -
------------ ------------
Total revenues 49,857 43,244
------------ ------------
Cost of goods and services sold:
Soil sales 403,094 363,720
System contract - -
------------ ------------
Total cost of goods sold 403,094 363,720
------------ ------------
Gross loss (353,237) (320,476)
------------ ------------
Expenses:
General and administrative (including $4,582,159
and $7,450,765, non-cash, respectively) 6,639,192 9,536,871
Research and development 616,227 935,954
------------ ------------
Total expenses 7,255,419 10,472,825
------------ ------------
Loss from operations (7,608,656) (10,793,301)
------------ ------------
Other income (expense):
Interest expense (including $8,607,024 and
$2,270,119, non-cash, respectively) (8,622,987) (2,273,787)
Interest income 22,621 71,239
Other income (expense), net 73,106 10,722
------------ ------------
Total other expense (8,527,260) (2,191,826)
------------ ------------
Net loss before cumulative effect of change in
accounting principle and minority interest (16,135,916) (12,985,127)
Cumulative effect of change in accounting
principle - (481,250)
Minority interest 39,631 -
------------ ------------
Net loss and comprehensive loss $(16,096,285) $(13,466,377)
============ ============
Basic and diluted loss per common share:
Net loss before cumulative effect of change
in accounting principle $ (.77) $ (1.00)
Loss on cumulative effect of change in
accounting principle - (.04)
------------ ------------
Loss per common share $ (.77) $ (1.04)
============ ============
Weighted-average number of common shares outstanding,
basic and diluted 21,013,535 12,897,064
============ ============
See accompanying notes to unaudited consolidated financial statements.
F-3
Bion Environmental Technologies, Inc. and
Subsidiaries
Unaudited Consolidated Statements of Operations
Three Months Ended March 31, 2002 2001
------------------------------ ------------ ------------
Revenues:
Soil sales $ 21,245 $ 1,268
System contract revenues - -
------------ ------------
Total revenues 21,245 1,268
------------ ------------
Cost of goods and services sold:
Soil sales 160,418 67,128
System contract - -
------------ ------------
Total cost of goods sold 160,418 67,128
------------ ------------
Gross loss (139,173) (65,860)
------------ ------------
Expenses:
General and administrative (including $4,257,269
and $2,369,500, non-cash, respectively) 4,925,685 3,043,500
Research and development 219,062 302,732
------------ ------------
Total expenses 5,144,747 3,346,232
------------ ------------
Loss from operations (5,283,920) (3,412,092)
------------ ------------
Other income (expense):
Interest expense (including $6,064,453 and
$639,002, non-cash, respectively) (6,082,428) (640,447)
Interest income 11,928 4,699
Other income (expense), net 4,496 25,109)
------------ ------------
Total other expense (6,066,004) (610,639)
------------ ------------
Net loss before minority interest (11,349,924) (4,022,731)
Minority interest 39,631 -
------------ ------------
Net loss and comprehensive loss $(11,310,293) $ (4,022,731)
============ ============
------------ ------------
Net loss per common share $ (.31) $ (.31)
============ ============
Weighted-average number of common shares outstanding,
basic and diluted 37,022,178 13,067,217
============ ============
See accompanying notes to unaudited consolidated financial statements.
F-4
Bion Environmental Technologies, Inc. and
Subsidiaries
Unaudited Consolidated Statement of Stockholders' Deficit
Total
Nine Months Common Stock Accumulated Stockholders'
March 31, 2002 Shares Amount Deficit Deficit
------------------------------------------------------------------------------------------------------------------
Balance, July 1, 2001 13,062,324 $30,218,337 $(39,380,100) $(9,161,763)
Exercise of stock options 41,177 70,000 70,000
Issuance of stock options
and warrants for
consulting services 77,412 77,412
Issuance of stock for
Convertible bridge note 50,330 112,740 112,740
Adjustment for variable options (3,469) (3,469)
Net loss for the quarter ended
September 30, 2001 - - (2,234,221) (2,234,221)
------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001 13,153,831 30,475,020 (41,614,321) (11,139,301)
Issuance of stock for
Management fee 234,199 250,000 250,000
Issuance of stock for
Consulting 93,900 77,019 77,019
Exercise of stock options 50,000 50,000 50,000
Issuance of stock options
and warrants for
consulting services 58,567 58,567
Modification of terms of
bridge warrants 297,000 297,000
Net loss for the quarter ended
December 31, 2001 - - (2,551,771) (2,551,771)
------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 13,531,930 31,207,606 (44,166,092) (12,958,486)
Issuance of stock for
Management fee (Note 6) 119,522 150,000 150,000
Issuance of stock for
Consulting (Note 6) 20,000 32,600 32,600
Issuance of warrants as an
inducement to convert debt (Note 6) - 3,709,713 3,709,713
Beneficial conversion feature
on change in terms of
debt (Note 3 & Note 4) - 5,547,000 5,547,000
Issuance of stock options
and warrants for
consulting services (Note 6) - 156,260 156,260
Issuance of stock for
Convertible bridge notes(Note 6)10,630,078 7,972,536 7,972,536
Issuance of stock for
Promissory notes (Note 6) 8,378,999 6,284,244 6,284,244
Write-off of debt discount on
conversion of debt (1,566,511) (1,566,511)
Issuance of stock for
compensation 40,000 56,000 56,000
Issuance of stock for
Employee bonuses (Note 6) 90,120 112,650 112,650
Issuance of stock to
Centerpoint (Note 1) 19,000,000 14,250,000 14,250,000
Issuance of stock for
Purchase of Centerpoint (Note 1) 1,000,000 750,000 750,000
Issuance of warrant for
Purchase of Centerpoint - 380,000 380,000
Common stock to be distributed
which represents 57.7% of the
Company's stock owned by
Centerpoint (10,957,300) (9,852,963) (9,852,963)
Net loss for the quarter ended
March 31, 2002 (11,310,293) (11,310,293)
------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2002 41,853,349 59,189,135 (55,476,385) 3,712,750
==================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
F-5
Bion Environmental Technologies, Inc. and
Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended March 31, 2002 2001
------------------------------------------------ -------------- --------------
Operating activities:
Net loss $ (16,096,285) $ (13,466,377)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest in net income of subsidiary (39,631) -
Depreciation and amortization 54,479 57,016
Issuance of stock for services, compensation and
interest 687,643 69,175
Issuance of options and warrants for consulting services 4,001,409 2,230,000
Reduction of note receivable for consulting services 67,646
Issuance of convertible bridge note for management fee - 245,000
Issuance of note payable for interest expense 1,208,598 766,118
Beneficial value of warrants exchanged for
common stock - 2,179,182
Beneficial conversion feature amortized to interest
expense 5,844,000 262,500
Beneficial conversion feature recorded as
cumulative effect of change in accounting
principle 481,250
Amortization of debt discounts 1,554,425 1,241,501
Amortization of deferred consulting expense - 320,591
Cancellation of warrants previously issued for
services - 2,361,153
Issuance of options and warrants for consulting
services - 45,664
Adjustment for variable options (3,469)
Loss on sale of property and equipment - 10,265
Changes in operating assets and liabilities:
Accounts receivable 11,285 (6,695)
Note receivable (122,646) -
Prepaid expenses and other (79,764) (110,170)
Accrued interest receivable - (24,970)
Accounts payable 79,318 120,828
Accrued liabilities 10,388 (498,701)
-------------- --------------
Net cash used in operating activities (2,822,604) (3,716,670)
-------------- --------------
See accompanying notes to unaudited consolidated financial statements.
F-6
Bion Environmental Technologies, Inc. and
Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Nine Months Ended March 31, 2002 2001
------------------------------------------------ -------------- --------------
Investing activities:
Refund of equipment returned - 1,447
Proceeds from sale of computer equipment - 250
Purchase of fixed assets (20,540) (49,401)
Business acquisition net of cash acquired (3,641,548) -
-------------- --------------
Net cash used in investing activities (3,662,088) (47,704)
-------------- --------------
Financing activities:
Exercise of stock options 120,000 -
Proceeds from notes payable, related parties 355,000 871,000
Proceeds from stock issuance 8,500,545
Payment of loan (897,552)
Proceeds from sale of warrants - 502,700
Payments on note receivable - (78,500)
Payments on capital lease obligations (11,477) (20,809)
-------------- --------------
Net cash provided by (used in) financing activities 8,066,516 1,274,391
-------------- --------------
Net increase (decrease) in cash and cash equivalents 1,581,824 (2,489,983)
Cash and cash equivalents, beginning of period 1,300,398 2,604,933
-------------- --------------
Cash and cash equivalents, end of period $ 2,882,222 $ 114,950
============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,152 $ 3,668
Supplemental disclosure of non-cash financing activities:
Convertible bridge notes payable converted to
common stock 7,212,614 -
Notes payable, related parties-current converted
to common stock 1,867,872 -
Notes payable, related parties-long-term current
converted to common stock 3,609,783 -
Note receivable received for sale of common stock,
then reassigned for purchase of Centerpoint stock 3,263,000 -
Claims receivable received for sale of common stock,
then reassigned for purchase of Centerpoint stock 2,487,000 -
Warrants issued for deferred consulting services - 1,233,218
Repurchase of warrants with cash and cancellation of non-
recourse promissory note - 1,000,000
Beneficial conversion feature on convertible bridge notes - 1,050,000
Issuance (cancellation) of note receivable in
consideration for sale (cancellation) of warrants - (500,000)
Issuance of stock and options for assets of Centerpoint 1,130,000 -
Debt converted to common stock 112,740
=============== ==============
See accompanying notes to unaudited consolidated financial statements.
F-7
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. Accounting Policies
The accompanying unaudited financial statements and disclosures reflect all
adjustments (all of which are normal recurring adjustments) in the ordinary
course of business, which in the opinion of management are necessary for a
fair presentation of the results of operations, financial positions, and cash
flow. The results of operations for the periods indicated are not necessarily
indicative of the results for a full year. It is suggested that these
condensed financial statements be read in conjunction with the audited
financial statements and accompanying notes for the year ended June 30, 2001,
as filed with our Form 10-KSB.
On January 15, 2002, the Company issued 19,000,000 shares of its restricted
common stock to Centerpoint Corporation, a publicly held Delaware corporation
("Centerpoint"), in exchange for $8,500,000 in cash and the assignment of
certain claims and other rights owned by Centerpoint for total consideration
of $14,250,000. The 19,000,000 shares currently held by Centerpoint represent
approximately 36.2% of the Company's currently outstanding common stock.
Immediately upon consummation of the transaction with Centerpoint, the Company
purchased a 57.7% majority interest in Centerpoint from its Italian parent,
OAM, S.p.A. ("OAM") by issuing 1,000,000 shares of the Company's stock to OAM,
a warrant to purchase an additional 1,000,000 shares valued at $380,000 using
the Black-Scholes pricing model, $3,700,000 of cash, assignment of a loan
receivable valued at $3,263,000 and 65% of certain claims receivable valued at
$2,487,000. The combination has been accounted for using the purchase method
of accounting. On January 15, 2002, the Company recorded a minority interest
of $526,550, which represents 42.3% of the net assets of Centerpoint at that
time. The Company has included the results of Centerpoint's operations in its
financial statements for the period commencing January 15, 2002, the date of
the combination, through March 31, 2002. The Company recorded a minority
interest of $39,631 representing the minority shareholders interest in the net
loss of Centerpoint for the period ended March 31, 2002. (See Form 8-K filed
January 30, 2002 and Form 8-K/A filed April 1,2002).
In the event the Company completes any equity financing at a price less than
$0.75 per share of common stock before it has raised $10,000,000, in
aggregate, in equity capital, the antidilution provisions in the Company's
stock subscription agreement with Centerpoint will come into effect. The
19,000,000 shares of the common stock issued to Centerpoint are subject to
upward adjustment if the antidilution provisions are triggered. This, in
turn, would cause an adjustment to shares issued to Convertible Bridge Note
holders and all other classes of debt holders whose debt was converted into
shares of the Company's common stock based upon the Centerpoint transaction.
Additionally, these adjustments would cause decreases in the exercise prices
of the Company's J, O and SV warrants. Additionally, an upward adjustment to
the number of shares purchasable pursuant to the Company's SV warrants would
take place. (See Form 8-K filed January 30, 2002).
F-8
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
On January 15, 2002, effective immediately prior to the Company's transaction
with Centerpoint, Centerpoint recorded a gain of $3,826,154 for outstanding
claims. Centerpoint assigned $2,487,000, or 65% of these claims to the
Company for the purchase of the Company's shares of common stock. The Company
subsequently assigned the 65% of these claims to OAM as partial consideration
for the purchase of Centerpoint's shares of common stock from OAM by the
Company (See above). The balance of $1,339,154 representing 35% of the claims
remained with Centerpoint and is included in the consolidated financial
statements of the Company. Additionally, Centerpoint had a loan receivable of
$4,316,219, which was written down, prior to the Bion transaction, by
$1,053,219 as part of the transaction. The entire loan of $3,263,000, after
the write down, was also assigned by the Company to OAM as partial
consideration for the purchase of Centerpoint's shares of common stock by the
Company (See above and Form 8-K filed January 30, 2002 and Form 8-K/A filed
April 1, 2002).
Basic earnings (loss) per share are calculated as income (loss) available to
common stockholders divided by the weighted average number of common shares
outstanding. Diluted earnings per share are calculated as income (loss)
divided by weighted average number of common shares and the assumed conversion
of common stock equivalents. The common stock options and warrants
outstanding as of March 31, 2002 were not included in diluted earnings (loss)
per share for the nine months and three months ended March 31, 2002 and 2001,
as the effect was antidilutive due to the Company recording a loss for these
periods.
2. Liquidity
The consolidated financial statements have been prepared assuming the Company
will continue as a going concern. Our independent CPA issued an opinion on
our June 30, 2001 financial statements, which included a paragraph emphasizing
the Company's ability to continue as a going concern. The Company incurred
losses totaling $16,096,285 during the nine months ended March 31, 2002
(including non-cash interest expense and other non-cash expenses of $8,607,024
and $4,582,159, respectively) and has a history of losses that has resulted in
an accumulated deficit of $55,476,385 at March 31, 2002.
During the years ended June 30, 2001 and 2000, the Company successfully
obtained external financing through private placements of debt and equity and
the sale of its warrants. The Company also received financing from affiliated
companies (see Note 5). As a net result of the Centerpoint transaction (See
above), the Company obtained $4,800,000 in cash and owns a majority of
Centerpoint's currently issued and outstanding shares. Additionally,
substantially all of our outstanding debt, including accrued interest and
amortization of debt discount, has been converted to equity ($14,256,779) or
was repaid from the proceeds of these transactions ($897,552) (See Note 3 -
Convertible Bridge Notes Payable, Note 4 - Notes/Advances Payable, Related
Parties and Form 8-K filed January 30, 2002 and Form 8-K/A filed April
1,2002). The Company will continue to explore sources of additional financing
to satisfy its operational requirements, and is currently attempting to secure
additional private placements of debt and equity under the most favorable
terms available.
F-9
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
There can be no assurance that any funds required during the next twelve
months or thereafter can be generated from operations or that if such required
funds are not internally generated that 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.
To enhance the Company's longer term prospects, as a result of our research
and development efforts during the last two years, the second generation of
our Bion Nutrient Management System (NMS(R)) has been developed. We intend to
undertake further NMS research and development which will incur additional
expenditures through fiscal year 2002 and into fiscal year 2003 and will be
focused on: 1) system acceleration in order to further increase capacity and
lower costs; 2) integration of the Bion NMS System with a methane digestion
system in order to create additional revenue streams from the sale of
electricity and natural gas; 3) finalization of commercial designs for
application in our second generation NMS systems; and 4) possibly a clean
water recycling loop. We also have an ongoing research program related to our
BionSoil(R) and Bion Fertilizer product lines. Management's decision to
pursue these efforts is the result of both the increasing environmental and
regulatory pressure on large dairy and swine farms and positive results of
limited market tests of BionSoil(R) products. There can be no assurance that
the next generation Bion NMS system design or the BionSoil(R) program will be
successful or that sufficient capital will be available to fund operations.
As noted earlier, there is 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 asset carrying amounts or the amounts and classification of
liabilities that may result should the Company be unable to continue as a
going concern.
3. Convertible Bridge Notes Payable
As a result of the January 15, 2002 transaction with Centerpoint the balance
all Convertible Bridge Notes Payable totaling $7,972,536, including
amortization of debt discount, were automatically converted into 10,630,078
shares of the Company's common stock at $.75 per share. This includes 370,211
shares issued to D2 and 360,635 shares issued to the Trust Under Deferred
Compensation Plan for D2CO, LLC for Convertible Bridge Notes Payable issued
for management fees. An additional expense of $2,892,000 for interest was
taken during the quarter for a change in terms of the beneficial conversion
feature of the Convertible Bridge Notes Payable. The following adjustment to
our J Warrants related to the issuance of these notes were made on the
conversion of the notes:
F-10
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
- the exercise price was changed to $.60 and the call price was changed
to $1.40.
- the terms of the J Warrants issued to brokers as compensation in
connection with our 2000 Convertible Bridge Note private placement
were changed to an exercise price of $.75 with a call price of
$1.50.
In conjunction with the conversion of certain of our convertible bridge notes
effective January 15, 2002, pursuant to their existing agreements with us, we
issued 308,264 warrants to unaffiliated brokers. These warrants (J-1D
warrants) are exercisable at a price of $1.50 per share until December 31,
2004 with a call price of $3.50.
(See Form 8-K filed January 30, 2002 and Form 10-QSB for the quarter ended
December 31, 2001)
4. Notes/Advances Payable, Related Parties
As a result of the January 15, 2002 transaction with Centerpoint the balance
of Notes Payable, Related Parties notes totaling $6,284,244, including
amortization of debt discount, were automatically converted into 8,378,999
shares of the Company's common stock at $.75 per share. An additional expense
of $2,655,000 for interest was taken during the quarter for a change in terms
of the beneficial conversion feature of the Notes Payable, Related Parties.
During January 2002, unsecured advances from related parties totaling $897,552
were also repaid. (See Form 8-K filed January 30, 2002 and Form 10-QSB for
the quarter ended December 31, 2001).
5. Related Party Transactions
The Company's equity and notes payable transactions with stockholders and
other related parties are included in Notes 3 and 4, respectively.
In December 1999 the Company entered into a three year agreement for
management and consulting services with D2 Co., LLC ("D2"). The agreement
required total annual consideration of $240,000 payable in common stock of
Bion or cash, at the option of the Company. In January 2000, D2 agreed to add
the monthly fees to the balance of their convertible bridge notes payable
(Note 3). As a result of the January 15, 2002 transaction with Centerpoint,
all the D2 convertible bridge notes issued for management fees were
automatically converted into 370,211 shares of the Company's common stock. In
addition, convertible bridge notes issued to the Trust Under Deferred
Compensation Plan for D2CO, LLC were also converted into 360,635 shares of the
Company's common stock.
F-11
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
On September 6, 2001, the Company entered into an agreement with D2,
Southview, Inc. and Atlantic Partners, LLC, all of which are affiliates of
David Mitchell, the Company's President and CEO (collectively "D2") in which,
among other things, the Company agreed to:
* provide that certain compensation to D2 be paid in a deferred manner to
the Deferred Trust under the Deferred Compensation Plan to D2 Co., LLC.
* amend certain Southview warrants ("SV1" and "SV2") so that upon earlier
of (i) completion of financing or series of financings large enough to
"trigger" the conversion of the Company's outstanding Bridge Notes and
2001 Convertible Notes (collectively "CV Notes") into the Company's
common stock; or (ii) conversion of the CV Notes into the Company's
common stock on April 29, 2002, the outstanding Class SV1 and SV2
Warrants owned by D2 will be adjusted ("Adjusted Warrants") so that D2
owns Adjusted Warrants to purchase a number of shares of the Company's
Common Stock equal to 20% of the "fully-diluted" outstanding shares.
Upon completion of the transaction with Centerpoint on January 15,
2002, the Southview Warrants were adjusted to equal 20% (10,373,427) of
the "fully-diluted" outstanding shares of the Company. (See Note 7 -
Capital Structure and Form 8-K filed January 30, 2002).
As partial consideration for Bion agreeing to the adjustment to the warrants,
Southview agreed to extend the term of the outstanding promissory note due
July 31, 2001 with a balance of $521,039 including accrued interest so that
such promissory note could be repaid from the proceeds of a new financing.
Upon completion of the transaction with Centerpoint on January 15, 2002, as
part of the repayment of certain promissory notes and advances, the Company
repaid this promissory note, which had a value of $718,485 including interest
and additional advances. (See Note 4 - Notes/Advances Payable, Related Parties
and Form 8-K filed January 30, 2002)
On August 1, 2001 Mark Smith and certain entities related to him which owned
shares of our Common Stock (the "Smith Shares") entered into a voting
agreement that gives D2 the power to vote all of the Smith Shares as to most
matters, but Mr. Smith will still have the right to vote the Smith Shares with
respect to a sale of substantially all of our assets or a merger. The voting
agreement is purely contractual and is not a formal voting trust.
In addition, Mr. Smith and certain related entities entered into a separate
agreement with the Company which imposes certain restrictions on the sale and
transfer of the Smith Shares and amends the respective terms of five
convertible promissory notes payable to Dublin Holding, Ltd, the Mark A. Smith
Rollover IRA and the Kelly Smith Rollover IRA to provide that all five of
these notes will be automatically and fully converted (with all principal and
accrued interest calculated as if they had been held to maturity) into shares
of our Common Stock upon the conversion of our outstanding Convertible Bridge
Notes and 2001 Convertible Notes at a conversion rate equal to the lesser of
(i) $1.80 per share or (ii) the conversion price of our outstanding
Convertible Bridge Notes and 2001 Convertible Notes. Upon completion of the
transaction with Centerpoint on January 15, 2002, these notes were converted
into 5,888,497 shares of the Company's stock at $.75 per share. (See Note 4 -
Notes/Advances Payable, Related Parties and Form 8-K filed January 30, 2002)
F-12
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Under the terms of the Deferred Trust under the Deferred Compensation Plan to
D2 Co., LLC (the "Trust") the Company has issued shares of Convertible Bridge
Notes (since converted to shares of the Company's common stock) and common
stock to the Trust as payment for management fees due D2. The assets of the
Trust are held for the benefit of D2 LLC. (See Note 3 - Convertible Bridge
Notes Payable and Note 6 - Stockholders Equity)
On March 14, 2002, the Company and Centerpoint entered in an agreement
effective January 15, 2002 whereby Centerpoint will pay the Company $12,000 a
month for management services, support staff and office space. In addition,
the Company will advance to Centerpoint sums needed to cure its delinquencies
with the SEC, distribute the Company's shares to Centerpoint shareholders, to
locate and acquire new business opportunities and for on-going expenses. The
Company shall have no obligation to make any advances in excess of $500,000.
All sums due the Company shall be evidenced by a convertible revolving
promissory note (See below). As additional consideration, Bion received a
warrant to purchase 1,000,000 shares of Centerpoint's common stock at $3.00
per share until March 14, 2007.
On March 15, 2002, the Company and Centerpoint entered into a promissory note
for $36,000 plus any additional amounts that are advanced by the Company to
Centerpoint in the future. Interest shall accrue on the balance of this
promissory note at a rate of 1% per month with the aggregate unpaid balance of
all amounts outstanding together with accrued interest due on March 15, 2003.
This date may be extended by agreement between the Company and Centerpoint.
The Company shall have the right to convert, at any time, all or a portion of
the sums due under the promissory note in shares of Centerpoint's common stock
at a conversion price of $3.00 per share. As of March 31, 2002 the Company
had advanced Centerpoint $42,683.
6. Stockholders' Equity
During the quarter the following transactions occurred:
On March 31, 2002 we issued 119,522 shares of the Company's common stock to
the Trust Under Deferred Compensation Plan for D2CO, LLC for $150,000 of
management fees earned for the three months ending December 31, 2001, based on
an average closing price of the Company's common stock for the quarter of
$1.25.
On January 25, 2002 we issued 20,000 shares of the Company's common stock to
Jon Northrop towards the balance of consideration due for consulting services.
Equity was increased by $32,600 for the value of the shares issued based on
the closing price of the stock of $1.63 on the date of issuance.
On January 25, 2002 and March 8, 2002, we issued 20,000 and 20,000 shares of
the Company's common stock, respectively, to an employee towards the balance
of compensation due. Equity was increased by $56,000 for the value of the
shares issued based on the closing price of the stock of $1.63 and $1.17 on
the dates of issuance.
F-13
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
On January 21, 2002, the Company issued 90,120 shares of the Company's common
to various employees as a bonus for the calendar year ending December 31,
2001. Equity was increased by $112,650 for the value of the shares issued
based price per share of $1.25.
On January 15, 2002, in accordance with the terms of their notes, holders of
our 2000 and 2001 Convertible Bridge Notes Payable notes had their notes
converted into shares of the Company's common stock at $0.75 per share, the
same price for which we sold shares to Centerpoint. The total outstanding
balance of $7,972,536 including amortization of debt discount was converted
into 10,630,078 shares of the Company's common stock. This includes 370,211
shares issued to D2 and 360,635 shares issued to the Trust Under Deferred
Compensation Plan for D2CO, LLC for Convertible Bridge Notes Payable issued
for management fees. Equity was increased by $7,972,536 for the value of the
shares issued. (See Note 3 - Convertible Bridge Notes Payable and Form 8-K
filed January 30, 2002)
On January 15, 2002, certain holders of promissory notes due from the Company,
in accordance with the terms of their notes, had these notes converted into
shares of the Company's common stock at $0.75 per share, the same price for
which we sold shares to Centerpoint. The total outstanding balance of
$6,284,244 was converted into 8,378,999 shares of the Company's common stock.
Equity was increased by $6,284,244 for the value of the shares issued. (See
Note 4 - Notes/Advances Payable, Related Parties and Form 8-K filed January
30, 2002)
On January 15, 2002, the Company issued to Centerpoint 19,000,000 shares of
the Company's common stock (See Note 1 - Accounting Policies and Form 8-K
filed January 30, 2002).
On January 15, 2002, 1,000,000 shares of the Company's common stock and
1,000,000 warrants were issued to O.A.M. as partial consideration for the
Company's purchase of 57.7% of Centerpoint from O.A.M (See Form 8-K filed
January 30, 2002).
Effective January 15, 2002, in accordance with the terms of an existing
agreement with D2CO, LLC, Southview, Inc. and Atlantic Partners, LLC, all of
which are affiliates of David Mitchell, our President and CEO (collectively,
"D2"), we amended the SV1 and SV2 Warrants held by D2 so that warrants now
provide for the purchase, in the aggregate, of 10,373,427 shares of our common
stock at a purchase price of $.75. All other terms of the SV1 and SV2
Warrants remain the same. The additional warrants and change in strike price
resulted in a benefit to D2 of $3,709,713 as calculated using the
Black-Scholes pricing model.
Effective January 15, 2002, in conjunction with the conversion of certain of
our 2000 Convertible Bridge Notes pursuant to their existing agreements with
us, we issued 308,264 warrants to unaffiliated brokers. These warrants are
exercisable at a price of $1.50 per share until December 31, 2004 with a call
price of $3.50. The additional warrants were valued using the Black-Scholes
model at $109,543, which was charged to expense in the three months ended
March 31, 2002.
F-14
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Effective January 15, 2002, we issued an option for 10,000 shares of the
Company's stock to an unaffiliated broker for consulting services for the
prior 12 months. These options are exercisable at a price of $1.10 per share
until December 31, 2003. The options were valued using the Black-Scholes
model at $3,500, which was charged to expense in the three months, ended March
31, 2002.
An expense of $43,217 related to the vesting of previously issued options has
been recorded during the quarter ended March 31, 2002.
We issued and amended the following options to our Directors and employees:
Effective January 15, 2002, two employees were granted options to purchase a
total of 240,000 shares for three years at an exercise price of $1.10 per
share;
Effective January 15, 2002, 169,445 outstanding options owned by an employee
who rejoined the Company were extended until December 31, 2003, with a reduced
exercise price of $1.25 per share. Additional options were granted to the
same employee to purchase 10,000 shares at $1.50 per share, 20,000 shares at
$2.00 per share and 20,000 shares at $2.50 per share, all of which are
exercisable until December 31, 2003;
Effective January 15, 2002, a Mark Smith, who resigned as a Director of the
Company on January 31, 2002 was granted an option to purchase 25,000 shares at
an exercise price of $1.10 per share until December 31, 2004.
Effective January 15, 2002, Jere Northrop, a Director, was granted an option
to purchase 25,000 shares at an exercise price of $1.10 per share until
December 31, 2003;
Effective January 15, 2002, The 100,000 "J" Warrants held by Sal Zizza, a
Director, were cancelled and he was issued an option to purchase 100,000
shares under our Incentive Plan at an exercise price of $1.10 until December
31, 2004;
Effective January 15, 2002, all of the outstanding options, having an exercise
price in excess of $1.50 per share, that are held by fourteen of our employees
and two of our Directors, were adjusted to reduce the exercise price to $1.10
per share. As a result, we reduced the exercise price of options to purchase
an aggregate of 636,725 shares;
Effective January 21, 2002, we granted employee bonuses to fifteen of our
employees in the aggregate amount of $112,650, all of which were paid in
shares of our Common Stock valued at $1.25 per share for a total of 90,120
shares.
7. Capital Structure
Because the Company has a relatively complex capital structure which underwent
recent substantial changes, the following capital structure details are set
forth as of May 14, 2002. The Company's capital structure is subject to
adjustments under certain circumstances. (See Note 1 - Accounting Policies).
F-15
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Common Stock
As of May 14, 2002 the Company had 52,834,649 (this includes 10,957,300 shares
owned by Centerpoint that will be returned to the Company on distribution of
the Company's common stock to Center point shareholders) shares of common
stock issued and outstanding.
Options
As of May 14, 2002, the Company had the following options outstanding:
Options Vested
Exercise Price Shares Expiration
-------------- --------- ----------
Directors $ 1.55 11,112 08/19/02
Plan $ 2.04 11,112 08/19/02
$ 2.91 11,112 11/17/03
$ 1.61 10,000 08/04/04
---------
Total Directors 43,336
=========
Exercise Price Shares Expiration
-------------- --------- ----------
Employee $ .95 667 12/31/03
Plans $ 1.00 25,000 12/31/03
$ 1.10 211,725 12/31/02
$ 1.10 37,500 06/30/03
$ 1.10 345,667 12/31/03
$ 1.10 161,250 12/31/04
$ 1.22 10,000 12/31/03
$ 1.25 169,445 12/31/03
$ 1.50 66,000 08/17/03
$ 1.50 60,224 12/31/03
$ 2.00 159,513 12/31/02
$ 2.00 25,000 07/31/03
$ 2.00 12,000 12/31/03
$ 2.00 90,000 07/31/04
$ 2.25 10,000 12/31/03
$ 2.50 5,000 12/31/02
$ 2.50 75,000 06/30/03
$ 2.50 52,000 12/31/03
$ 2.70 55,556 12/31/02
---------
Total Employees 1,571,547
=========
Total (Directors
and Employees) 1,614,883
=========
F-16
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Options Non-Vested
Exercise
Price Shares Vesting Dates Expiration
-------- --------- ----------------- ---------------
Employee Plans $ 1.00 90,000 12/17/02 12/31/03
$ 1.10 37,500 12/31/02 06/30/03
$ 1.10 41,333 10/15/02-07/15/03 12/31/03
$ 1.10 253,750 06/30/02-12/31/04 12/31/04
$ 1.22 5,000 01/09/03 12/31/03
$ 1.50 12,332 09/01/02-11/01/02 12/31/03
$ 1.50 20,000 06/06/02-06/06/03 12/31/05
$ 1.60 35,000 07/13/02 07/13/04
$ 1.60 35,000 07/13/03 07/13/05
---------
Total 529,915
---------
Total Vested
and Non-Vested 2,144,798
=========
F-17
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Warrants
As of May 14, 2002, the Company had the following warrants outstanding:
Warrant Shares Expiration Date Exercise Price
------- --------- --------------- --------------
Class D2C-W 24,550 06/30/04 $ 2.50
Class J-1 30,000 12/31/04 $ 2.00
Class J-1A (1) 1,198,500 12/31/04 $ .60
Class J-1AA(2) 175,950 12/31/04 $ .75
Class J-1B (3) 300,450 12/31/05 $ .60
Class J-1C (4) 457,688 12/31/05 $ .60
Class J-1D (5) 308,264 12/31/04 $ 1.50
Class J-2 65,000 12/31/04 $ 1.50
Class SV 10,373,427 02/16/06 $ .75
Class O 1,000,000 01/15/06 $ .90
---------- -----------
13,933,829 $ .60-2.50
========== ===========
1. Class J-1A Warrants may be called for redemption at the Company's option if
the bid price for our common stock is above $1.40 and certain other conditions
are met.
2. Class J-1AA Warrants may be called for redemption at the Company's option
if the bid price for our common stock is above $1.50 and certain other
conditions are met.
3. Class J-1B Warrants may be called for redemption at the Company's option if
the bid price for our common stock is above $1.40 and certain other conditions
are met.
4. Class J-1C Warrants may be called for redemption at the Company's option if
the bid price for our common stock is above $1.40 and certain other conditions
are met.
5. Class J-1D Warrants may be called for redemption at the Company's option if
the bid price for our common stock is above $3.50 and certain other conditions
are met.
At April 30, 2002, there were warrants exercisable to purchase 13,933,829
shares of Common Stock.
F-18
Bion Environmental Technologies, Inc. and
Subsidiaries
Notes to Unaudited Consolidated Financial Statements
8. Commitments
On January 31, 2002, the Company entered into a licensing agreement with
BioBalance A/S. This agreement allows the Company to license certain
BioBalance technology for use in the field of agricultural applications for
treating/converting animal waste into soil-like products with a content of
nutrients and organic matter. The agreement exclusively covers the United
States and its territories. This licensing agreement is for ten years and can
be cancelled by the Company with 120 days notice.
9. Subsequent Events
On April 8, 2002 we issued 25,000 shares of the Company's common stock to Jon
Northrop towards the balance of consideration due for consulting services.
On May 6, 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 the $100,000 of the Company's Convertible Bridge Notes ("Notes")
that were issued to ACB in March of 2000. The complaint includes breach of
contract claims asserting that the Company owes ACB either $265,400 plus
interest or $121,028 including interest based on its interpretation of the
terms of the Notes and subsequent amendments. Effective June 30, 2001, the
Company issued ACB 50,330 shares of common stock on conversion in full payment
of the Notes based on the Company's interpretation of the Notes, as amended.
The Company has not yet been served and, therefore, has not yet filed an
answer to the complaint. The Company does not believe that this litigation
will have a material adverse effect on the Company, its operations or its
financial condition.
F-19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
Consolidated Financial Statements and accompanying notes and our audited
financial statements and accompanying notes for the year ended June 30, 2001
as filed with our Form 10-KSB as they related to the Company's operations.
Going Concern
-------------
The financial statements contained in this Form 10-QSB show that
$59,189,135 has been invested in or contributed to Bion as of March 31, 2002.
We had shareholder equity of $3,712,750, an accumulated deficit of
$55,476,385, limited current revenues and substantial current operating
losses. Our operations are not currently profitable; therefore, readers are
further cautioned that our continued existence is uncertain if we are not
successful in obtaining outside funding in an amount sufficient for us to meet
our operating expenses at our current level. Management plans to continue
raising additional capital to fund operations until Bion system and
BionSoil(R) sales are sufficient to fund operations.
Bion NMS system and BionSoil(R) sales require additional expenditures.
Our system sales require additional personnel and significant capital
expenditures, which will generally increase our overhead. BionSoil(R) product
sales and marketing require wholesaler and retailer distribution networks
(which may require permitting in some locations) and additional expenditures
for personnel and equipment to harvest, process, package, sell and deliver our
products. We are in the process of obtaining the necessary additional funding
from independent third parties and related parties. Although management
believes that there is a reasonable basis to remain optimistic, no assumption
can be made that we will be able to attain profitable operations and/or raise
sufficient capital to sustain operations.
The level of funding required to accomplish our objectives is ultimately
dependent on the success of our research and development efforts, which at
this time, are unknown. Due to the transaction with Centerpoint, we have
enough funds for our operations for the period ending December 31, 2002. We
anticipate spending $550,000 on research and development efforts and the
balance on compensation and general business overhead through such date.
Financial Condition and Results of Operations
---------------------------------------------
Liquidity and Capital Resources
Our Consolidated Balance Sheet as of March 31,2002, shows current assets
of $3,023,656 and total assets of $4,735,950. Our current and total
liabilities as of March 31, 2002 are $535,139 and $536,281, respectively.
Total assets increased by $3,053,288 from June 30, 2001. The change is
primarily attributable to the $1,581,824 increase in cash and cash
3
equivalents and the increase in claims receivable as a result of the
transaction with Centerpoint. Our current ratio is 5.65:1 as of March 31,
2002 as compared to 0.16:1 as of June 30, 2001. The increase in the current
ratio results from the increase in cash and cash equivalents and increase in
the claims receivable and the conversion of convertible bridge notes and notes
payable.
Total liabilities decreased by $10,308,143 in the nine-month period ended
March 31, 2002. This decrease was due to the conversion into shares of the
Company's common stock of Convertible bridge notes payable of $5,801,721,
Notes payable, related parties - current $ 2,298,538, Notes payable, related
parties long-term $2,482,279. These reductions were was offset by an
increase in accounts payable of $275,484 which includes of $196,192 of
Centerpoint accounts payable included in the financial statements due to the
consolidation of the Company's financial statement with Centerpoint.
We believe that during the balance of the fiscal year ending June 30, 2002, we
will not generate sufficient operating cash flow to meet our needs. However,
due to the transaction with Centerpoint we have approximately $2,500,000 in
working capital, which will be sufficient for the remainder of the calendar
year ending December 31, 2002. We are in the process of attempting to obtain
additional financing for operations in the next fiscal year, but there is no
assurance that our efforts will be successful. Any failure on our part to do
so will have a material adverse impact on us and may cause us to cease
operations after December 31, 2002.
We do not currently have any commitments for any material capital
expenditures.
Results of Operations
---------------------
Comparison of the Nine Months Ended March 31, 2002 with the Nine Months Ended
March 31, 2001
We recorded $49,857 of BionSoil(R) sales during the nine months ended
March 31, 2002. This compares to $43,244 of BionSoil(R) sales during the nine
months ended March 31, 2001. The increase of $6,613 is attributable to higher
BionSoil(R) sales to customers, as a larger quantity of BionSoil(R) is now
available for sales with the completion of our testing and turf trials. As a
result of our research and development efforts during the last two years, the
second generation of our technology has completed development. We have
designed and/or tested NMS systems, which use state-of-the-art, computerized,
real-time monitoring and system control that can be remotely accessed for both
reporting requirements and control functions. These systems are smaller,
faster and require less capital per animal than our first generation NMS
systems. The focus on the new system design has had a negative effect on
system sales. Cost of goods sold increased $39,374 for the soil sales
primarily as a result of an increase in freight costs of $52,602, materials of
$44,877 and equipment rental and maintenance of $24,774. These increases were
offset by decreases in subcontractors of $68,718 and travel, lodging and meals
of $15,966.
4
We incurred gross losses of $353,237 and $320,476 during the nine months ended
March 31, 2002 and 2001, respectively. The gross losses are primarily a
result of the fact that much of the soil produced was sold at below cost to
help gain market acceptance. We believe that this trend will reverse and our
revenues will increase as we have now finished the final phase of system
testing and are now entering into commercial sales of our systems.
General and administrative expenses decreased $2,897,679 (30%) for the nine
months ended March 31, 2002 as compared to the nine months ended March 31,
2001. $2,173,460 of the decrease is attributable to non-cash expense related
to the beneficial value of the stock consideration received over the value of
the warrants surrendered in connection with warrant/stock exchange
transactions, amortization of the remaining deferred consulting expense to D2
of $2,648,882 and a non-cash expense of $2,230,000 for warrants issued to D2
all occurring during the nine months ended March 31, 2001. These amounts were
partially offset by a non-cash expense for warrants issued to D2 and brokers
of our 2000 Private Placement of $3,819,256 and other individually
insignificant increases.
Research and development costs decreased $319,727 during the nine months
ended March 31, 2002 as compared to the nine months ended March 31, 2001. This
decrease is due to winding down the design and testing of the
second-generation system.
Interest expense increased $6,349,200 for the nine months ended March 31,
2002 as compared to the nine months ended March 31, 2001 due to additional
borrowings from private placements and the expensing of the beneficial
conversion feature of $5,547,000 due to the change in terms of the Company's
convertible bridge notes and notes payable to related parties. Of this
increase, $6,336,905 was for non-cash interest expenses.
We had a decrease in interest income of $48,618 due to lower average cash
balances for the period prior to the Centerpoint transaction.
We had an increase in other income of $62,384 primarily due to an
increase in rental income of $27,126, an increase in boarding fees received of
$16,625 and decreases in other expenses on the loss on sale of assets of
$10,265 and revenue sharing expense of $5,705.
The net loss and comprehensive loss increased by $2,629,902 (20%) during
the nine months ended March 31, 2002. The increase primarily related to the
increase in interest expense of $6,349,200 and the decrease of $48,618 of
interest income. This was offset by the decrease of $2,897,679 of general and
administrative expenses, the decrease in research and development of $319,727,
the decrease in cumulative effect of change in accounting principle of
$481,250 and an increase of other income (expense) of $62,384 of income.
Basic and diluted loss per common share decreased by $0.27, from $1.04 to
$0.77. The decrease in the loss per share, despite the aforementioned
increase in the net loss, is attributable to the additional shares issued
during the quarter for the Centerpoint transaction and the conversion of our
outstanding debt to equity.
5
Comparison of the Three Months Ended March 31, 2002 with the Three Months
Ended March 31,2001
We recorded $21,245 of BionSoil(R) sales during the three months ended
March 31, 2002. This compares to $1,268 of BionSoil(R) sales during the three
months ended March 31, 2001. We had been in the design and testing phase of
the second-generation system, which had a negative effect on sales and are now
beginning to start to increase efforts for greater sales of BionSoil(R). The
focus on the new system design has had a short-term negative effect on system
sales as well. Cost of goods sold increased $93,290 primarily as a result of
entering into the commercial production of BionSoil(R).
We incurred gross losses of $139,173 and $65,860 during the three months
ended March 31, 2002 and 2001, respectively. The gross losses result from
inefficiencies associated with the disproportionate relationship between cost
of good sold and revenues associated with a technological growth-oriented
company. We believe that this trend will reverse as revenues increase.
General and administrative expenses increased $1,882,185 (62%) for the
three months ended March 31, 2002 as compared to the three months ended March
31, 2001. Of the increase, consulting fee increased by $1,672,303,
supplemental compensation increased $112,650 and investor relations increased
by $56,260.
Research and development costs decreased $83,670 during the three months
ended March 31, 2002. This decrease is due to completion of the design and
testing of the second-generation system.
Interest expense increased $5,441,981 due to additional borrowings from
private placements and the beneficial conversion feature of $5,547,000 due to
the change in terms of the Company's convertible bridge notes and notes
payable to related parties. Non-cash interest expense for the three months
ended March 31, 2002 and 2001 was $6,064,453 and $639,002, respectively.
We had an increase in interest income of $7,229 due to the January 2002
transaction with Centerpoint.
The net loss and comprehensive loss increased $7,287,562 (181%) during
the three months ended March 31, 2002. The increase primarily related to
increase in general and administrative expenses of $1,882,185, an increase in
cost of goods sold of $93,290, and an increase in interest expense of
$5,441,981. These increases are offset by a decrease in research and
development costs of $83,670 and minority interest of $39,631.
Basic and diluted loss per common share is did not change from $0.31.
Despite the increase in net and comprehensive loss, the loss per common share
remained the same due to the additional shares issued during the quarter for
the Centerpoint transaction and the conversion of our outstanding debt to
equity.
6
Seasonality
-----------
Bion's installation capability is restricted in all cold weather climates
to approximately eight months per year. However, when weather conditions
limit construction activity in southern market areas, projects in northern
markets can proceed, and when northern area weather is inappropriate, southern
projects can proceed. BionSoil(R) harvests on the existing installed base is
semi-annual and is timed for spring and fall with harvested soils being
available for sale during the next spring or fall. BionSoil(R) and
BionSoil(R) product sales are expected to exhibit a somewhat seasonal sales
pattern with emphasis on spring, summer and fall sales.
Inflation and Changes in Prices
-------------------------------
We are unable to predict the impact of inflation on our activities;
however, at this time we believe it is minimal.
7
PART II
ITEM 1. Legal Proceedings
On May 6, 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 the $100,000 of the Company's Convertible Bridge Notes
("Notes") that were issued to ACB in March of 2000. The complaint includes
breach of contract claims asserting that the Company owes ACB either $265,400
plus interest or $121,028 including interest based on its interpretation of
the terms of the Notes and subsequent amendments. Effective June 30, 2001,
the Company issued ACB 50,330 shares of common stock on conversion in full
payment of the Notes based on the Company's interpretation of the Notes, as
amended. The Company has not yet been served and, therefore, has not yet
filed an answer to the complaint. The Company does not believe that this
litigation will have a material adverse effect on the Company, its operations
or its financial condition.
We are not a party to any other material legal proceedings.
ITEM 2. Changes in Securities and Use of Proceeds
The following securities were sold in the quarter ended December 31, 2001
without registration under the Securities Act of 1933, as amended:
Common Stock
------------
On January 15, 2002 we issued 1,000,000 shares of the Company's common
stock and warrants to purchase 1,000,000 shares of common stock, and paid
other consideration to OAM in exchange for shares of Centerpoint representing
a 57.7% interest in Centerpoint. In connection with this transaction we
relied on the exemption from registration afforded by Section 4(2) and/or
other provisions of the Securities Act of 1933, as amended. OAM is an
accredited investor and was provided with complete information concerning the
Company. The certificate representing the common stock issued to OAM bears a
restrictive legend concerning the transfer of the shares and stop transfer
instructions have been provided to our transfer agent.
On January 15, 2002 we issued 19,000,000 shares of the Company's stock to
Centerpoint in exchange for approximately $8.5 million in cash and the
assignment of certain claims and other rights owned by Centerpoint. In
connection with this transaction we relied on the exemption from registration
afforded by Section 4(2) and/or other provisions of the Securities Act of
1933, as amended. Centerpoint is an accredited investor and was provided with
complete information concerning the Company. The certificate representing the
common stock issued to Centerpoint bears a restrictive legend concerning the
transfer of the shares and stop transfer instructions have been provided to
our transfer agent. During 2002, we intend to file a registration statement
to allow Centerpoint to distribute the 19,000,000 shares to its stockholders.
On March 31, 2002 we issued 119,522 shares of the Company's common stock
to the Trust Under Deferred Compensation Plan for D2CO, LLC for $150,000 of
management fees earned for the three months ending March 31, 2002, based on an
average closing price of the Company's common stock for the quarter of $1.255.
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The shares issued to the Trust Under Deferred Compensation Plan for D2CO,
LLC ("the Trust") were issued in reliance upon the exemptions from
registration afforded by Sections 3(b), 4(2), and/or other provisions of the
Securities Act of 1933, as amended. The Trust was established by the Company
and D2 under a deferred compensation arrangement. D2 is wholly-owned by David
Mitchell, the Company's Chairman, CEO and President. Mr. Mitchell is an
accredited investor and has knowledge and experience in financial and business
matters such that he was capable of evaluating the merits and risks of the
acquisition of our Common Stock in connection with these transactions. All
certificates representing common shares bear an appropriate legend restricting
the transfer of such securities, except in accordance with the Securities Act
of 1933, as amended, and stop transfer instructions have been provided to our
transfer agent in accordance therewith.
ITEM 3. Defaults Upon Senior Securities. None
ITEM 4. Submission of Matters to a Vote of Security Holders. None
ITEM 5. Other Information.
On February 13, the Company entered into a consulting agreement with
Howard Chase, a member of the Company's Board of Directors. As partial
consideration for the consulting services, the Company will issue Mr. Chase
9,000 restricted shares of the Company's common stock. The Company will take
a consulting expense during the quarter ending June 30, 2002 for the value of
the shares issued. An additional 9,000 restricted shares of the Company's
common stock will be issued to Mr. Chase on February 13, 2003 at a price to be
determined at that time.
ITEM 6. Exhibits and Reports on Form 8-K.
Exhibits
--------
Listed below are the exhibits filed as a part of this report.
Exhibit
Number Description
------- -----------
Exhibit 10.1 Agreement dated March 15, 2002 between Bion Environmental
Technologies, Inc. and Centerpoint Corporation
Exhibit 10.2 Promissory Note of Centerpoint Corporation dated
March 15, 2002
Exhibit 10.3 Warrant to Purchase 1,000,000 shares of Centerpoint
Corporation
Reports on Form 8-K
-------------------
The following current reports on Form 8-K were filed during the three
months ended March 31, 2002.
Form 8-K dated December 12, 2001: Items 2,5 & 7
Form 8-K/A dated December 12, 2001: Items 2,5 & 7
Form 8-K/A dated December 12, 2001: Items 7
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
Bion Environmental Technologies, Inc.
By: /s/ David Fuller
------------------------------------
David Fuller, Authorized Officer and
Principal Accounting Officer
Dated: May 14, 2002
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