Statements made in this Form 10-Q that are not historical or current facts,
which represent the Company's expectations or beliefs including, but not limited
to, statements concerning the Company's operations, performance, financial
condition, business strategies, and other information, involve substantial risks
and uncertainties. The Company's actual results of operations, most of which are
beyond the Company's control, could differ materially. These statements often
can be identified by the use of terms such as "may," "will," "expect,"
"believe," anticipate," "estimate," or "continue" or the negative thereof. We
wish to caution readers not to place undue reliance on any such forward looking
statements, which speak only as of the date made. Any forward-looking statements
represent management's best judgment as to what may occur in the future.
However, forward looking statements are subject to risks, uncertainties and
important factors beyond our control that could cause actual results and events
to differ materially from historical results of operations and events and those
presently anticipated or projected.
These factors include adverse economic conditions, entry of new and stronger
competitors, inadequate capital and limited ability to obtain financing,
unexpected costs, failure (or delay) to gain product certifications and/or
regulatory approvals in the United States (or particular states) or foreign
countries, loss (permanently or for any extended period of time) of the services
of members of the Company's small core management team (many of whom are age 70
or older) and failure to capitalize upon access to new markets. Additional risks
and uncertainties that may affect forward looking statements about Bion's
business and prospects include: i) delays and/or costs exceeding expectations
relating to Bion's development of the Initial Project, JVs and/or Projects, ii)
the possibility that markets for nutrient reduction credits (discussed below)
and/or other ways to monetize nutrient reductions and other environmental
benefits will be slow to develop (or not develop at all), iii) PA1's dissolution
and its effect on how the Company is viewed, (if any), iv) the possibility that
competitors will develop more comprehensive and/or less expensive environmental
solutions, v) delays in market awareness of Bion and our Systems, vi)
uncertainties and costs increases related to research and development efforts to
update and improve Bion's technologies and applications thereof, and/or vii)
failure of marketing strategies, each of which could have both immediate and
long term material adverse effects by placing us behind our competitors and
requiring expenditures of our limited resources.
THESE RISKS, UNCERTAINTIES AND FACTORS BEYOND OUR CONTROL ARE MAGNIFIED DURING
THE CURRENT UNCERTAIN PERIOD RELATED TO THE COVID-19 PANDEMIC AND THE UNIQUE
ECONOMIC, FINANCIAL, GOVERNMENTAL AND HEALTH-RELATED CONDITIONS IN WHICH THE
COMPANY, THE ENTIRE COUNTRY AND THE ENTIRE WORLD NOW RESIDE. TO DATE THE
COMPANY HAS EXPERIENCED DIRECT IMPACTS IN VARIOUS AREAS INCLUDING WITHOUT
LIMITATION: I) GOVERNMENT-ORDERED SHUTDOWNS WHICH HAVE SLOWED THE COMPANY'S
RESEARCH AND DEVELOPMENT PROJECTS AND OTHER INITIATIVES, II) SHIFTED FOCUS OF
STATE AND FEDERAL GOVERNMENT WHICH IS LIKELY TO NEGATIVELY IMPACT THE COMPANY'S
LEGISLATIVE INITIATIVES IN PENNSYLVANIA AND WASHINGTON DC, III) STRAINS AND
UNCERTAINTIES IN BOTH THE EQUITY AND DEBT MARKETS HAVE MADE DISCUSSION AND
PLANNING OF FUNDING OF THE COMPANY AND ITS INITIATIVES AND PROJECTS WITH
INVESTMENT BANKERS, BANKS AND POTENTIAL STRATEGIC PARTNERS MORE TENUOUS, IV)
STRAINS AND UNCERTAINTIES IN THE AGRICULTURAL SECTOR AND MARKETS HAVE MADE
DISCUSSION AND PLANNING OF FUNDING OF THE COMPANY AND ITS INITIATIVES AND
PROJECTS MORE DIFFICULT AS FUTURE INDUSTRY CONDITIONS ARE NOW MORE DIFFICULT TO
ASSESS/PREDICT, V) CONSTRAINTS DUE TO PROBLEMS EXPERIENCED IN THE GLOBAL
INDUSTRIAL SUPPLY CHAIN WHICH HAVE INCREASED ANTICIPATED PROJECT DEVELOPMENT
COSTS, VI) DUE TO THE AGE AND HEALTH OF OUR CORE MANAGEMENT TEAM, MOST OF WHOM
ARE AGE 70 OR OLDER AND HAVE HAD ONE OR MORE EXISTING HEALTH ISSUES, THE
COVID-19 PANDEMIC PLACES THE COMPANY AT GREATER RISK THAN WAS PREVIOUSLY THE
CASE (TO A HIGHER DEGREE THAN WOULD BE THE CASE IF THE COMPANY HAD A LARGER,
DEEPER AND/OR YOUNGER CORE MANAGEMENT TEAM), AND VII) THERE ALMOST CERTAINLY
WILL BE OTHER UNANTICIPATED CONSEQUENCES FOR THE COMPANY AS A RESULT OF THE
CURRENT PANDEMIC EMERGENCY AND ITS AFTERMATH.
35
Bion disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
filed with this Report.
BUSINESS OVERVIEW AND PLAN
Bion Environmental Technologies, Inc.'s ("Bion," "Company," "We," "Us," or
"Our") was incorporated in 1987 in the State of Colorado. Bion's mission is to
create extraordinary value for our shareholders and employees (all of whom own
securities in the Company) while delivering premium, sustainable products to our
customers through ventures developing profitable, transparent, and sustainable
solutions for livestock agriculture.
Our patented and proprietary technology provides advanced waste treatment and
resource recovery for large-scale livestock production facilities (also known as
"Concentrated Animal Feeding Operations" or "CAFOs"). Livestock production and
its waste, particularly from CAFOs, has been identified as one of the greatest
soil, air, and water quality problems in the U.S. today. Application of our
third generation technology and business/technology platform ("Gen3Tech") can
largely mitigate these environmental problems, while simultaneously improving
operational/ resource efficiencies by recovering high-value co-products from the
CAFOs' waste stream. These waste stream 'assets' - nutrients and methane - have
traditionally been wasted or underutilized and are the same 'pollutants' that
today fuel harmful algae blooms, contaminate groundwater, and exacerbate climate
change.
Bion's business model and technology platform can create the opportunity for
joint ventures s (in various contractual forms)("JVs") between the Company and
large livestock/food/fertilizer industry participants based upon the
supplemental cash flow generated by implementation of our Gen3Tech business
model, which cash flows will support the costs of technology implementation
(including servicing related debt). We anticipate this will result in
substantial long term value for Bion. In the context of such JVs, we believe
that the verifiable sustainable branding opportunities (conventional and
organic) in meat will represent the single largest enhanced revenue contributor
provided by Bion to the JVs (and Bion licensees). The Company believes that the
largest portion of its business with be conducted through such JVs, but a
material portion may involve licensing and or other approaches.
Bion's Gen3 Tech was designed to capture and stabilize these assets and produce
renewable energy, fertilizer products, and clean water as part of the process of
raising verifiably sustainable livestock. All steps and stages in the treatment
process will be third-party verified, providing the basis for additional
revenues, including renewable energy-related credits and, eventually, payment
for ecosystem services, such as nutrient credits as described below. The same
verified data will be used to substantiate the claims of a USDA-certified
sustainable brand that will support premium pricing for the meat/ animal protein
products that are produced in Bion facilities.
During the first half of 2022 Bion began marketing our sustainable beef to
retailers, food service distributors and the meat industry in the U.S. In
general, the response has been favorable. During July 2022, Bion announced a
letter of intent ("Ribbonwire LOI") to develop its first large-scale commercial
project, a 15,000-head sustainable beef cattle feeding operation together with
the Ribbonwire Ranch, in Dalhart, Texas (with a provision to expand to 60,000
head) ("Dalhart Project"). The Dalhart Project (and/or other Gen3Tech beef joint
venture projects) will be developed to produce blockchain-verified, sustainable
beef (with reduced the stress on cattle caused by extreme weather and
temperatures and resulting higher feed/weight gain efficiency) while remediating
the environmental impacts associated usually associated with cattle CAFOs.
Bion's patented technology will refine the waste stream into valuable coproducts
that include clean water, renewable natural gas (RNG), photovoltaic solar
electricity and organic fertilizer products. We anticipate converting the
Ribbonwire LOI into a definitive joint venture agreement with Ribbonwire Ranch
and creating distribution agreements with key retailers and food service
distributors during the next six months.
36
Bion's business model and technology platform can create the opportunity for
joint ventures (in various contractual forms)("JVs") between the Company and
large livestock/food/fertilizer industry participants based upon the
supplemental cash flow generated by implementation of our Gen3Tech business
model, which cash flows will support the costs of technology implementation
(including servicing related debt). We anticipate this will result in
substantial long-term value for Bion. In the context of such JVs, we believe
that the verifiable sustainable branding opportunities (conventional and
organic) in meat will represent the single largest enhanced revenue contributor
provided by Bion to the JVs (and, in some cases, Bion licensees). The Company
believes that the largest portion of its business with be conducted through such
JVs, but a material portion may involve licensing and or other approaches.
Bion's Gen3Tech was designed to capture and stabilize the assets contained in
the livestock waste stream and produce renewable energy, fertilizer products,
and clean water as part of the process of raising verifiably sustainable
livestock. All steps and stages in the treatment process will be third-party
verified, providing the basis for additional revenues, including renewable
energy-related credits and, eventually, payment for ecosystem services, such as
nutrient credits as described below. The same verified data will be used to
substantiate the claims of a USDA-certified sustainable brand that will support
premium pricing for the meat/ animal protein products that are produced in Bion
facilities.
Our business plan is focused on executing multiple agreements and letters of
intent related to the "Bion Beef Opportunity" and commencing development of
multiple sustainable beef joint venture projects over the next twelve-eighteen
(12-18) months while moving forward with the Initial Project (see below) and the
Dalhart Project (and/or other Gen3Tech beef joint venture projects). Bion also
intends to pursue other opportunities in the livestock industry enabled by our
Gen3Tech business model. The Ribbonwire LOI announcement has generated
significant interest within the livestock industry (among ranchers, feedlot
operators, farmers and other AG industry parties). We believe that this
interest, combined with consumer interest in 'sustainable products' and the
growing enthusiasm among some livestock industry parties for
environmental/sustainable/regenerative practices, provides Bion (and its
partners/venturers) with an opportunity to move forward with a truly sustainable
solution in this industry segment.
At present, there is essentially no traceable and verifiable 'sustainable beef'
available to the US market except for niche products. In response to consumer
demand for transparency and sustainability, Bion expects the meat industry in
general, and beef specifically, to evolve towards using new technologies to
deliver these attributes in their products. While we anticipate a faster
adoption of tracking, verification and sustainability technologies in other
perishable food categories like produce and dairy due to their harvest and
production techniques, meat industry leaders have also announced their
willingness to move forward with initiatives in this area. Bion predicts that
within approximately five years, consumers will be able to track and verify
claims including sustainability on 25% (or more) of the products merchandised in
the meat department. Bion believes that the retail market share of verifiably
sustainable beef in the US will approach 7-10 % within three (3) years (end of
2025) and 25% in five (5) years (end of 2027) (approximately 2,000,000 cattle
annually) (and more thereafter). If Bion can successfully execute on its
sustainable beef business plan, facilities utilizing Bion's Gen3Tech platform
will provide one-third (1/3) or more of that premium market segment (and a
higher portion of meat that is actually traceable and verifiably sustainable).
Our goal is to have multiple sustainable beef projects under development (within
3-5 distinct JVs) by the end of 2023. Our first commercial project is likely to
be the Dalhart Project but we anticipate commencing additional sustainable beef
projects during 2023 as well. Our current target is to have at least three (3)
facility modules (15,000 head per module)("Modules") in development/under
construction during 2023 in three (3) different JVs with the initial barns being
populated with livestock by fall/winter 2024-25. Further expansion in the number
of distinct JVs is projected through 2025 aiming at 5-10 JVs in process --- each
of which JVs will be pursuing development of multiple Modules with targets of
12-15 populated Modules by the end of 2025 (approximately 2%-3% of the US beef
market) and 30-45 Modules constructed and populated by 2027-28 (approximately
6%-8% of the US beef market) with further expansion thereafter. Bion's current
goal is that its Gen3Tech platform will be utilized to produce 33% of the
verifiable "sustainable beef" category at the end of the period (which will
equal approximately 2 million cattle annually)(45 Modules).
During this five (5) year period, the Company also anticipates having additional
Gen3Tech projects underway in the pork/dairy/egg sectors of the US animal
protein market.
37
During the next six months, the Company intends to construct and begin
operations of phase 1 of our Initial Project located near Fair Oaks, Indiana.
Bion expects the Initial Project to provide data that illustrates the
effectiveness of our Gen3Tech in a commercial setting by the end of the 2nd
quarter in 2023 and supports development of the Dalhart Project (and/or other
Gen3Tech beef joint venture projects) during 2023. We believe this data will
also provide additional potential stakeholders (cattle producers, cattle
feeders, packers, distributors, retailers and financial institutions) with the
information they need to proceed with confidence in collaborating with Bion on
multiple new projects (see below).
Bion is now focused primarily on: i) development/construction of the Initial
Project, our initial commercial-scale Gen3Tech installation, ii)
development/construction of the Dalhart Project (and/or other Gen3Tech beef
joint venture projects), iii) developing applications and markets for its low
carbon organic fertilizer products and its sustainable (conventional and
organic) animal protein products, and iv) discussions regarding initiation and
development of agreements and joint ventures ("JVs" as discussed below) (and
related projects) based on the augmented capabilities of our Gen3Tech business
platform (in the sustainable beef and other livestock segments), while (v)
continuing to pursue business opportunities related to large retrofit projects
(such as the Kreider poultry project JV described below) and vi) ongoing R&D
activities.
There is no assurance that the Company will reach or approach the goals/targets
set forth above. Reaching such goals/targets will require access to very large
amounts of capital (equity and debt) as each module is projected to cost in
excess of $50 million to construct and require mobilization of substantial
personnel, technical resources and management skills. The Company does not
possess either the financial or personnel resources required internally and will
need to source such resources from outside itself.
For additional information regarding our 'HISTORY, BACKGROUND AND CURRENT
ACTIVITIES', see discussion in Notes to the Financial Statements (particularly
Notes 1,3,5,and 9) included in this report and Item 1 in our annual report on
Form 10-K.
COVID-19 PANDEMIC RELATED MATTERS:
The Company faces risks and uncertainties and factors beyond our control that
are magnified during the current Covid-19 pandemic and the unique economic,
financial, governmental and health-related conditions in which the Company, the
country and the entire world now reside. To date the Company has experienced
direct impacts in various areas including but without limitation: i) government
ordered shutdowns which have slowed the Company's research and development
projects and other initiatives, ii) shifted focus of state and federal
governments which is likely to negatively impact the Company's legislative
initiatives in Pennsylvania and Washington D. C., iii) strains and uncertainties
in both the equity and debt markets which have made discussion and planning of
funding of the Company and its initiatives and projects with investment bankers,
banks and potential strategic partners more tenuous, iv) strains and
uncertainties in the agricultural sector and markets have made discussion and
planning more difficult as future industry conditions are now more difficult to
assess and predict, v) constraints due to problems experienced in the global
industrial supply chain since the onset of the Covid-19 pandemic, which have
delayed certain research and development testing and have delayed and/or
increased the cost of construction of the Company's initial 3G Tech installation
as equipment/services remain difficult to acquire in a timely manner, vi) due to
the age and health of our core management team, many of whom are age 70 or older
and have had one or more existing health issues (including brief periods of
Covid-19 infection), the Covid-19 pandemic places the Company at greater risk
than was previously the case (to a higher degree than would be the case if the
Company had a larger, deeper and/or younger core management team), and vii)
there almost certainly will be other unanticipated consequences for the Company
as a result of the current pandemic emergency and its aftermath.
38
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
The Company currently does not generate revenue and if and when the Company
begins to generate revenue the Company will comply with the provisions of
Accounting Standards Codification ("ASC") 606 "Revenue from Contracts with
Customers".
Stock-based compensation
The Company follows the provisions of ASC 718, which generally requires that
share-based compensation transactions be accounted and recognized in the
statement of income based upon their grant date fair values.
Pursuant to ASC Topic 815 "Derivatives and Hedging" ("Topic 815"), the Company
reviews all financial instruments for the existence of features which may
require fair value accounting and a related mark-to-market adjustment at each
reporting period end. Once determined, the Company assesses these instruments as
derivative liabilities. The fair value of these instruments is adjusted to
reflect the fair value at each reporting period end, with any increase or
decrease in the fair value being recorded in results of operations as an
adjustment to fair value of derivatives. As of September 30, 2022 and 2021,
there are no derivative financial instruments.
Options:
The Company has issued options to employees and consultants under its 2006 Plan
to purchase common shares of the Company. Options are valued on the grant date
using the Black-Scholes option-pricing model. The expected volatility is 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.
Warrants:
The Company has issued warrants to purchase common shares of the Company.
Warrants are valued using a fair value based method, whereby the fair value of
the warrant is determined at the warrant issue date using a market-based option
valuation model based on factors including an evaluation of the Company's value
as of the date of the issuance, 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 and the historical valuations and purchases of the
Company's warrants. When warrants are issued in combination with debt or equity
securities, the warrants are valued and accounted for based on the relative fair
value of the warrants in relation to the total value assigned to the debt or
equity securities and warrants combined.
Lease Accounting:
The Company accounts for leases under ASC 842, Leases ("ASC 842"). Accordingly,
the Company will determine whether an arrangement contains a lease at the
inception of the arrangement. If a lease is determined to exist, the term of
such lease is assessed based on the date on which the underlying asset is made
available for the Company's use by the lessor. The Company's assessment of the
lease term reflects the non-cancelable term of the lease, inclusive of any
rent-free periods and/or periods covered by early-termination options which the
Company is reasonably certain of not exercising, as well as periods covered by
renewal options which the Company is reasonably certain of exercising. The
Company also determines lease classification as either operating or finance at
lease commencement, which governs the pattern of expense recognition and the
presentation reflected in the consolidated statements of operations over the
lease term.
For leases with a term exceeding 12 months, a lease liability is recorded on the
Company's consolidated balance sheet at lease commencement reflecting the
present value of its fixed minimum payment obligations over the lease term. A
corresponding right-of-use ("ROU") asset equal to the initial lease liability is
also recorded, adjusted for any prepaid rent and/or initial direct costs
incurred in connection with execution of the lease and reduced by any lease
incentives received. For purposes of measuring the present value of its fixed
payment obligations for a given lease, the Company uses its incremental
borrowing rate, determined based on information available at lease commencement,
as rates implicit in its leasing arrangements are typically not readily
determinable. The Company's incremental borrowing rate reflects the rate it
would pay to borrow on a secured basis and incorporates the term and economic
environment of the associated lease.
39
THREE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2021
Revenue
Total revenues were nil for both the three months ended September 30, 2022 and
2021.
General and Administrative
Total general and administrative expenses were $866,000 and $491,000 for the
three months ended September 30, 2022 and 2021, respectively.
Salaries and related payroll tax expenses were $171,000 and $97,000, for the
three months ended September 30, 2022 and 2021, respectively, representing a
$74,000 increase. Consulting costs were $118,000 and $152,000 for the three
months ended September 30, 2022 and 2021, respectively. The $34,000 decrease in
consulting costs is due to the capitalization of Brightcap's consulting expense
to the 3G Project. Investor relations expenses were $249,000 and $86,000 for the
three months ended September 30, 2022 and 2021, respectively, and the $163,000
increase is due to a new contract with an investor relations firm and increased
activity during the three months ended September 30, 2022 due to the resumption
of investor conferences and other matters. Legal costs were $8,000 and $25,000
for the three months ended September 30, 2022 and 2021, respectively due to less
outside legal activities in the quarter.
Depreciation
Total depreciation expense was $330 and $248 for the three months ended
September 30, 2022 and 2021, respectively.
Research and Development
Total research and development expenses were $28,000 and $62,000 for the three
months ended September 30, 2022 and 2021, respectively, representing a $34,000
decrease due to less legal and consulting costs allocated to research and
development.
Salaries and related payroll tax expenses were $3,000 and $7,000 for the three
months ended September 30, 2022 and 2021, respectively, as more salary expense
was allocated to administrative expense for the three months ended September 30,
2022. Consulting costs were $17,000 and $32,000 for the three months ended
September 30, 2022 and 2021, respectively. The decrease in consulting is due to
capitalizing costs on the 3G project. The Company also incurred $3,000 and
$21,000 for the three months ended September 30, 2022 and 2021, respectively in
legal costs related to patent applications and renewals.
Loss from Operations
As a result of the factors described above, the loss from operations was
$895,000 and $553,000 for the three months ended September 30, 2022 and 2021,
respectively.
Other (Income) Expense
Other expense was $24,000 and $111,000 for the three months ended September 30,
2022 and 2021, respectively and was all attributed to interest expense for both
periods. The decrease in interest expense is largely due to there being no
interest expense related to the Pennvest loan during the three months ended
September 30, 2022 and capitalizing interest of $31,000 to the 3G project.
Interest expense related to deferred compensation, loan payable and convertible
notes prior to capitalization was $52,000 and $112,000 for the three months
ended September 30, 2022 and 2021, respectively. Interest expense related to
investor warrant modifications was $4,500 and nil for the three months ended
September 30, 2022 and 2021.
Net Loss Attributable to the Noncontrolling Interest
The net loss attributable to the noncontrolling interest was nil and $506 for
the three months ended September 30, 2022 and 2021, respectively.
Net Loss Attributable to Bion's Common Stockholders
As a result of the factors described above, the net loss attributable to Bion's
stockholders was $919,000 and $663,000 for the three months ended September 30,
2022 and 2021, respectively, and the net loss per basic common share was $.02
and $.02 for the three months ended September 30, 2022 and 2021, respectively.
40
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated financial statements for the three months ended
September 30, 2022 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 consolidated financial
statements as of and for the year ended June 30, 2022 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.
Operating Activities
As of September 30,2022, the Company had cash of approximately $1,898,000.
During the three months ended September 30, 2022, net cash used in operating
activities was $1,316,000, primarily consisting of cash operating expenses
related to salaries and benefits, and other general and administrative costs
such as insurance, legal, accounting, consulting and investor relations expenses
as well as the purchase of property and equipment. Cash expenditures were offset
by proceeds from financing activities, primarily the exercise of warrants. As
previously noted, the Company is currently not generating significant 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 two 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 substantial
funding from external sources. Given the unsettled state of the current credit
and capital markets for companies such as Bion, there is no assurance the
Company will be able to raise the funds it needs on reasonable terms.
Investing Activities
During the three months ended September 30, 2022, the Company invested $323,000
in the purchase of property and equipment, primarily related to project
construction in process.
Financing Activities
During the three months ended September 30, 2022, the Company received gross
cash proceeds of $56,125 from the exercise of 74,834 warrants into shares of the
Company's common stock.
During the three months ended September 30, 2022, the Company entered into
subscription agreements to sell units for $1.00 per unit, with each unit
consisting of one share of the Company's restricted common stock and one warrant
to purchase one share of the Company's restricted common stock for $0.75 per
share with an expiry date of December 31, 2024, and pursuant thereto, the
Company issued 320,000 units for total proceeds of $320,000.
As of September 30, 2022, the Company has debt obligations consisting of: a)
deferred compensation of $654,000 and b) convertible notes payable - affiliates
of $5,212,000.
Plan of Operations and Outlook
As of September 30, 2022, the Company had cash of approximately $1,898,000.
The Company continues to explore sources of additional financing to satisfy its
current operating requirements as it is not currently generating any significant
revenues. During fiscal years 2022 and 2021, the Company has faced progressively
less difficulty in raising equity funding (but substantial equity dilution has
resulted from the larger amounts of equity financing during the periods).
However, the Company anticipates substantial increases in demands for capital
and operating expenditures as it moves toward commercial implementation of its
3G Tech and development of JVs and, therefore, is likely to continue to face,
significant cash flow management challenges due to limited capital resources and
working capital constraints which have only recently begun to be alleviated. As
a result, the Company has faced, and continues to face, significant cash flow
management challenges due to material working capital constraints. To partially
mitigate these working capital constraints, the Company's core senior management
and some key employees and consultants have been deferring all or part of their
cash compensation and/or are accepting compensation in the form of securities of
the Company (Notes 5 and 7 to Financial Statements) and members of the Company's
senior management have from time to time made loans to the Company. During the
year ended June 30, 2018 senior management and certain core employees and
consultants agreed to a one-time extinguishment of liabilities owed by the
Company which in aggregate totaled $2,404,000. As of June 30 2022, such
deferrals/loans totaled approximately $5,765,000 (including accrued interest and
deferred compensation converted into convertible obligations and convertible
promissory notes but excluding conversions of deferred compensation into the
Company's common stock by officers, employees and consultants that have already
been completed). The extended constraints on available resources have had, and
continue to have, negative effects on the pace and scope of the Company's effort
to develop its business. The Company made reductions in its personnel during the
years ended June 30, 2014 and 2015 and again in 2018. The constraint on
available resources has had, and continues to have, negative effects on the pace
and scope of the Company's efforts to develop its business. The Company has had
to delay payment of trade obligations and has had to economize in many ways that
have potentially negative consequences. If the Company is able to continue its
recent increased success in its efforts to raise needed funds during the
remainder of the current fiscal year (and subsequent periods), of which there is
no assurance, management will not need to consider deeper cuts (including
additional personnel cuts) and curtailment of ongoing activities including
research and development activities.
41
The Company will need to obtain additional capital to fund its operations and
technology development, to satisfy existing creditors, to develop the Initial
Project, JVs, Projects (including Integrated Projects) and CAFO Retrofit waste
remediation systems (potentially including the Kreider 2 facility. The Company
anticipates that it will seek to raise from $20,000,000 to $80,000,000 or more
(debt and equity) during the next twelve months. However, as discussed above,
there is no guarantee that we will be able to raise sufficient funds or further
capital for the operations planned in the near future.
The Company is not currently generating any significant revenues. Further, the
Company's anticipated revenues, if any, from existing projects, JVs and proposed
projects will not be sufficient to meet the Company's anticipated operational
and capital expenditure needs for many years. During the year ended June 30,
2021 the Company raised gross proceeds of approximately $5,209,000 through the
sale of its securities and paid commissions of approximately $165,000, and
anticipates raising additional funds from such sales and transactions. During
the year ended June 30, 2022 the Company raised gross proceeds for approximately
$1,737,000 and paid commissions of approximately $18,600. However, there is no
guarantee that we will be able to raise sufficient funds or further capital for
the operations planned in the near future.
Because the Company is not currently generating significant revenues, the
Company will need to obtain additional capital to fund its operations and
technology development, to satisfy existing creditors, to develop the Initial
Project and subsequent Projects.
As indicated above, the Company anticipates that it will seek to raise from
$20,000,000 to $80,000,000 or more (from debt, equity, joint venture, strategic
partnering, etc.) during the next twelve months, some of which may be in the
context of joint ventures for the development of one or more large scale
projects. We reiterate that there is no assurance, especially in the extremely
unsettled capital markets that presently exist for companies such as Bion, that
the Company will be able to obtain the funds that it needs to stay in business,
finance its Projects and other activities, continue its technology development
and/or to successfully develop its business.
See Item 2 below and Note 5 ("Pennvest Loan and Bion PA1 LLC ("PA1")
Dissolution") to the Financial Statements included in this report and the
Company's Forms 10-K for the year ended June 30, 2022 (and
the years 2009-2021) for discussion and more details related to the dissolution
of PA1, the Pennvest Loan and the
Kreider 1 project.
As indicated above, the Company anticipates that it will seek to raise from
$20,000,000 to $80,000,000 or more (from debt, equity, joint venture, strategic
partnering, etc.) during the next twelve months, some of which may be in the
context of joint ventures for the development of one or more large scale
projects. We reiterate that there is no assurance, especially in the extremely
unsettled capital markets that presently exist for companies such as Bion, that
the Company will be able to obtain the funds that it needs to stay in business,
finance its Projects, JVs and other activities, continue its technology
development and/or to successfully develop its business.
42
There is extremely limited likelihood that funds required during the next twelve
months or in the periods immediately thereafter will be generated from
operations and there is no assurance 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 and/or to raise capital from external sources would force
the Company to substantially curtail or cease operations and would, therefore,
have a material adverse effect on its business. Further, there can be 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 limited and unsettled credit and capital markets presently
existing for companies such as Bion.
Covid-19 pandemic related matters:
The Company faces risks and uncertainties and factors beyond our control that
are magnified during the current Covid-19 pandemic and the unique economic,
financial, governmental and health-related conditions in which the Company, the
country and the entire world now reside. To date the Company has experienced
direct impacts in various areas including but without limitation: i) government
ordered shutdowns which have slowed the Company's research and development
projects and other initiatives, ii) shifted focus of state and federal
governments which is likely to negatively impact the Company's legislative
initiatives in Pennsylvania and Washington D. C., iii) strains and uncertainties
in both the equity and debt markets which have made discussion and planning of
funding of the Company and its initiatives and projects with investment bankers,
banks and potential strategic partners more tenuous, iv) strains and
uncertainties in the agricultural sector and markets have made discussion and
planning more difficult as future industry conditions are now more difficult to
assess and predict, v) constraints due to problems experienced in the global
industrial supply chain since the onset of the Covid-19 pandemic, which have
delayed certain research and development testing and have delayed and/or
increased the cost of construction of the Company's initial 3G Tech installation
as equipment/services remain difficult to acquire in a timely manner, vi) due to
the age and health of our core management team, many of whom are age 70 or older
and have had one or more existing health issues (including brief periods of
Covid-19 infection), the Covid-19 pandemic places the Company at greater risk
than was previously the case (to a higher degree than would be the case if the
Company had a larger, deeper and/or younger core management team), and vii)
there almost certainly will be other unanticipated consequences for the Company
as a result of the current pandemic emergency and its aftermath.
CONTRACTUAL OBLIGATIONS
We have the following material contractual obligations (in addition to
employment and consulting agreements with management and employees):
The Company entered into an agreement on September 23, 2021, to lease
approximately four acres of land near Fair Oaks, Indiana, for the development
site of its Initial Project.
The future minimum lease payment under noncancelable operating lease with terms
greater than one year as of September 30, 2022:
Year ended June 30, 2023 $ 43,750
Year ended June 30, 2024 75,000
Year ended June 30, 2025 31,250
Undiscounted cash flow 150,000
Less imputed interest (17,888 )
Total $ 132,112
The weighted average remaining lease term and discounted rate related to the
Company's lease liability as of September 30, 2022 were 2.33 years and 10%,
respectively. The Company's lease discount rate is generally based on the
estimates of its incremental borrowing rate as the discount rates implicit in
the Company's lease cannot be readily determined.
Through 3G1 the Company is in the process of developing the Initial Project. See
discussion above and in the Notes to our Financial Statements.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does 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.
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