ITEM 1. BUSINESS.
GENERAL
Bion Environmental Technologies, Inc. ("Bion,"
"Company," "We," "Us," or "Our") was incorporated in 1987 in the State of Colorado.
Our patented and proprietary technology provides economically
sustainable comprehensive environmental solutions to one of the greatest water air and water quality problems in the U.S. today: pollution
from large-scale livestock production facilities (also known as “Concentrated Animal Feeding Operations” or “CAFOs”).
Application of our technology and technology platform can simultaneously mitigate environmental problems and improve operational/resource
efficiencies by recovering high-value co-products from the CAFOs’ waste stream that have traditionally been wasted or underutilized,
including renewable energy, nutrients (including ammonia nitrogen and phosphorus) and water.
During the 2016 to 2021 fiscal years, the Company
focused a large portion of its activities on developing, testing and demonstrating the 3rd generation of its technology and technology
platform (“3G Tech”) with emphasis on increasing the efficiency of production of valuable co-products from the waste treatment
process, including ammonia nitrogen in the form of organic ammonium bicarbonate products. The Company’s initial ammonium bicarbonate
liquid product completed its Organic Materials Review Institute (“OMRI”) application and review process with approval during
May 2020. An application for our first solid ammonium bicarbonate product – AD Nitrogen – has been filed and is in the review
process (see discussion at “Organic Fertilizer products” below).
Bion is now focused primarily on: i) development/construction
of its initial commercial-scale 3G Tech installation, ii) developing applications and markets for its organic fertilizer products and
its sustainable (conventional and organic) animal protein products, and iii) initiation and development of joint ventures (“JVs”
as discussed below) (and related projects) and strategic relationships based on the augmented capabilities of our 3G Tech, while (iv)
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.
The $175 billion U.S. livestock industry is under
intense scrutiny for its environmental and public health impacts – its ‘environmental sustainability’-- at the same
time it is struggling with declining revenues and margins (derived in part from clinging to its historic practices and resulting limitations
and impacts) which threaten its ‘economic sustainability’. Its failure to adequately respond to consumer concerns ranging
including food safety, environmental impacts, and humane treatment of animals have provided impetus for plant-based alternatives such
as Beyond Meat and Impossible Burger (and many others) being marketed as “sustainable” alternatives for this growing consumer
segment of the market.
The Company believes that its 3G Tech, in addition
to providing superior environmental remediation, creates opportunities for large scale production of: i) verifiably sustainable-branded
livestock products and ii) verifiably sustainable organic-branded livestock products that will command premium pricing (in part due to
ongoing monitoring and third-party verification of environmental performance which will provide meaningful assurances to both consumers
and regulatory agencies). Each of these two distinct market segments (which the Company intends to pursue in parallel) presents a large
production/marketing opportunity for Bion. Our 3G Tech platform will also produce revenues from co-products: i) pipeline quality biogas
(and related environmental credits) and ii) valuable organic fertilizer products, which can be utilized in the production of organic grains
for use as feed for raising organic livestock (some of which may be utilized in the Company’s JV projects) and/or marketed to the
growing organic fertilizer market.
During late September 2021, Bion entered into a lease
for the development site of its initial commercial scale 3G Tech project in September 2021(“Initial Project”), which Initial
Project will be located on approximately four (4) acres of leased land near Fair Oaks, Indiana. Terms for an additional related agreement
regarding disposal of certain manure effluent have been agreed upon with the Curtis Creek Dairy unit of Fair Oaks Farms (“FOF”)
and the Company expects the agreement to be finalized by the end of the first full week of October 2021. Design and pre-development work
commenced during August 2021 and preparation for active surveying, site engineering and other work is now underway. The Initial Project
will be an environmentally sustainable beef cattle feeding facility, equipped with state-of-the-art housing and Bion’s 3G-Tech platform
to provide waste treatment and resource recovery. Bion has designed the project to house and feed approximately 300 head of beef cattle.
The facility will include Bion’s 3G Tech platform including: i) covered barns with solar photovoltaic generation, ii) anaerobic
digestion for renewable energy recovery; iii) livestock waste treatment and resource recovery technology; iv) Bion’s ammonium bicarbonate
recovery and crystallization technology and iv) data collection software to document system efficiencies and environmental benefits (with
the Bion 3G Tech facilities capable of treating the waste from approximately 1,500 head). The facility will be large enough to demonstrate
engineering capabilities of Bion’s 3G Tech at commercial scale, but small enough that it can be constructed and commissioned quickly,
with operations targeted to commence sometime during the Spring of 2022. This project is not being developed at economic commercial scale
or with an expectation of profitability due to its limited scale. However, successful installation, commissioning, and operations will
demonstrate scalability, determine operating parameters at scale, and provide ongoing production and engineering capabilities, all being
critical steps that must be accomplished before developing large projects with JV partners. Specifically, the Initial Project is being
developed to provide and/or accomplish the following:
i.
Proof of 3G Tech platform scalability
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Document system efficiency and environmental
benefits and enable final engineering modifications to optimize each unit process within the Bion 3G technology platform.
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Environmental benefits will include (without
limitation) renewable energy production (natural gas recovery from AD and solar electric from integrated roof top photovoltaic generation);
nutrient recovery and conversion to stable organic fertilizer; pathogen destruction; water recovery and reuse; air emission reductions.
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ii.
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Use Bion’s data collection system to support 3rd party verified system efficiency requirement to qualify for USDA
Process-Verified-Program (PVP): certification of sustainable branded beef (and potentially pork) product metrics.
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iii.
Produce sufficient ammonium bicarbonate nitrogen fertilizer (“AD Nitrogen”) for commercial testing by potential joint
venture partners and/or purchasers and for university growth trials.
iv.
Produce sustainable beef products for initial test marketing efforts.
Upon achieving optimized and steady-state operations
at the Initial Project during 2022, coupled with obtaining an OMRI listing for its AD Nitrogen product, Bion expects to be ready to move
forward with its plans for development of much larger facilities. The Company anticipates that discussions and negotiations regarding
potential JVs with strategic partners in the financial and livestock industries to develop large scale projects will commence during the
construction of the Initial Project. Additionally, the Company believes there will also be opportunities to proceed with selected ‘retrofit
projects’ of existing facilities (see ‘Retrofit 3G Tech Project: Kreider Poultry JV below as an example).
Bion intends to move forward on its one of its primary
commercial goals: establishing JV’s for large scale projects that will produce both sustainable and sustainable-organic corn-fed
beef. The products will be supported by a USDA PVP-certified sustainable brand that will, initially, highlight reductions in carbon and
nutrient footprint, as well as pathogen reductions associated with foodborne illness and antibiotic resistance, along with the organic
designation where appropriate. Bion has successfully navigated the USDA PVP application process previously, having received conditional
approval of its 2G Tech platform, pending resubmission and final site audits, and is confident it will be successful in qualifying its
3G Tech platform.
Bion believes that
substantial unmet demand currently exists– potentially very large – for ‘real’ meat/ dairy/ egg products that
offer the verifiable/believable sustainability consumers seek, but with the taste and texture they have come to expect from American beef
and pork, dairy and poultry. Numerous studies demonstrate the U.S. consumers’ preferences for sustainability. For example, a 2019
NYU Stern’s Center for Sustainable Business study (https://hbr.org/2019/06/research-actually-consumers-do-buy-sustainable-products)
concluded that ‘products marketed as sustainable
grew 5.6 times faster than those that were not…’ and that ‘…in more than 90 percent of consumer-packaged-goods
(CPG) categories, sustainability-marketed products grew faster than their conventional counterparts.’ Sales growth of plant-based
alternatives, including both dairy and more recently ground meat (Beyond Meat, Impossible Foods, et al) have shown that a certain segment
of consumers are choosing seemingly sustainable offering, and are also willing to pay a premium for it. Numerous studies also support
the consumers’ ‘willingness-to-pay’ (WTP) for sustainable choices, including a recent meta-analysis of 80 worldwide
studies with results that calculate the overall WTP premium for sustainability is 29.5 percent on average (https://www.sciencedirect.com/science/article/abs/pii/S019566632100146X
).
As one of the largest contributors to some of the
greatest air and water quality problems in America, it is clear that livestock waste cleanup, at scale, represents one of the greatest
opportunities we have to reduce negative environmental impacts of the food supply chain on air and water quality. Bion’s 3G Tech
platform, along with its business model, enables the cleanup of the ‘dirtiest’ part of the food supply chain: animal protein
production and creates the opportunity to produce and market verifiably sustainable organic and conventional ‘real meat’ products
that can participate in the growth and premium pricing that appears to be readily available for the ‘right’ products.
Bion believes the at least a premium segment of the
US beef industry (and potentially other livestock industry groups) is at the doorstep of a transformative opportunity to address the growing
demand for sustainable food product offerings, while pushing back against today’s anti-meat messaging. At $66 billion/year (2021
retail value), the beef industry is a fragmented, commodity industry whose practices date back decades. In 1935 inflation-adjusted terms,
beef is 63% more expensive today, while pork and chicken, which are now primarily raised in covered barns, at CAFOs with highly integrated
supply chains, are 12% and 62% cheaper, respectively. In recent years, the beef industry has come under increasing fire from advocacy
groups, regulatory agencies, institutional investors, and ultimately, their own consumers, over concerns that include climate change,
water pollution, food safety, and the treatment of animals and workers.
Advocacy groups targeting livestock and the beef industry
have recently been joined by competitors that produce animal protein alternatives in seeking to exploit the industry’s environmental
and economic weaknesses. Their global anti-meat messaging has had a substantial chilling effect on the relationships the beef industry
has with its institutional investors; retail distributors, such as fast-food restaurants; and mostly, its consumers. Led by the United
Nations Food and Agriculture Organization, a coordinated anti-meat messaging campaign has targeted consumers worldwide, primarily focused
on the industry’s impacts on climate change. Meat alternatives, especially plant-based protein producers like Beyond Meat and Impossible
Foods, are being heavily promoted by themselves and the media, and have enjoyed steady sales growth. A 2018 NielsenIQ Homescan survey
last year found that 39% of Americans are actively trying to eat more plant-based foods. Some of the recent growth in plant-based proteins
results from increasing lactose intolerance and other health concerns; however, most of that growth is attributed to consumers’
growing concerns for the environmental impacts of real meat and dairy. Several large US companies that have traditionally focused on livestock
production, including Cargill, ADM, Perdue Foods, and Tyson, have recently entered the plant protein space. In terms of changing customer
preferences, ‘saving the planet’ has proven to be a more compelling argument than the traditional animal activism/ welfare
pitch. To date, the only ‘industry response’ to this has been grass-fed beef, which is regarded as a generally more sustainable
offering than grain-fed. However grass-fed beef has had only limited acceptance in U.S. markets, because it is less flavorful and tougher
than the traditional corn-fed beef consumers have grown to enjoy.
It should be noted that these plant-based protein
producers are primarily expected to be able to serve the ground/ processed meat market, which represents only about 10 percent of the
overall animal protein market. Further, there has recently been pushback to these plant-based products, focusing on their highly processed
nature and unproven health benefits, scalability/ pricing, and their uncertain carbon footprint. There have also been several companies
recently enter the cellular and 3D-printed meat arena. While facing myriad challenges and further out on the development timeline, some
people believe cellular agriculture (aka cultured, clean, lab-grown, cultivated) meat may have the potential to service a much larger
percentage of the market than plant-based protein, including cuts like steaks, chops and roasts, but the likely cost remains very uncertain
at this point.
Each of these items supports Bion’s belief that
there is a potentially very large opportunity to supply premium sustainable beef products that satisfy these concerns. We believe that
the real meat/beef products that can be cost-effectively produced today using our 3G Tech platform, both sustainable and/or organic, can
provide an affordable product that satisfies the consumer’s desire for sustainability, but with the superior taste and texture those
consumers have grown to prefer.
Sustainable Beef
Bion’s goal is to be first to market with meaningfully
sustainable, and verified, beef products that can be produced at sufficient scale to service national market demand. The cattle produced
at a Bion facility will enjoy a substantially lower carbon footprint, dramatically reduced nutrient impacts to water, and an almost total
pathogen kill in the waste stream. A Bion sustainable beef facility will be comprised of covered barns with slotted floors, which allow
the waste to pass through and be collected quickly and frequently to reduce ammonia volatilization and loss, as well as odors. Covered
barns will reduce weather impacts on the livestock and have been demonstrated to promote improved general health and weight gain in the
cattle housed in them. The barns represent a very large roof surface area, which will be utilized in appropriate geographical locations
for the installation of solar generation systems to produce electricity for the facility, as well as export to the grid. Waste treatment
and resource recovery will be provided by Bion’s advanced 3G Tech platform, which Bion believes offers the most comprehensive solution
for livestock waste available today. In addition to direct environmental benefits (described in more detail in Part I, Item 1 “Business”)
every pound of nitrogen that is captured, upcycled, and returned to the agricultural nitrogen cycle as high-quality fertilizer (vs lost
to contaminate downstream waters), is also a pound of nitrogen that will not have to be produced as synthetic urea or anhydrous ammonia,
with their tremendous carbon cost. System performance and environmental benefits will be monitored and verified through third parties,
with USDA PVP certification of the sustainable brand that Bion also believes will be the most comprehensive available in the market.
Sustainable Organic Beef
Bion believes it has a unique opportunity to produce,
at scale, affordable corn-fed organic beef that is certified as sustainable. In addition to the sustainable practices described above,
organic-sourced beef cows would be finished on organic corn, which would be produced using the ammonium bicarbonate fertilizer captured
by the 3G Tech platform. Bion believes its meat products will meet consumer demands with respect to sustainability and safety (organic)
and provide the tenderness and taste American consumers have come to expect from premium conventional American beef. Such products are
largely unavailable in the market today. We believe Bion’s unique ability to produce the fertilizer needed to grow a supply of low-cost
organic corn, and the resulting opportunity to produce organic beef, will dramatically differentiate us from potential competitors. This
organic opportunity is dependent on successfully establishing Bion’s fertilizer products as acceptable for use in organic grain
production.
Today, organic beef demand is limited and mostly supplied
with grass-fed cattle. While organic ground/ chopped meat has enjoyed success in U.S. markets, grass-fed steaks have seen limited acceptance,
mostly resulting from consumer issues with taste and texture. In other words, it’s tough. Regardless, such steaks sell for a significant
premium over conventional beef. A corn-finished organic beef product is largely unavailable in the marketplace today due to the higher
costs of producing organic corn. The exception is offerings that are very expensive from small ‘boutique’ beef producers.
Like all plants, corn requires nitrogen to grow. Corn is especially sensitive to a late-season application of readily available nitrogen
– the key to maximizing yields. With non-organic field corn, this nitrogen is supplied by an application of a low-cost synthetic
fertilizer, such as urea or anhydrous ammonia. However, the cost for suitable nitrogen fertilizer that can be applied late-season in organic
corn production is so high that the late-season application becomes uneconomical, resulting in substantially lower yields – a widely
recognized phenomena known as the ‘yield gap’ in organic production. The yield gap results in higher costs for organic corn
that, in turn, make it uneconomical to feed that corn to livestock. As is the case for sustainable but not organic beef, Bion believes
there is a potentially large unmet demand for affordable beef products that are both sustainable AND organic, but with the taste and texture
consumers have come to expect from American beef. Bion’s ability to produce the low-cost nitrogen fertilizer that can close the
organic yield (and affordability) gap puts the company in a unique, if not exclusive at this time, position to participate in JV’s
that will benefit from this opportunity starting next year.
The demonstrated willingness of consumers to purchase
sustainable products (along with numerous research and marketing studies confirming consumers are seeking, and are willing to pay a premium
for, sustainable products)---in combination with the threat to the livestock industry market (primarily beef and pork) posed by plant-based
alternatives (heightened by pandemic conditions)--- has succeeded in focusing the large scale livestock industry on how to meet the plant-based
market challenge by addressing the consumer sustainability issues. The consumer demand for sustainability appears to be a real and lasting
trend, but consumers remain skeptical of generalized claims of ‘sustainability’. To date, a large portion of the industry
responses have been at a superficial level or consist of ‘green washing’, a deceptive marketing practice where companies promote
non-substantive initiatives. Real sustainability for the livestock industry will require implementation of advanced waste treatment technology
at or near the livestock production facilities (“Concentrated Animal Feeding Operations” or “CAFOs”) – where
most of the negative environmental impacts take place.
Technology Deployment: Bion 3G Tech
Widespread deployment of waste treatment technology,
and the sustainability it enables, is largely dependent upon generating sufficient additional revenues to offset the capital and operating
costs associated with technology adoption. Bion’s 3G Tech has been developed to create opportunities for such augmented revenue
streams, while providing third party verification of sustainability claims. The 3G Tech platform has been designed to maximize the value
of co-products produced during the waste treatment/recovery processes, including pipeline-quality renewable natural gas (biogas) and commercial
fertilizer products approved for organic production. All processes will be verifiable by third parties (including regulatory authorities
and certifying boards) to comply with environmental regulations and trading programs and meet the requirements for: a) renewable energy
and carbon credits, b) organic certification of the fertilizer coproducts and c) USDA PVP certification of an ‘Environmentally Sustainable’
brand (see discussion below), and d) payment for verified ecosystem services. The Company’s first patent on its 3G Tech was issued
during 2018. In August 2020, the Company received a Notice of Allowance on its third patent which significantly expands the breadth and
depth of the Company’s 3G Tech coverage, and the Company has additional applications pending and/or planned (See “Patents”).
Bion’s business model and technology platform
can create the opportunity for JVs (in various contractual forms) between the Company and large livestock/food/fertilizer industry participants,
based upon the supplemental cash flow generated by implementation of our 3G Tech business model, which will support the costs of technology
implementation (including related debt). We anticipate this will result in long term value for Bion. In the context of such JVs, we believe
that the verifiable sustainable branding opportunities (conventional and organic) may expand to 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.
In parallel with technology development, Bion has
worked (which work continues) to implement market-driven strategies designed to stimulate private-sector participation in the overall
U.S. nutrient and carbon reduction strategy. These market-driven strategies can generate “payment for ecosystem services”,
in which farmers or landowners are rewarded for managing their land and operations to provide environmental benefits, that will generate
additional revenues. Existing renewable energy credits for the production and use of biogas are an example of payment for ecosystem services.
Another such strategy is nutrient trading (or water quality trading), which will potentially create markets (in Pennsylvania and other
states) that will utilize taxpayer funding for the purchase of verified pollution reductions from agriculture (“nutrient credits”)
by the state (or others) through competitively-bid procurement programs. Such credits can then be used as a ‘qualified offset’
by an individual state (or municipality) to meet its federal clean water mandates at significantly lower cost to the taxpayer. Market-driven
strategies, including competitive procurement of verified credits, is supported by US EPA, the Chesapeake Bay Commission, national livestock
interests, and other key stakeholders. Legislation in PA to establish the first such state competitive procurement program passed the
Pennsylvania Senate by a bi-partisan majority during March 2019. However, the Covid-19 pandemic and related financial/budgetary crises
have slowed progress for this and other policy initiatives and, as a result, it is not currently possible to project the timeline for
completion (or meaningful progress) of this and other similar initiatives (see discussion below).
The livestock industry and its markets are already
changing; with a commercial-ready technology and business model, Bion believes it has a ‘first-mover advantage’ over others
that will seek to exploit the opportunities that will arise from the industry’s inevitable transformation. Bion anticipates moving
forward with the development process of its initial commercial installations utilizing its 3G Tech, during the current 2022 fiscal year.
We believe that Bion’s 3G Tech platform and business model can provide a pathway to true economic and environmental sustainability
with ‘win-win’ benefits for at least a premium sector of the livestock industry, the environment, and the consumer, an opportunity
which the Company intends to pursue.
The Livestock Problem
The livestock industry is under tremendous pressure
from regulatory agencies, a wide range of advocacy groups, institutional investors and the industry’s own consumers all of whom
a pushing the industry to adopt sustainable practices. Environmental cleanup is inevitable and has already begun - and policies have already
begun to change. Bion’s 3G Tech was developed for implementation on large scale livestock production facilities, where scale can
drive both lower treatment costs and efficient co-products production, while producing dramatic environmental improvements. We believe
that scale, coupled with Bion’s verifiable treatment technology platform, will create a transformational opportunity to integrate
clean production practices at (or close to) the point of livestock production—the primary source of the industry’s environmental
impacts. Bion intends to assist the forward-looking segment of the livestock industry to bring animal protein production in line with
21st Century consumer demands for meaningful, verifiable and believable sustainability.
In the U.S. (according to the USDA’s 2017 agricultural
census) there are over 9M dairy cows, 90M beef cattle, 60M swine and more than 2 billion poultry which provides an indication of both
the scope of the problem, as well as the size of the opportunity that can be addressed by Bion’s technology. Environmental impacts
from livestock production include surface- and groundwater pollution, greenhouse gas emissions, ammonia, and other air pollution, excess
water use, and pathogens related to foodborne illnesses and antibiotic resistance. While the most visible and immediate problems are related
to nutrient runoff and its effects on water quality, the industry has recently been targeted by various stakeholder groups for its impacts
on climate change.
The greatest impacts come from the manure waste. Estimates
of total annual U.S. livestock manure waste vary widely, but start around a billion tons, between 100 and 130 times greater than human
waste. However, while human waste is generally treated by septic or municipal wastewater plants, livestock waste – raw manure –
is spread on our nation’s croplands for its fertilizer value. Large portions of U.S. feed crop production (and most organic crop
production) is fertilized, in part, in this manner. Under current manure management practices, 80% or more of total nitrogen is lost from
manure during storage, transportation, and after soil application. Runoff from livestock waste has been identified as one of the largest
sources of excess nutrients in most major watersheds. Excess nutrients fuel algae blooms nationwide that are increasingly toxic and fuel
dead zones in the Great Lakes, Chesapeake Bay, and Gulf of Mexico. Nitrate-contaminated drinking water is a problem in a growing number
of states including Pennsylvania, California, Wisconsin, Washington and others. US EPA considers excess nutrients “one of America’s
most widespread, costly and challenging environmental problems”. Nutrient runoff is expected to worsen with rising temperatures
and increasing rainstorm intensity resulting from climate change.
More than half of the nitrogen impacts from livestock
waste come from airborne ammonia emissions, which are extremely volatile, reactive and mobile. Airborne ammonia nitrogen eventually settles
back to the ground through atmospheric deposition - it ‘rains’ everywhere. While some of this nitrogen is captured and used
by plants, most of it runs off and enters surface waters or percolates down to groundwater. It is now well-established that most of the
voluntary conservation practices, such as vegetated buffers that ‘filter’ runoff (often referred to as “BMPs”
or “Best Management Practices” that have traditionally been implemented to attempt to mitigate nutrient runoff), are considerably
less effective than was previously believed to be the case. This is especially true with regard to addressing the volatile and mobile
nitrogen from ammonia emissions, because BMPs are primarily focused on surface water runoff, directly from farm fields in current production,
versus the re-deposition that takes place everywhere or groundwater flow.
Runoff from livestock waste has been identified in
most of our major watersheds as a primary source of excess nutrients that fuel algae blooms in both fresh- and saltwater. Over the last
decade, algae blooms have become increasingly toxic to both humans and animals, such as the Red Tides on the Florida and California coasts,
and the Lake Erie algae bloom that cut off the water supply to Toledo, Ohio, residents in 2014. When the nutrient runoff subsides, it
leaves the algae blooms with no more ‘food’ and the blooms die. The algae’s decomposition takes oxygen from the water,
leading to ‘dead zones’ in local ponds, lakes, and ultimately, the Great Lakes, as well as the Chesapeake Bay, Gulf of Mexico,
and other estuary waters. Both the toxic algae blooms and the low/no-oxygen dead zones devastate marine life, from shrimp and fish to
higher mammals, including dolphins and manatees. US EPA already considers excess nutrients “one of America’s most widespread,
costly and challenging environmental problems”. Nutrient runoff is expected to worsen dramatically in the coming decades due to
rising temperatures and increasing rainstorm intensity as a result of climate change.
Nitrate-contaminated groundwater is of growing concern
in agricultural regions nationwide, where it has been directly correlated with nutrient runoff from upstream agricultural operations using
raw manure as fertilizer. Pennsylvania, Wisconsin, California and Washington, and others, now have regions where groundwater nitrate levels
exceed EPA standards for safe drinking water. High levels of nitrate can cause blue baby syndrome (methemoglobinemia) in infants and affect
women who are or may become pregnant, and it has been linked to thyroid disease and colon cancer. EPA has set an enforceable standard
called a maximum contaminant level (MCL) in water for nitrates at 10 parts per million (ppm) (10 mg/L) and for nitrites at 1 ppm (1 mg/L).
Federal regulations require expensive pretreatment for community water sources that exceed the MCL; however, private drinking water
wells are not regulated, and it is the owners’ responsibility to test and treat their wells. Additionally, groundwater flows also
transport this volatile nitrogen downstream where, along its way, it intermixes with surface water, further exacerbating the runoff problem.
Like atmospheric deposition, the current conservation practices we rely on to reduce agricultural runoff are largely bypassed by this
subsurface flow.
Additionally, in arid climates, such as California,
airborne ammonia emissions from livestock manure contribute to air pollution as a precursor to PM2.5 formation, small inhalable particulate
matter that is a regulated air pollutant with significant public health risks. Whether airborne or dissolved in water, ammonia can only
be cost-effectively controlled and treated at the source-- before it has a chance to escape into the environment where it becomes extremely
expensive to ‘chase’, capture and treat.
High phosphorus concentrations in soils fertilized
with raw manure are another growing problem. The ratio of nitrogen to phosphorus in livestock waste is fixed, and because manure application
rates are calculated based on nitrogen requirements, often phosphorus is over-applied as an unintended consequence. Phosphorus accumulation
in agricultural soils reduces its productivity, increases the risk of phosphorus runoff, and represents a waste of a finite resource.
Decoupling the nitrogen from the phosphorus would allow them to be precision-applied, independently of each other, when and where needed.
The impacts of livestock production on public health
and the environment are coming under increasing scrutiny from environmental groups and health organizations, regulatory agencies and the
courts, the media, consumers and activist institutional investors. The livestock industry has recently come under heavy fire for its impacts
on climate change, which has become a rallying cry for the anti-meat campaign discussed above. Estimates of the magnitude of those impacts
vary widely, but the general consensus is that globally, livestock account for 14.5 percent of greenhouse emissions. In the U.S. however,
that number drops to 4.2 percent, due to the increased efficiencies of American beef production. The greatest impacts come from direct
emissions of methane from enteric fermentation (belches), methane and nitrous oxide emissions from the manure, with arguably the largest
being the massive carbon footprint of the synthetic nitrogen fertilizers used to grow the grains to feed the livestock.
For decades the livestock industry has overlooked
and/or socialized its environmental problems and costs. Today, the impacts of livestock production on public health and the environment
can no longer be ignored and are coming under increasing scrutiny from environmental groups and health organizations, regulatory agencies
and the courts, the media, consumers, and activist institutional investors. The result has been a significant and alarming loss of market
share to plant-based protein and other alternative products. Bion’s 3G Tech platform was designed to resolve these environmental
issues and bring the industry in line with twenty-first century consumer expectations.
Technology and Technology Platform
Bion has invested years of work and substantial capital
on the development of our technology and technology platform since 1989. The predecessor to Bion’s 3G Tech platform, our patented
second-generation technology (“2G Tech”), was proven at commercial scale and was reviewed and qualified for federal loan guarantees
under USDA’s Technical Assessment program. Bion’s 2G Tech dairy project (“Kreider 1” or “KF1”), located
at Kreider Farms in Pennsylvania (“PA”) received the first verified /measurable nutrient reduction credits from a non-point
source livestock facility in the U.S. and its nutrient reductions were verified by the Pennsylvania Department of Environmental Protection
(“DEP”) during 2012.
A key attribute of Bion’s 2G Tech (now supplanted
by our 3G Tech) was that nutrient and other pollution reductions could be measured, providing a level of verification on par with a
municipal wastewater treatment plant, which created the opportunity for the nutrient reductions to be used as “qualified offsets”
to EPA-mandated requirements. While it was an engineering success, Kreider 1 has failed financially because the 2G Tech platform was almost
wholly dependent for revenue from anticipated demand for nutrient credits, based on PA’s mandated nitrogen reductions under the
Chesapeake Bay Strategy and their proposed nutrient trading program that failed to materialize. Bion began development of its 3G Tech
platform when it became apparent there was significant opposition to the trading program (and private sector participation in clean water
activities, generally) from entrenched clean water interests. The Company is no longer implementing Projects based on its 2G Tech and
the Kreider 1 project has been shut down.
Bion’s 3G Tech was developed to avoid the dependence
of our 2G Tech systems on the sale of water quality trading credits in order to develop profitable projects. The 3G Tech platform has
been designed to maximize revenues from co-products, including biogas and fertilizer products, achieve premium pricing from USDA PVP-certified
‘environmentally sustainable’ retail branding of the animal protein products it supports, as well as generate verified credits
for still-developing water quality trading programs. The first patent on the 3G Tech was filed in 2015 for an ammonia recovery process
that produces ammonium bicarbonate (a commercial fertilizer) without external chemical additives, thereby providing the basis for organic
certification. A Notice of Allowance from the US Patent and Trademark Office (“USPTO”) was received during August 2018 related
to this patent application and the patent was subsequently issued. Since July 2017 Bion has filed for extensions of this patent application
to provide broadened protections and to cover improvements to the process developed in the interim. During August 2020 the Company received
a Notice of Allowance’ for our third patent related to our 3G Tech and additional related applications are pending and/or planned
(See “Patents”.) The 3G Tech platform incorporates Bion’s patented and proprietary technology while utilizing existing
commercial evaporation and distillation process equipment (with decades of reliability and service history) that is customized for Bion’s
specific applications.
The 3G Tech platform is the basis for a JV business
model with four distinct revenue streams: 1) pipeline quality renewable natural gas and related carbon and other environmental credits,
2) premium organic fertilizer products, 3) nutrient credits, and 4) premium pricing from USDA PVP-certified ‘Environmentally Sustainable’
branding at the retail level. Carbon and nutrient credit revenues will be supported by third-party verification of the waste treatment
processes that simultaneously capture methane and nutrients, while producing renewable energy and fertilizer products from them with relatively
limited incremental cost to Bion. The same verified data will also provide the backbone for the USDA PVP-certified sustainable brand,
again with limited incremental cost.
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Renewable energy- and carbon-related credits:
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Bion’s 3G Tech platform utilizes
customized anaerobic digestion (“AD”) to recover biogas (methane) from the waste stream. At sufficient scale, methane produced
from AD can be cost-effectively conditioned, compressed and injected into a pipeline. The US Renewable Fuel Standard (“RFS”)
program and state programs in California and elsewhere provide ongoing renewable energy credits for the production of biogas and its subsequent
use as a renewable transportation fuel. Additional renewable energy-related credit programs are being developed that Bion believes will
impact these revenues, including a Carbon Intensity (CI) score that measures the amount of carbon produced per unit of energy produced.
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2)
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Organic Fertilizer products:
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The 3G Tech platform has been designed to
produce multiple fertilizer products, including: i) ammonium bicarbonate liquid, ii) ammonium bicarbonate in solid crystal form –
AD Nitrogen – and iii) soil amendment products that will contain the remaining nitrogen, phosphorus and other micronutrients captured
from the livestock waste stream. Bion believes each product will qualify for organic certification. The Company has filed an application
the initial version of its crystal product which is in the review process. Additional applications may be filed in subsequent periods.
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Ammonium bicarbonate, manufactured using
chemical processes, has a long history of use as a fertilizer. Bion’s has developed solid ammonium bicarbonate products containing
18-22 percent nitrogen in a crystalline form that is easily transported, is water soluble and provides a readily available nitrogen source
for crops. The products will contain virtually none of the other salt, iron and mineral constituents of the livestock waste stream that
often accompany other organic fertilizers. This product is being developed to fertilizer industry standards so that it that can be precision-applied
to crops using existing equipment. Bion believes that this product will potentially have broad applications in the production of organic
grains for livestock feed, row crops, horticulture, greenhouse and hydroponic production, and potentially retail lawn and garden products.
The AD Nitrogen and other ammonium bicarbonate
products produced by Bion’s 3G Tech platform will enjoy a dramatically lower carbon footprint than synthetic fertilizers. The reactive
nitrogen captured and upcycled into AD Nitrogen was going to be lost through volatilization and runoff, and that loss would generally
need to be offset with a synthetic nitrogen, such as anhydrous ammonia or urea. These synthetic nitrogen products are produced through
the Haber-Bosch (and other) synthetic processes, which converts hydrogen and atmospheric nitrogen to ammonia, with methane as the energy
source. It is an extremely energy-intensive process with a carbon footprint that , while not yet fully understood, is widely accepted
to by very large. While a complete Life Cycle Analysis (LCA) of carbon impacts from synthetic fertilizer production is not available,
according to the Institute for Industrial Productivity, its production alone is responsible for approximately 1 percent of total global
CO2 emissions. To the extent that Bion can capture and repurpose the nitrogen traditionally lost from livestock waste, that carbon cost
will no longer need to be paid
The Company’s initial low concentration
ammonium bicarbonate liquid product completed its OMRI application and review process with approval during May 2020. Bion’s second
application to OMRI, for its initial solid AD Nitrogen product, was filed during May 2021and is currently being reviewed.
To provide a first level degree of clarity
regarding organic approvals and the processes/procedures involved, Bion believes that the initial OMRI approval is of importance, because
subsequent organic products that are produced by using the very same technology platform (our 3G Tech) can now piggyback on the initial
approval to a significant degree. Note that there are different layers to the U.S. organic program and that fertilizers do not get ‘certified’
as organic, per se. Rather, they are evaluated to determine if they are acceptable for ‘use in organic production’.
The National Organic Program (“NOP”)
was established by Congress in 2001 under the USDA’s Agricultural Marketing Service. The NOP develops and enforces uniform national
standards for organically- produced agricultural end products – meat/dairy/milk, fruits, vegetables – sold in the United
States. Operating as a public-private partnership, NOP accredits private companies and helps train their inspectors (USDA-accredited Certifiers)
to certify that farms and businesses meet the national organic standards. For example, in a potential Midwest organic beef project (discussed
below), each element in the supply chain must provide their certifying agent’s certification that the specific product, such as
organic corn, has been produced in accordance with their organic plan. The end product - the beef - would be USDA-certified as organic
by an accredited Certifier after a review of ALL the farming practices and inputs (which would include Bion’s ammonium bicarbonate
fertilizer).
OMRI is a nonprofit organization that
provides an independent review of products, such as fertilizers, pest controls, livestock health care products, and numerous other inputs
that are intended for use in certified organic production and processing. OMRI reviews these products against the organic standards established
by the NOP to determine if they are suitable for use in organic production. Acceptable products are then OMRI Listed®.
OMRI enables a national listing thru
one application versus the alternative of using certifiers to secure listings in individual states. To those who wish to sell organic
fertilizers into national distribution channels, an OMRI listing provides nearly uniform acceptance in the U.S. The OMRI listing Bion
received in May was for our initial commercial product, a low-concentration liquid ammonia. It is valid ONLY for that particular product.
For future Bion product offerings using the same technology platform, Bion will either need to file for specific state approval, or file
with OMRI for a national listing, or a combination of the two. Bion may elect to use an individual state listing initially to be followed
by an OMRI application if and when the need for a regional or national listing arises.
The overarching standard of organic
production, per NOP guidelines, is that a “product shall have been produced and handled without the use of synthetic chemicals…”
That is rule Number One. At NOP, the term "synthetic" means “a substance that is formulated or manufactured by a chemical
process or by a process that chemically changes a substance extracted from naturally occurring plant, animal, or mineral sources, except
that such term shall not apply to substances created by naturally occurring biological processes.” In evaluating and approving Bion’s
liquid ammonia for OMRI listing, Bion’s patented ammonia recovery system was not deemed synthetic. That is an important distinction
for future Bion product filings based upon the same patented process.
The Company believes that organic approvals
for its products will: a) provide access to substantially higher value markets compared to synthetic nitrogen products, and/or b) allow
its products to be utilized in growing of organic feed grains to be consumed by livestock raised in JVs which will be sold as organic.
Based on preliminary market surveys to date, we believe that existing competing organic fertilizer products in both liquid and granular
form are being sold presently at price points significantly greater than Bion’s projected cost and projected pricing. We also believe
that livestock products from animals raised with feed grains grown using Bion organic ammonium bicarbonate fertilizer products (and that
otherwise qualify) will receive organic approvals. It is anticipated that the Company will continue to seek approvals for such products
during the balance of the current fiscal year and will commence JVs that undertake initial production and marketing of such products during
the 2022 calendar year.
Bion believes that nutrient reduction (and
other similar) credits and/or other methods of monetizing environmental benefits from the capture and re-purposing of the nutrients (largely
nitrogen and phosphorus) from the livestock waste stream, will become available in multiple states over the next several years. The passage
in the Pennsylvania (“PA”) Senate of key legislation – SB 575 – in June 2019 that would have established a competitively-bid
market for nutrient credits in PA, is indicative of the trends. Despite the fact that the bill was not considered in the House, due to
the Covid-19 pandemic (a re-introduced bill will have to be considered again in the current and/or future sessions (currently SB 475 and
SB 832 have been introduced and are pending), Bion anticipates that after passage of a similar bill in the future, PA will establish a
competitively-bid market for nutrient credits within twelve months after legislative passage and being signed into law by the Governor.
See “Policy Change is Coming” and “Kreider Poultry Joint Venture and Pennsylvania and Chesapeake Bay Initiatives”
below for discussion of the history and status of matters in PA.
Note, however, that the current Covid-19
pandemic and resultant social and economic crises and budgetary constraints have delayed policy initiatives related to these matters at
both the state and federal levels. As a result, it is not currently possible to reasonably project a timetable for adoption of the policy
changes discussed herein.
Consumers have demonstrated a willingness
to pay a premium for their safe and sustainable food choices. Based on Bion’s recognition of the potential opportunities created
by such willingness, beginning in 2015, Bion has worked with the USDA’s
Process Verified Program (“PVP”) – the gold standard in food verification and branding – to establish a USDA PVP-certified
sustainable brand. Bion received conditional approval from the PVP related to its Kreider 1 project (utilizing 2G Tech). It is
our intention to submit an application for the 3G Tech platform when the initial 3G Tech Project is operational later this fiscal year
and seek an approval for certification based on third-party-verified reductions in nutrient impacts, greenhouse gases and pathogens in
the waste stream (and other attributes), based on our 3G Tech. PVP certification incorporated as part of a recognizable brand will provide
consumers with products and brands that can be trusted. Bion believes that such a brand and livestock product line will command a pricing
premium for Bion’s livestock JVs and their customers.
Food safety and sustainability are issues
of growing importance in the U.S. and worldwide. Bion’s branding initiative reflects trends already underway in the livestock industry.
Driven by growing consumer demand, large food retailers (such as Walmart and Costco) and restaurant chains (including Chipotle and McDonalds)
are increasingly demanding greater responsibility and improved sustainability in food production practices from their suppliers. The Global
Roundtable for Sustainable Beef (“Roundtable”) was created to advance a sustainable global beef value chain that is “environmentally
sound, socially responsible and economically viable”. The Roundtable represents members from across the supply chain, including
U.S., Canadian and Australian cattlemen’s associations, Cargill, JBS, Elanco, McDonalds and A&W.
Large institutional investors have begun
to pressure the livestock industry. Ceres and several other large activist institutional investors have already expressed concerns about
carbon footprint, water quality, antibiotic usage and animal welfare in letters to management of their investment holdings in the food
production industry. The Collier Farm Animal Investment Risk & Return (“FAIRR”) Initiative was recently launched to highlight
the environmental, social, and governance (“ESG”) risks associated with large-scale livestock production.
In past years, the UN FAO has issued
several highly critical reports of the livestock industry, more recently focused on its impacts on climate change. While some of their
early reports were based on incomplete data and faulty methodologies and have since been somewhat quietly ‘retracted’, a wide
array of activist groups, including climate, animal rights, and anti-factory farming advocates, have seized on them to create a global
“anti-meat” messaging campaign. Their messaging is predicated on the (incorrect) notion that agriculture, and the livestock
sector specifically, is the largest contributor to climate change, greater than the energy and transportation sectors. While this fact
has been publicly ‘debunked’, the anti-meat campaign has been joined and amplified by various other stakeholders, governments,
and more recently, competitors in the alternative protein space, such as plant-based and cellular meats.
Over the last few years, most large
meat and dairy product retailers have announced ‘sustainability’ initiatives, although the definition of sustainability is
often unclear. Based on recent statements from the industry regarding sustainability policy, many that identify goals that are 10 to 30
years in the future, Bion believes that sustainability on the production side will look a lot like what the Company’s 3G Tech
platform can provide today. The 3G Tech platform can deliver verifiable metrics that demonstrate meaningful improvements in sustainability
for livestock production that are unmatched in the industry today, including a dramatically reduced carbon and nutrient footprint; lower
negative impacts to water, soil and air; increased pathogen destruction; and other environmental and public health impacts. The Covid-19
pandemic has further heightened consumer awareness and concerns related to a) environmental sustainability, b) food safety, c) sourcing
and traceability and d) humane treatment of both animals and workers.
The more the livestock industry’s
supply chain practices become transparent and known by consumers, the more consumers are seeking alternatives. Bion’s ‘Sustainable’
branding program is designed to address a wide array of consumer concerns ranging from: a) ‘where does your food come from?’
(animal heritage information); b) environmental impacts; c) antibiotic use/ standards; d) animal welfare/ humane treatment; e) laborer
welfare/ working conditions. These issues can be addressed with the consumer through general advertising and/or at the point of sale with
a QR code on the packaging that links back to product-specific data. The verification processes that will be employed by Bion’s
3G Tech platform support block chain traceability, providing accountability throughout that part of the supply chain addressed by Bion’s
platform and enabling any quality issues to be quickly identified by lot and location, minimizing risk to its consumers. In essence, Bion’s
comprehensive technology platform will enable its livestock JVs and other adopters to be not only the provider of the product the consumer
wants, but also the businesses that shares their consumers’ values.
Technology Applications/Business Opportunities
For the past decade, Bion has been focused on developing
its 3G Tech platform and creating applications for its patented and proprietary waste management technology platform to pursue JVs and
other business opportunities in three broad categories:
a)
Development of new state-of-the-art large scale waste treatment facilities (now utilizing our 3G Tech) as JVs, which may be developed
in conjunction with new CAFOs in strategic locations (some of which were previously impracticable due to environmental impacts) and/or
to treat the waste streams from one or more existing large livestock facilities (“Projects”). Some of these Projects may be
either a) Integrated Projects as described below, b) ‘central processing facilities’ which receive the waste from multiple
livestock facilities, c) Retrofit Projects or d) hybrids with elements of each of these types. Each version will be able to realize revenue
from multiple revenue streams potentially generated by our 3G Tech.
The “Sustainable Beef” and
“Sustainable Organic Beef” opportunities (discussed both above and below) would be examples of this category.
b) Installation
of Bion systems to retrofit and environmentally remediate existing large CAFOs (“Retrofits” and “Retrofit Projects”)
in selected markets where:
a) government policy supports such efforts
(such as the Chesapeake Bay watershed, Great Lakes Basin states, and/or other states and watersheds facing EPA ‘total maximum daily
load’ (“TMDL”) issues), and/or
b) where CAFO’s need our technology
to obtain permits to expand or develop without negative environmental consequences.
The Kreider Poultry JV project (“Kreider
2” or Kreider Poultry”) (discussed below) is an example of such a Retrofit Project.
c) Licensing and/or joint venturing of Bion’s technology and applications, primarily targeted outside
North America.
In both categories a) and b) above, the Company intends
to directly participate (whether by joint venture agreement or other contractual arrangements) in the revenues of the Retrofits and Projects.
The opportunities described in categories a) and b)
above each require substantial political and regulatory (federal, state and local) efforts on the part of the Company and a substantial
part of Bion’s efforts are focused on such political and regulatory matters. Bion currently intends to pursue the international
opportunities primarily through the use of consultants with existing relationships in target countries.
At this time, our primary focus is on categories a)
and b) above, using our 3G Tech to develop new (or expanded) large-scale Projects with strategic partners (including the Kreider 2 Project)
on a joint venture (or other participating contractual form) basis. Bion’s business model opens up the opportunity for JVs in various
forms, based upon the revenue generated by our 3G Tech platform from nutrient reductions, fertilizer co-products and renewable natural
gas (which revenue streams will be secured through long term take-off agreements for each of these co-products) providing initial support
for financing of required capital expenditures (whether equity or debt). We anticipate that these revenue streams will be supplemented
by revenue realized from long-term premium pricing resulting from the sustainable branding opportunity. We believe that, over time, the
branding opportunity may provide the single largest contribution to the overall economic opportunity enabled by Bion’s 3G Tech platform
and business model.
Initial 3G Tech Project: Sustainable Beef Demonstration Facility
During the 2021 fiscal year, Bion completed a series
of core optimization trials of its 3G Tech platform that were required to move forward with its initial commercial scale 3G Tech project.
As described in more detail above, Bion recently executed agreements related to development a sustainable beef demonstration facility
on approximately four (4) leased acres near Fair Oaks, Indiana. The project, as presently planned, will include a covered barn for up
to 300 head of cattle, designed to allow daily manure production to flow into Bion’s 3G Tech waste treatment/resource recovery platform
that includes an anaerobic digester (“AD”) to generate biogas and CO2, followed by Bion’s patented 3G Tech ammonia recovery
process to produce organic ammonium bicarbonate and nutrient-rich solids.
Sustainable/Organic Corn-Finished Beef Opportunity
The U.S. is the largest producer of beef (and
veal) in the world, accounting for 11.5 million tons out of 61.5 million tons produced worldwide in 2020. Per capita beef consumption
in the U.S. was approximately 70 pounds in 2020, up from 55 pounds in 2011. Annual cash receipts for all U.S. ‘cattle and calves’
were lower at approximately $62 billion in 2020, with 2021 receipts anticipated to be higher (and back in line with recent years) at $66
billion. Retail sales of fresh beef in the U.S. in 2020 were $30.2 billion. In 2020, there were approximately 93.8 million cattle and
calves in the U.S., with 14.7 million on feed. Of those cattle on feed, 81.4 percent were in feedlots with a capacity over 1,000 head.
Beef production is the most challenged sector
of the livestock industry, due to its size and inability, as currently structured, to respond to growing consumer concerns related to
sustainability and food safety. The beef industry is highly fragmented, and it is designed to produce multiple levels of commodity products
(without any significant pricing premiums) that are graded based on marbling (fat) that determines taste and tenderness. Further, during
its several decades of growth, the industry has avoided significant environmental regulation, and instead, has externalized its environmental
costs by returning its waste to crop fields, where much of it is ‘flushed’ downstream. Today, however, consumer demand is
shifting to products that are more sustainable, regarding carbon footprint, impacts to air and water, and other metrics. The result has
been an opening for disruptive startups, including Beyond Meat and Impossible Foods, that are backed by large institutional investors
and offer plant-based (in part) meat substitutes. The CEO of Impossible Foods has made bold claims that the $100B-plus (U.S. alone) meat
industry will be obsolete in 15 years. Bion disagrees --- but such competition provides and highlights opportunities for us.
The Company doesn’t think the consumer
wants to ‘blow up’ the beef industry, which is responsible for the best and safest beef available in the world today (as well
as the livelihoods of almost 800,000 farming, ranching and other families supported by the beef industry in the U.S). Nor do market studies
bear out the concept that consumers want to replace the current supply chain. Rather, the studies indicate that consumers want the supply
chain to be more sustainable---and still taste good. Bion believes that strong demand exists for a verified sustainable
beef product that is real meat, with the taste and texture of traditional corn-fed beef, but which addresses consumers’ sustainability
concerns. Bion’s technology platform is designed to produce such an environmentally sustainable beef (and other meat) product. Bion
previously achieved conditional approval (for its 2G Tech pending resubmission and final inspections) for USDA brand certification that
would initially include verified reductions in carbon, nutrients, and pathogens. The Company is confident that its 3G Tech will support
a PVP brand for products of sustainable and organic beef JVs.
Market studies indicate there is potentially
a large, currently unserved, market for sustainable/organic corn-finished beef; and further, that this is a long term and growing trend.
Bion believes its 30 years of experience and expertise in livestock waste management, coupled with its state-of-the-art 3G Tech platform
and first-mover advantage, put the Company and its selected JV partners in a unique position to develop the most environmentally and economically
sustainable animal protein production facilities possible today. The Company is unaware of any other technology and/or business model
that can offer the same level of comprehensive treatment of livestock waste, produce high value coproducts, and deliver a sustainable
brand that can provide an industry response to counter today’s anti-meat messaging, along with the inroads in the animal protein
market being made by alternative protein competitors.
‘Sustainable’ and ‘organic’
are two separate and distinct designations and represent different markets and consumers. While the markets and consumer demographics
may overlap, it is assumed for purposes of Bion’s analysis and planning that the market for sustainable beef will be larger but
command a smaller pricing premium; while the market for organic will be smaller but command a substantially larger premium and be somewhat
costlier to produce. Note that in the sustainable and organic markets targeted by Bion, ‘corn-finished’ is a constant. Bion
believes, and the market has demonstrated, that delivering the same taste and texture that consumers expect in American beef and other
meat products is a key to successful market acceptance, within both the sustainable and sustainable organic markets. The success of grass-fed/organic
ground beef vs that of grass-fed/organic steaks demonstrates that palatability, as well as price, is a key criterion in whether a consumer
chooses sustainability. Bion’s 3G Tech platform supports production of beef products that check all the boxes: sustainable, expected
taste/texture, and affordable.
Bion believes there is an opportunity to essentially
‘reinvent’ a portion of the beef production supply chain to provide at least a premium segment of the market with an affordable
product that satisfies consumers’ sustainability concerns. Further, that the opportunity is large in scope and of sufficient duration
and potential economic upside to warrant the investment of significant capital and resources. We expect our anticipated project development
timeline us and our JV partners to be first to market with a sustainable/organic beef product at scale. The ability to deliver a large
supply of a consistent product will be critical to the large retail distribution partners Bion will seek to include in its JVs. Our first-mover
advantage should allow us to capture a significant portion of the early adopters in what market studies indicate is a potentially large,
and essentially unserved, market.
In parallel with the beef demonstration project
described above, we continue to move forward with preliminary pre-development work on a JV to build a large-scale state-of-the-art beef
cattle feeding operations in the Midwest U.S. The projects would be developed to produce a supply of corn-fed beef that is a mixture of
both USDA PVP-certified sustainable and sustainable-organic brands. Bion believes that once it has demonstrated successful commercial
scale operations at its beef demonstration facility and obtained approval of its current OMRI application for AD Nitrogen, it will be
able to move forward with its first large scale sustainable/organic beef JV during the 2022 calendar year.
Bion intends to pursue its ‘beef opportunity’
in a series of large-scale JV projects, which will be based on construction of 10 modules housing approximately 15,000 head each, for
a total of 150,000 head per project. Bion anticipates that these JVs would be comprised of parties that could include a) Bion, b) capital
market/financing providers, and c) strategic industry partners who would be equity participants. The supply chain would include participating
a) organic corn producers, b) cow-calf operators, c) cattle feedlot operators, d) slaughter/processing plants, and e) retail distribution
partners subject to standards and controls. Bion’s model will enable each segment of the supply chain to generate greater profitability
as part of an integrated program, rather than the present fragmented industry model, for essentially performing the same basic services.
One example of such integration is providing an organic corn producer with sufficient ammonium bicarbonate to support a higher yield per
acre, in return for a share of the excess yield value and a production purchase commitment.
Bion plans to begin development of the first
modules of its initial large-scale beef projects in late 2022 based on results from its Initial Project (discussed above). The Company
currently has a goal to develop and establish production at four to six such beef projects in production (at least in part) over the next
five years, with a target capacity goal for this business segment in the range of 600,000 - 900,000 head. Based on the 14.7 million cows
on feed in the U.S. in 2020, this would represent market penetration of four to six percent. Bion recently published a brief white paper
on its beef opportunity (which speaks as of its date), including economic models, which is available for review or download on the Company’s
website at https://bionenviro.com/bions-beef-opportunity/.
Retrofit 3G Tech Project: Kreider Poultry
JV (“Kreider 2”)
The JV Kreider 2 3G Tech project is intended
to treat the waste from Kreider Farms’ approximately six million egg layer chickens (with capacity for an additional three million
layers)( and potentially 1,600 dairy cows). The Project will be designed for an initial capacity of 450 tons per day of waste and will
remove nitrogen and phosphorus from the waste stream that will be converted into high-value coproducts instead of polluting local and
downstream waters. The Project is planned to be built in multiple phases and may be expanded to include a ‘central processing facility’
with modules that will accept transported waste from the region on a fee basis.
Bion has a long-standing relationship with Kreider
Farms, including a 2016 joint venture agreement related to these potential facilities. Kreider has already made a significant investment
in upgrading its poultry facilities to maximize the treatment and recovery efficiencies that can be achieved with Bion’s technology.
Note, however, that the Kreider 2 project is dependent, in part, on development of a substantial competitively-bid market for long-term
commercial sale of the nutrient reduction credits produced at Kreider 2 (or another form of payment for ecosystem services). If/when a
viable competitive procurement program for nutrient credits or similar program is implemented in PA, we intend to move forward on the
development of the initial portions of the Kreider 2 Project during the subsequent year. Certain matters related to Kreider 2 are discussed
below at “Kreider Poultry Joint Venture and Pennsylvania and Chesapeake Bay Initiatives”.
Policy Change is Coming
Because Bion believes that policy change is coming,
we continue to work with an array of stakeholders, including national representatives of the livestock industry, to support establishing
new market driven strategies to allow the private sector, including the livestock industry, to provide low-cost large-scale verifiable
solutions to our Nation’s clean water challenges. There are many states that face similar (or worse) to Pennsylvania’s livestock
waste-related pollution issues, and they will be forced to adopt new strategies, as well. When competitively-bid markets for nutrient
reductions (and/or other means to monetize environmental benefits) become fully established, Bion anticipates a robust opportunity to
use its 3G Tech-based platforms to retrofit both existing CAFOs and equip new large-scale livestock facilities (“Projects”)
which will generate the supplemental revenue needed to profitably afford technology implementation from sales of verified nutrient reduction
credits.
Bion's 3G Tech can provide a solution to a significant
portion to the livestock problem discussed above because it prevents the uncontrolled release to the environment of most of the nutrients
from the CAFO waste stream, while treating the waste stream and recovering a substantial portion of those nutrients for value-added commercial
utilization. Our technology platform largely eliminates ammonia emissions, other substantial greenhouse gas emissions, odors and other
harmful air pollutants. Additionally, the platform destroys virtually all pathogens in the waste stream that have been linked to foodborne
illnesses and growing antibiotic resistance. Similar to point-source treatment, such as provided by an industrial or municipal wastewater
treatment plants, the performance of Bion’s technology platform can be precisely monitored, measured and quantified (in contrast
to the modeled, in-exact - and so far, disappointing - results from modeled BMPs). Third-party data from our facilities can provide the
basis for verified environmental credits, and related revenues, as well as sustainable branding claims.
In contrast, the current clean water strategy being
utilized in the U.S. is clearly failing, because it doesn’t adequately address waste from agriculture. About half of U.S. crops
are now fertilized with raw, untreated manure. However, approximately 75 percent of the nitrogen in that manure is not utilized by the
plants being fertilized but rather ‘escapes’ to contaminate the environment through various pathways. Because livestock waste
is one of the largest contributors to nutrient problems in our watersheds, livestock waste treatment can be the source of the low-cost
solution for such problems – if the waste is treated upstream at (or close to) the source of production. Manure control technologies,
applied to large scale facilities where concentration and scale enable cost-effective cleanup, can potentially offer the lowest cost nutrient
solutions available in most watersheds today. More than 80 percent of U.S. livestock production takes place on large-scale facilities,
where cost-effective treatment can be implemented. There is no longer any real question regarding whether such facilities need to be cleaned
up. The actual question for public policy concerns developing sources of new revenues which will enable the livestock industry to offset
the implementation costs for the cleanup.
Despite trends toward concentration in segments over
the last several decades, the U.S. animal-protein industry remains (in large part) a fragmented, low-margin commodity business without
effective integrated efforts toward either environmentally or economically sustainable production. Cleaning it up will have to be orderly
and contain a path to sustainability that does not cause U.S. food costs to spike or bankrupt the industry. This will require treatment
sufficient to remove the volume of nutrients in excess of crop requirements. Because the global export market represents a significant
part of the U.S. livestock production industry, direct increases in federal regulation without offsetting revenues would likely create
costs that could not be absorbed by the industry in a manner that would allow it to remain competitive in international markets. Selective
state regulation would have a similar chilling effect within the U.S., since regulated producers in one state would be unable to compete
with unregulated producers in adjoining states. Subsidies and/or new revenue sources are required.
Bion believes that reallocating some part of the approximately
$110 billion in existing U.S. taxpayer-funded clean water spending to lower-cost alternative solutions in agriculture (including
competitively-bid nutrient reduction procurement) is inevitable. It will provide the taxpayer with accelerated and substantially lower-cost verified air
and water quality solutions compared to current strategy. If Bion’s technology is implemented in appropriate situations, it will
provide the livestock industry with the recurring revenues that are needed to offset the costs of technology adoption without major disruption
to the industry. To date, a wide range of entrenched interests have opposed and fought policy change that might reallocate clean water
spending to more cost-effective alternatives; but this common-sense approach is being accepted by a widening group of stakeholders.
NOTE, THAT THE CURRENT COVID-19 PANDEMIC AND RESULTANT
ECONOMIC CRISES AND BUDGETARY CONSTRAINTS APPEAR TO HAVE DELAYED POLICY INITIATIVES RELATED TO THESE MATTERS AT BOTH THE STATE AND FEDERAL
LEVELS. AS A RESULT, IT IS NOT CURRENTLY POSSIBLE TO REASONABLY PROJECT A TIMETABLE FOR ADOPTION OF THE POLICY CHANGES DISCUSSED HEREIN.
However, Bion believes that some opportunity exists
at the federal level in the projected infrastructure spending to create funding for climate and environmental initiatives. For example,
the Phase II Infrastructure proposals under discussion and scheduled to be taken up in the current legislative session include a 30% federal
tax credit to partially offset costs of adoption of environmental technologies such as AD and Bion’s 3G Tech waste treatment technology.
Such an incentive, if passed (of which there is no assurance), would materially impact JV project economics (including the Kreider 2 project).
Note that a bipartisan 2013 Pennsylvania legislative study projected
that creating a competitive bidding program to procure verified nitrogen reductions to meet federal Chesapeake Bay mandates, regardless
of source, could reduce the state’s tax- and ratepayer-funded compliance costs by up to 80 percent (approximately $1.5B annually).
The legislative study was updated in 2018 to reflect new policies. The updated report projects savings of up to 90 percent. As discussed
in the original study, much of the savings were due to low-cost high-impact manure control projects (Bion’s technology figured prominently
in the report). Senate Bill 575, which was supported by legislative leadership, national livestock interests and other key stakeholders
(and is consistent with US EPA policies), which would have established a competitive procurement program and unlock some of these opportunities
in PA was passed during June 2019 by the Pennsylvania Senate voted 33 to 17 but one effect of the Covid-19 pandemic crisis has been that
PA funding for new initiatives is largely ‘on hold’ at the present time. Currently SB 475 and SB 832 which deal with these
matters have been introduced and are pending. Bion anticipates that after passage of a similar bill in the future (of which there is no
assurance) , PA will establish a competitively-bid market for nutrient credits within twelve months after legislative passage and being
signed into law by the Governor. See “Pre-3G Tech: Chesapeake Bay Watershed: Kreider Farms Projects/Pennsylvania Initiatives”
below for discussion of the history and status of matters in PA.
In a 2017 Letter of Expectation to PA’s
Department of Environmental Protection, US EPA demonstrated its support of a procurement strategy to engage the private sector - as long
as the Credits are verified. It is noteworthy that US EPA and national livestock industry representatives agree on this strategy. Such
a procurement strategy is also consistent with USDA and EPA support of ‘Private Partnerships’ and OMB’s guidance that
supports acquiring verified results vs. financing projects with uncertain outcomes and taxpayer risks. We believe that such strategies
being developed in Pennsylvania and the Chesapeake Bay, if implemented, are likely to serve as a model for the 40 other states now seeking
solutions to similar water quality problems. Today, most states face a similar issue---unfunded federal clean water mandates. Pennsylvania’s
proposed competitive bidding program provides an opportunity to significantly reduce the cost to PA (and a model for other states to utilize
in the future) in meeting such mandates.
Integrated Projects:
While Bion’s 3G livestock waste treatment technology
reduces the environmental impacts from livestock waste, Bion’s comprehensive technology platform provides the broader integrated
response to consumer environmental sustainability concerns. The adoption of Bion’s platform integrates to varying degrees of the
overall livestock production cycle from crop production to processing. Projects utilizing the Bion 3G Tech platform will be able to create
cost-effective, verified data-based responses to consumer sustainability and food safety concerns. Without such integration, adoption
of livestock waste treatment technology in a vacuum will not address the various growing consumer concerns (such as animal health and
worker safety issues) related to livestock agriculture.
We believe that Bion’s technology also creates
the opportunity to enter joint ventures with livestock and other agriculture industry entities (“JVs”) to develop Integrated
Projects that profitably integrate large-scale CAFO's production with their feed producers (some of whom may utilize Bion’s organic
fertilizers), downstream food processing facilities, and in certain applications, biofuel/ethanol production. The Bion 3G technology platform
will provide treatment of, as well as renewable energy and co-product recovery/production from, the CAFO and/or food processing waste
streams, on-site utilization of some or all of the renewable energy generated (and potentially, biofuel/ethanol production), in an environmentally
and economically sustainable manner that reduces the aggregate capital expense and operating costs for the entire integrated complex while
increasing production efficiencies and generating supplemental revenue streams.
We anticipate that most JV Projects (including Integrated
Projects) undertaken by the Company in which we retain ownership interests will be pursued through and owned by single project subsidiaries.
Bion PA 1 LLC (“PA1”), through which the Kreider 1 System was developed at the Kreider dairy, Bion PA 2 LLC (“PA2”)
through which we are pursuing development of the Kreider JV and the Kreider 2 poultry waste Project, and Bion 3G-1 LLC (“3G1”)
through which our initial 3G Tech beef project will be developed, are the first three of what are likely to be many such entities.
Going Concern:
The Company's consolidated financial statements for
the years ended June 30, 2021 and 2020 included herein have been prepared assuming the Company will continue as a going concern.
The Company has not recorded significant revenue from operations for either of the years ended June 30, 2021 or June 30, 2020. The
Company has incurred net losses of approximately of $3,451,000 and $4,553,000 during the years ended June 30, 2021 and 2020, respectively.
The Company had a working capital deficit and stockholders' deficit, respectively, of approximately $6,614,000 and $11,445,000 as of June
30, 2021.The report of the independent registered public accounting firm on the Company's consolidated financial statements as of and
for the years ended June 30, 2021 and June 30, 2020 includes a "going concern" explanatory paragraph, which means that there
are factors that raise substantial doubt about the Company's ability to continue as a going concern.
PRINCIPAL PRODUCTS AND SERVICES
The Company’s primary focus is on implementing
its 3G Tech in JVs (as described above). Therefore, the category ‘PRINCIPAL PRODUCTS AND SERVICES’ is not fully
appropriate for the Company’s business. While the Company may implement some 3G Tech systems on a contractual basis, our business
does not primarily involve sale of our systems or long term direct operations/management of our systems. The discussion below should be
read in the context this business focus (described in detail above and below).
Bion has invested over $100 million in its business
since 1989, much of which has been expended development of its technologies and technology platform, policy change initiatives and other
activities. Our 2G Tech (now supplanted by our 3G Tech) was proven at commercial scale and was been reviewed and qualified for federal
loan guarantees under USDA’s Technical Assessment program. The 2G Tech platform (as will our 3G Tech going forward) provided verified
nutrient credits from wet livestock waste (dairy, beef, and swine) that can be used to offset US EPA-mandated TMDL requirements. The Company
intends to implement its first 3G Tech systems during the current 2022 fiscal year. Our 3G Tech and 3G Tech platform provide the basis
for our planned JVs and Projects and therefore constitute our ‘principal products’.
Each Bion system (whether prior 2G Tech or current
3G Tech) is comprised of several process units combined in a ‘process train’, much like a municipal wastewater treatment plant.
The platform utilizes a combination of mechanical, biological, and thermal processes and can be configured in a variety of ways, based
on the needs and economics of the location, to provide the level of environmental treatment required, while separating and aggregating
the various components of the waste stream for processing and recovery. A key attribute of the Bion platform is that the performance of
the systems can be measured, quantified and verified through a proprietary data collection system, providing a level of oversight and
verification similar to waste water treatment facilities. In addition to providing third-party verification of reductions for regulatory/credit
purposes, the same data can also be used to support the claims of a USDA-certified sustainable branding.
Bion’s waste treatment solutions are scalable,
proven in commercial operations (2G Tech) and the verified results have been accepted by EPA (for use as a “qualified offset”),
USDA and other regulatory agencies. Bion’s core processes are protected by nine U.S. patents and six international patents, with
additional applications pending in the US, EU, New Zealand, Mexico, Brazil, Argentina and Australia. We do not know of any other cost-effective
technology that provides Bion system’s level of treatment of livestock waste: dairy, beef, poultry and swine. Note that while revenues
from Bion’s 2G platform were 90 percent dependent on developing markets for nutrient reductions, our 3G Tech systems will generate
revenues from multiple co-product streams to supplement revenues from nutrient reductions.
Bion’s 3G Tech platform has been developed over
the past six years to maximize co-product recovery values from large scale facilities (or multiple modular facilities) while maintaining/improving
the level of environmental remediation produced by our 2G systems. The 3G systems will recover nitrogen from the CAFO waste stream for
production of nitrogen-rich fertilizer products that Bion believes will qualify for certification for use in growing organic crops (the
first approval was received during the 2020 fiscal year) for livestock and human. Further, the 3G Tech platform will recover methane that
can be conditioned to pipeline quality and will qualify for various credits and subsidies as clean, renewable natural gas. These
two revenue streams will supplement revenues from nutrient reduction credits and USDA PVP -certified sustainable branding.
Building upon our 2G Tech and Bion's over 20 years
of experience providing waste treatment services to the livestock industry, commencing with our first generation technology applications,
the Company is pursuing the Retrofit opportunity related to environmental remediation of existing CAFOs. Our technology has evolved
and been upgraded over the decades to meet changing standards and requirements. Bion's 3G Tech platform creates potentially profitable
business opportunities to provide waste treatment services and systems and/or renewable energy production capability to existing large
livestock operations (of which there are many), and potentially to smaller facilities through aggregation of waste streams. However, this
is not our primary focus. Candidates for these solutions include individual CAFO facilities that face impending regulatory action,
CAFOs that wish to expand or relocate, and operations located in regions that suffer severe and immediate environmental issues, such as
the Chesapeake Bay watershed, Great Lakes region and/or the San Joaquin Valley, where financial incentives (such as nutrient reduction
credit trading programs) are (or may become) available that encourage voluntary reductions of nutrient releases and/or atmospheric emissions
from agricultural sources.
Sustainable/Organic Corn-Fed Beef Opportunity
The Company believes that one of its major opportunities
will be in JVs to pursue the Sustainable Beef Opportunity and the Sustainable/Organic Corn-Fed Beef Opportunity in the Midwest as discussed
at some length above. It is the Company’s current intention to initiate several JVs pursuing this opportunity as developer of, technology
provider to, and direct participant. See discussion above.
It is not possible at this time to firmly predict
where the initial JVs and/or Project will be developed or the order in which JVs and Projects will be developed. All potential JVs and/or
Projects are in very early pre-development stages and may never progress to actual development or may be developed after other JVs and/or
Projects not yet under active consideration.
The Company's successful accomplishment of its
business activities is dependent upon many factors (see 'Forward-Looking Statements' above) including without limitation the following,
none of which can be assured at this date:
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Successful development and completion of the first 3G Tech Project(s) to demonstrate the
commercial economics of its 3G Tech platform;
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Successful development of the first Integrated Project to demonstrate the operation of a
fully-integrated, environmentally-compliant Integrated Project at a profitable level;
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Establishment of a substantial and liquid market for nutrient reductions and other environmental
attributes generated from the Company’s future facilities;
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Establishment of marketing relationships needed for realization of full value from the saleable
co-products including sustainable and organic meat products and organic nitrogen fertilizer products;
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Successful completion of organic certifications and USDA PVP-certified sustainable brand
;
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Our ability to raise sufficient funds to allow us to finance our activities, JV’s,
and Projects; and
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Regulatory and enforcement policies at the Federal, State and local levels.
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Kreider Poultry Joint Venture and Pennsylvania
and Chesapeake Bay Initiatives
The Kreider 1 2G Tech dairy system in Pennsylvania
in the Chesapeake Bay watershed represented the Company's first Retrofit in this market segment. This Retrofit installation was designed
and intended primarily to reduce nitrogen and phosphorus releases and ammonia emissions from the dairy waste streams to generate tradable
nutrient reduction credits as part of a nutrient credit trading program through the PA Department of Environmental Protection (‘PADEP’).
While this project has not been (and most likely will not be) a commercial success on a stand-alone basis (due to PA’s failure to
implement a viable long-term credit trading market), it has demonstrated that Bion’s manure treatment technology can generate low-cost
verified credits, providing the basis of a 2013 PA Legislative Budget and Finance Committee report (updated in 2018) that supports the
use of manure technologies to provide low-cost alternatives to meet Bay mandates.
It is possible that the Kreider 2 poultry waste treatment
Project, which is in its early development and pre-permitting phase, will be one of our first large scale JV Projects if a workable market
for nutrient reduction credits develops in PA, of which there is no assurance. The Kreider 2 Project will utilize our 3G Tech platform
to treat the waste stream from Kreider Farm’s large poultry operations (possibly together with waste from other nearby poultry operations
and/or other waste streams) (and the dairy waste stream previously treated in the Kreider 1 system) to generate renewable energy, marketable
nutrient reduction credits and co-products (including nitrogen in organic and/or non-organic forms). It is targeted to treat the waste
stream from approximately 9 million birds, in modules, when fully developed. Estimated capital costs (‘capex’) are currently
in the $60 million range (with the caveat that no site has yet been chosen, technology development is not complete and the final design
work has not yet begun) and has the potential to generate gross revenues of up to $50 million annually from the multiple revenue streams
based on current projected yields and prices, none of which are assured. Note that tech and system design work is continuing and the Company
anticipates reduce reductions of both capex and operating costs.
To complete and operate the Kreider 2 project,
substantial capital (equity and/or debt) has been and will continue to be expended. Additional funds will potentially be needed
to be expended so that the Kreider 1 system and the Pennvest Loan (see below) situation can be resolved, of which there is no assurance.
The Kreider 1 system was developed to earn revenue primarily from the sale of nutrient reduction (and/or other) environmental credits. In
contrast, upon successful construction and operation, the Company anticipates that the Kreider 2 Project will earn revenue from the
sale of nutrient reduction (and/or other) environmental credits generated by its 3G Tech system and through sales of renewable energy
and co-products (fertilizer nutrients and soil amendment products in organic and/or non-organic forms and/or renewable energy and environmental
credits) recovered and sustainably branded products as discussed above.
To date the market for long-term nutrient reduction
Credits in Pennsylvania has been very slow to develop and the Company’s activities have been negatively affected by such lack of
development. However, Bion is confident that if and when these markets are established, the Credits it produces will be competitive
in the credit trading markets, based on its cost to remove nitrogen from the livestock waste stream, compared to the cost to remove nitrogen
through various other treatment activities.
Several independent studies have calculated the average
cost to remove nitrogen through various sector practices. Reports prepared for the PA Senate (2008), Chesapeake Bay Commission (2012)
and PA legislature (2013; described below), as well as the Maryland Chesapeake Bay Financing Strategy Report (2015), demonstrate that
the cost to remove nitrogen (per pound on average) from agriculture is $44 to $54, municipal wastewater: $28 to $43, and storm water:
$386 to $633. Pursuant to the PA legislative study, by replacing sector allocation (for all sectors) with competitive bidding, up to 80
percent savings could be achieved in PA’s Chesapeake Bay compliance costs ($1.5 billion annually) by 2025. If the legislative study
had focused on the cost differentials of competitive bidding compared only with storm water, the relative savings would be substantially
greater.
Since these studies were completed, most of the larger
(Tier 1) municipal wastewater treatment plants in PA have been upgraded, at a cost of approximately $2.5 billion (vs initial 2004 PA DEP
cost estimates of $376 million). US EPA is now focused on PA’s storm water allocation (3.5 million pounds) and has this sector on
‘backstop level actions’, the highest level of EPA-oversight and the final step before sanctions. In the same 2004 PA DEP
cost estimate that led to the more than a $2 billion underestimate/miscalculation in municipal wastewater plant upgrade costs, the estimate
for storm water cost was $5.6 billion. In April 2017, US EPA sent a Letter of Expectation to PA DEP, expressing the agency’s support
for the use of nutrient credit trading and competitive bidding to engage the private-sector to lower costs. The letter specifically encouraged
the use of credit trading to offset the state’s looming storm water obligations.
Bion anticipates that it will be able to profitably
sell nutrient credits generated at the Kreider 2 facilities (and subsequent projects) if prices are in the range of $6-$12 (or higher)
per lb. of nitrogen reduction under long-term contracts, of which there is no assurance. Bion further believes that with the studies
and information now available to other states that are (or will shortly be) facing these same decisions, a cost-benefit analysis will
make it clear from the outset that competitive bidding for nutrient reduction credits from alternative approaches can provide dramatically
lower-cost solutions than traditional strategies.
The Kreider 2 poultry waste treatment facility in
PA may be one of its initial 3G Tech Projects. Bion intends that it will select a site for the Kreider 2 Project and/or its initial Integrated
Project (and possibly additional Projects) after PA adopts a competitively-bid nutrient reduction Credit purchase program (see discussion
above and below).
CORPORATE BACKGROUND
The Company is a Colorado corporation organized on
December 31, 1987. Our principal executive offices are now located at the residence of our Office Manager at 9 East Park Court, Old Bethpage,
New York 11804, at which location most of the Company’s physical records and central computer reside. Our primary telephone number
is 516-586-5643. We have no additional offices at this time as all employees and primary consultants work from their home offices.
HISTORY AND DEVELOPMENT OF OUR BUSINESS
Substantially all of our business and operations to
date has been conducted through wholly-owned subsidiaries, Bion Technologies, Inc. (a Colorado corporation organized September 20, 1989),
Bion Integrated Projects Group, Inc. ("Projects Group") (formerly Bion Dairy Corporation through August 2008 and originally
Bion Municipal, Inc., a Colorado corporation organized July 23, 1999) and Bion Services Group, Inc. ("Services Group") (formerly
Bion International, Inc., a Colorado corporation organized July 23, 1999) and BionSoil, Inc. (a currently inactive Colorado corporation
organized June 3, 1996). Bion is also the parent of Bion PA 1 LLC (a Colorado entity organized August 14, 2008) (“PA1”),
Bion PA 2 LLC (a Colorado entity organized June 24, 2010) (“PA2”) and Bion 3G-1, LLC (a Colorado entity organized on September
23, 2021). In January 2002, Bion entered into a series of transactions whereby the Company became a 57.7% (now 58.9%) owner of Centerpoint
Corporation (a Delaware corporation organized August 9, 1995) ("Centerpoint").
Although we have been conducting business since 1989,
we determined that we needed to redefine how we could best utilize our technology during 2003. From 2003 through early 2008, we
primarily worked on technology improvements and applications and in furtherance of our business model of Integrated Project development.
During 2008 we re-commenced pursuing active commercial transactions involving installation of our 2G Tech for CAFO waste treatment and
related environmental remediation and initiation of pre-development modeling and pre-development work to prepare for our initial Integrated
Projects. We are now focused primarily on development of JVs based on implementation of our 3G Tech platform (and business model) in the
industry segments discussed above.
Our original systems were wastewater treatment systems
for dairy farms and food processing plants. The basic design was modified in late 1994 to create Nutrient Management Systems ("NMS")
that produced organic soil products as a byproduct of remediation of the waste stream when installed on large dairy or swine farms.
Through June 30, 2002, we sold and subsequently installed, in the aggregate, approximately 30 of these first iteration of Bion’s systems
in 7 states, of which we believe a few may still in operation in 3 states. We discontinued marketing of our first-generation NMS
systems during fiscal year 2002 and turned control and ownership of the first-generation systems over to the farms on which they were
installed over the following two years. We were unable to produce a business model based on the first-generation systems that would
generate sufficient revenues to create a profitable business. While continuing to market and operate the first-generation systems,
during the second half of calendar year 2000, we began to focus our activities on developing the next generation of the Bion technology.
We no longer operate or own any of the first-generation NMS systems.
As a result of our research and development efforts,
the core of our current technology was re-developed during fiscal years 2001-2004. We designed and tested Systems that used state-of-the-art,
computerized, real-time monitoring and system control with the potential to be remotely accessed for both reporting requirements and control
functions. These Systems were smaller and faster than our first-generation NMS systems. The initial versions of our second
generation of Bion Systems were designed to harvest solids used to produce organic fertilizer and soil amendments or additives (the "BionSoil(R)
products") in a few weeks as compared to six to twelve months with our first-generation systems.
During 2003-4 we designed, installed and began testing
a commercial scale, second generation Bion System as a temporary modification or retrofit to a waste lagoon on a 1,250-milking cow dairy
farm in Texas, known as the DeVries Dairy. In December 2004, Bion published an independently peer-reviewed report, a copy of which
may be found on our website, www.biontech.com, with data from the DeVries project demonstrating
a reduction in nutrients (nitrogen and phosphorus) of approximately 75% and air emissions of approximately 95%. More specifically,
those published results indicated that the Bion System produced a 74% reduction of nitrogen and a 79% reduction of phosphorus. The
air results show that the Bion System limited emissions from the waste stream as follows: (in pounds per 1,400-pound dairy cow per year):
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Ammonia
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0.20
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Hydrogen Sulfide
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0.56
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Volatile Organic Compounds
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0.08
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Nitrogen Oxides
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0.17
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These emissions represented a reduction from published
baselines of 95%-99%.
Through 2007 the demonstration project at the DeVries
Dairy in Texas also provided Bion with the opportunity to explore mechanisms to best separate the processed manure into streams of coarse
and fine solids, with the coarse cellulosic solids/biomass supporting generation of renewable energy and the fine solids potentially becoming
the basis of organic fertilizer products and/or a high-protein animal feed ingredients. On-going research was also carried out on various
aspects of nutrient releases and atmospheric emissions.
Bion discontinued operation of the DeVries demonstration
research system during 2008.
During the 2005-2008 period, Bion focused on completing
development of its 2G Tech platform and business model. As such, we did not pursue near term sales and revenue opportunities, such
as retrofitting existing CAFO's with interim versions of our waste management solutions, because such efforts would have diverted scarce
management and financial resources and negatively impacted our ability to complete development of an integrated technology platform in
support of large-scale sustainable Projects.
From 2009 through 2015 (when development of our 3G
Tech platform began), Bion actively pursued business opportunities in three broad areas 1) Bion systems to retrofit of existing
CAFO’s (some of which may generate verified nutrient credits and revenues from the production of renewable energy and byproducts)
(“Retrofits”), and 2) development of new state-of-the-art large scale waste treatment facilities, potentially in conjunction
with new CAFOs developed in strategic locations that were not previously possible due to environmental constraints in strategic locations
(“Projects”) (some of these may be “closed loop’ Integrated Projects that were not previously possible due to
environmental constraints as described below), and 3) licensing and/or joint venturing of Bion’s technology (primarily) outside
North America. Bion is now primarily pursuing JVs related to these opportunities within the United States and internationally based on
our 3G Tech as described above.
Pre-3G Tech: Chesapeake Bay Watershed: Kreider
Farms Projects/Pennsylvania Initiatives
The urgency and priority of the need to clean up nutrient
(primarily nitrogen and phosphorus) pollution to the Chesapeake Bay was clearly demonstrated with promulgation of President Obama's 2009
Executive Order concerning clean-up of the Chesapeake Bay and the EPA’s publication and issuance during December 2010 of the Chesapeake
Bay Total Maximum Daily Load (TMDL) standard (http://www.epa.gov/reg3wapd/tmdl/ChesapeakeBay/tmdlexec.html)
for nutrient pollution in Chesapeake Bay tributaries. In May 2010, the EPA published their overall strategy for remediating the Chesapeake
Bay, and they have committed to reducing nitrogen and phosphorus flows to the Bay sufficiently to enable 60% of the Bay watershed segments
to meet water quality standards by 2025. At that time, 89 of the 92 Bay and tidal watershed segments were not in compliance with
water quality standards (97% were out of compliance). The EPA and associated state agencies also committed to short-term 3-year
compliance milestones to enhance accountability and corrective actions, along with a host of definable and measurable goals, enhanced
partnerships, and major environmental initiatives. Based on these actions, greater compliance has been required commencing with
the 2016 ‘water year’. EPA documents defined the overall mission as requiring an approximately 65-million-pound annual
reduction from existing nitrogen (N) loading to the Chesapeake Bay by 2025, of which 35 million pounds was allocated to Pennsylvania.
Importantly, the 3-year compliance milestones were established as a part of the compliance program to add both short- and long-term accountability
to state actions associated with reduced nutrient and sediment flows to the Chesapeake Bay. According to the EPA’s Interim Evaluation
of Pennsylvania’s Milestone Progress published in June 2015, PA was 14.6 million pounds behind its 2014-2015 milestone commitments
for nitrogen, a remarkably large deficit given the previously stated 2-million-pound deficit from the 2012-2013 water year. EPA
has placed PA’s agriculture and urban/suburban sectors under a “Backstop Actions Level”, the highest level of EPA oversight.
EPA has also stated that if load reductions remain off track, EPA may consider seeking additional (and expensive) pollutant reductions
from the wastewater sector.
In an effort to get back on track and hold off federal
intervention, PA unveiled a purported “comprehensive strategy” to "reboot"
the state's efforts to improve water quality in January 2016. The reboot strategy relied upon a mix of enhanced farm compliance
and enforcement activities along with the promotion of additional best management practices (BMP). This proposed strategy has been
met with skepticism about its efficacy/practicality and resistance within the agricultural community. While many of these reboot efforts
are continuing today, the PADEP Secretary resigned in May 2016 and PA appears to have slowed implementation efforts recently while seeking
alternative approaches to reduce PA’s nitrogen pollution to the Chesapeake Bay. The budget spending package that was passed by the
PA legislature in July 2018 contained no new funding for clean water related to either the Chesapeake Bay compliance mandates or state
water quality.
As a result of PA’s default of its Bay mandates,
and the host of upcoming both short and long-term specific commitments and compliance deadlines, Bion believes that its long-term opportunity
related to the Chesapeake Bay clean-up has potentially been significantly expanded and accelerated.
During 2008, Bion executed an agreement to install
a Bion System at the Kreider Farms (“KF”) in Lancaster County, Pennsylvania to reduce nitrogen (including ammonia emissions
which are re-deposited as nitrogen from the atmosphere) and phosphorus in the farm's effluent. Bion undertook this project due, in large
part, to Pennsylvania's nutrient credit trading program, which was established to provide cost-effective reductions of the excess flow
of nutrients (nitrogen and phosphorus) into the Chesapeake Bay watershed. Bion worked extensively with the Pennsylvania Department of
Environmental Protection ('PADEP') over several years to establish nutrient credit calculation/ verification methodologies that were appropriate
to Bion's 2G Tech and recognizes its 'multi-media' (both water and atmospheric) approach to nutrient reductions. Pennsylvania's
nutrient credit trading program allows for voluntary credit trading between a 'non-point source' (such as a dairy or other agricultural
sources) and a 'point source' polluter, such as a municipal waste water treatment plant or a housing development. For example, pursuant
to this program, since Bion can reduce the nutrients from an existing dairy much more cost-effectively than a municipal wastewater treatment
plant can reduce nutrients to meet its baseline, a municipal facility can purchase nutrient reduction credits (‘Credits’)
from Bion to offset its nutrient discharges, rather than spending significantly more money to make (and operate) the plant upgrades necessary
to achieve its own reductions. However, the market for long term Credits in PA has failed to develop any significant breadth or depth
and no Credits have been sold from the Kreider 1 system.
During May 2008, the PADEP approved Bion's initial
protocols to determine how many tradable nutrient (nitrogen and phosphorus) credits Bion would receive for nutrient reductions achieved
through installation of its comprehensive dairy waste management 2G Tech Kreider 1 project pursuant to PA's efforts under the Chesapeake
Bay Program mandates. During April 2010, the PADEP issued an amended certification. The PADEP's approval includes the certification
of credits, both for ammonia air emission reductions, and for significantly reducing the leaching and runoff potential of land-applied
nutrients. The PADEP has certified the Kreider 1 dairy system for 107 nitrogen and 13 phosphorus credits (each credit represents an annual
pound of reduction) for each of the 1,200 dairy cows (subject to testing and verification based on operational data). Bion's agreements
with Kreider Farms provide for the Kreider 1 System to expand through-put to treat the waste from the Kreider dairy support herd after
the PADEP has verified the operating results. It is anticipated that this expansion will take place and lead to a proportionate increase
in credits generated for sale, only if a more robust market for long term nutrient reductions develops.
The economics (potential revenues, profitability
and continued operation) of the Kreider 1 System were based almost entirely on the long-term sale of nutrient (nitrogen and/or phosphorus)
reduction credits to meet the requirements of the Chesapeake Bay environmental clean-up. See below for further discussion.
Pursuant to the KF agreements, Kreider 1 system to
treat KF's dairy waste streams to reduce nutrient releases to the environment, while generating marketable nutrient credits and renewable
energy, was designed, constructed and entered full-scale operation during 2011. On January 26, 2009, the Board of the Pennsylvania
Infrastructure Investment Authority (“Pennvest”) approved a $7.75 million loan to Bion PA 1, LLC (“PA1”), a wholly-owned
subsidiary of the Company, for the initial Kreider Farms project (“Kreider 1”). After substantial unanticipated delays,
on August 12, 2010, PA1 received a permit for construction of the Kreider 1 system. Construction activities commenced during November
2010. The closing/settlement of the Pennvest Loan took place on November 3, 2010. PA1 finished the construction of the Kreider
1 System and entered a period of system ‘operational shakedown’ during May 2011. The Kreider 1 System reached full,
stabilized operation by the end of the 2012 fiscal year. During 2011, the PADEP re-certified the nutrient credits for this project.
The PADEP issued final permits for the Kreider 1 System (including the credit verification plan) on August 1, 2012, on which date the
Company deemed that the Kreider System was ‘placed in service’. As a result, PA1 commenced generating nutrient reduction
credits for potential sale, while continuing to utilize the Kreider 1 system to test technology improvements and add-ons. However,
substantial liquidity in the Pennsylvania nutrient credit market for long term nutrient reduction credits has never developed significant
breadth and depth, which limited liquidity/depth has negatively impacted Bion's business plans and has made it impossible to economically
monetize the nutrient reductions created by PA1's Kreider 1 project (and Bion's other proposed projects in PA). These difficulties have
prevented PA1 from generating any material revenues from the Kreider 1 project to date and it is unlikely that PA1 will ever be able to
generate such revenues from the Kreider 1 system (as designed and constructed). PA1 had sporadic discussions/negotiations with Pennvest
related to forbearance and/or re-structuring its obligations pursuant to the Pennvest Loan for more than seven years. In the context of
such discussions/negotiations, PA1 elected not to make interest payments to Pennvest on the Pennvest Loan since January 2013. Additionally,
PA1 has not made any principal payments, which were to begin in fiscal 2013, and, therefore, the Company has classified the Pennvest Loan
as a current liability as of June 30, 2021. Due to the failure of the PA nutrient reduction credit market to develop, the Company
determined that the carrying amount of the property and equipment related to the Kreider 1 project exceeded its estimated future undiscounted
cash flows based on certain assumptions regarding timing, level and probability of revenues from sales of nutrient reduction credits and,
therefore, PA1 and the Company recorded impairments related to the value of the Kreider 1 assets of $1,750,000 and $2,000,000 at June
30, 2015 and June 30, 2014, respectively. During the 2016 fiscal year, effective June 30, 2016, PA1 and the Company recorded an
impairment of $1,684,562 to the value of the Kreider 1 assets which reduced the value on the Company’s books to zero. This
impairment reflects management’s judgment that the salvage value of the Kreider 1 assets roughly equaled PA1’s contractual
obligations related to the Kreider 1 system, including expenses related to the decommissioning of the Kreider 1 system.
On September 25, 2014, Pennvest exercised its right
to declare the Pennvest Loan in default and accelerated the Pennvest Loan and demanded that PA1 pay $8,137,117 (principal, interest plus
late charges) on or before October 24, 2014. PA1 did not make the payment and does not have the resources to make the payments demanded
by Pennvest. PA1 commenced discussions and negotiations with Pennvest concerning this matter but Pennvest rejected PA1’s proposal
made during the fall of 2014. PA1 made a new proposal to Pennvest during September 2021 which proposal is presently under consideration
by Pennvest. PA1 provides Pennvest with its financial statements (which include a description of system status) annually. During the 2021
fiscal year, Pennvest’s auditors requested a ‘corrective action plan’ and PA1 informed Pennvest that “…
there is no viable corrective action plan for the Pennvest Loan (‘Loan’). The facility funded by the Loan has been shut down
for many years (which has been disclosed in the annual financial reports to Pennvest and in public filings by the parent of Bion PA 1,
LLC) and the technology utilized in the facility is now obsolete. The facility has not been commercially operated for approximately six
years and has generated zero income. We recommend that Pennvest take appropriate steps to remove and sell the equipment.” Pennvest
responded favorably to the approach of selling the equipment but no actions have yet taken place. PA1 and the Company are currently discussing
proposals with Pennvest seeking full resolution of these matters. The Company anticipates additional communication with Pennvest on this
matter and the recent proposal during the current year. It is not possible at this date to predict the final outcome of this matter, but
the Company believes it is likely that that the equipment will be sold with the proceeds delivered to Pennvest during our current fiscal
year as part of a resolution. However, the resolution of these matters including the manner and means of such equipment sale has
not been agreed upon as of this date. PA1 will evaluate the appropriate manner to resolve/wrap-up its business over the balance of the
current fiscal year.
Note that the projected economics (potential
revenues, profitability and continued operation) of the Kreider 1 System were based almost entirely on the long-term sale of nutrient
(nitrogen and/or phosphorus) reduction credits to meet the requirements of the Chesapeake Bay environmental clean-up. See below for further
discussion.
During August 2012, the Company provided Pennvest
(and the PADEP) with data demonstrating that the Kreider 1 system met the 'technology guaranty' standards which were incorporated in the
Pennvest financing documents and, as a result, the Pennvest Loan is now solely an obligation of PA1. However, the Company’s consolidated
balance sheet as of June 30, 2020 reflects the Pennvest Loan as a liability of $9,585,883 despite the fact that the obligation (if any)
solely an obligation of PA 1.
The Company is currently not operating the Kreider
1 System but continues to ensure that some equipment maintenance work takes place pending development of a more robust market for its
nutrient reductions and/or its potential inclusion within the Kreider 2 Project as discussed above.
The original Kreider agreements provided for Bion
to develop a waste treatment/renewable energy production facility to treat the waste from Kreider's approximately 6+ million chickens
(planned to expand to approximately 9-10 million)(and potentially other poultry operations and/or other waste streams)('Kreider Renewable
Energy Facility' or ' Kreider 2 Project'). On May 5, 2016, the Company executed a stand-alone joint venture agreement with Kreider Farms
covering all matters related to development and operation of a system to treat the waste streams from Kreider's poultry facilities in
Bion PA2 LLC ("PA2"). The Company continues its development work related to the details of the Kreider 2 Project. During May
2011 the PADEP certified Kreider 2 2G Tech Project design for 559,457 nutrient credits under the old EPA's Chesapeake Bay model. The Company
anticipates that the 3G Tech Kreider 2 Project will be re-certified for between 2-4 million (or more) nutrient reduction credits (for
treatment of the waste stream from Kreider's poultry) pursuant to a future reapplication (or subsequent amended application) pursuant
to the amended EPA Chesapeake Bay model and 2018 agreements between the EPA and PA. Note that this Project may be expanded in the future
to treat wastes from other local and regional CAFOs (poultry and/or dairy – including the Kreider Dairy) and/or Kreider poultry
expansion (some of which may not qualify for nutrient reduction credits). The review process to clarify certain issues related to credit
calculation and verification commenced during 2014 based on Bion’s 2G Tech but has been placed on hold pending development of a
robust market for nutrient reductions in PA. The Company anticipates it will submit an amended application based on our 3G Tech once these
matters are clear. Site specific design and engineering work for this facility, which may be one of the first full-scale projects to utilize
Bion's 3G Tech, have not commenced, and the Company does not yet have financing in place for the Kreider 2 Project. This opportunity is
being pursued through PA2. If there are positive developments related to the market for nutrient reductions in PA, of which there is no
assurance, the Company intends to re-commence development, design and construction of the Kreider 2 Project thereafter. The economics
(potential revenues and profitability) of the Kreider 2 Project, despite its use of Bion's 3G Tech for increased recovery of marketable
by-products, are based in material part the long-term sale of nutrient (nitrogen and/or phosphorus) reduction credits to meet the requirements
of the Chesapeake Bay environmental clean-up. However, liquidity in the PA nutrient credit market has not developed significant breadth
and depth, which lack of liquidity has negatively impacted Bion's business plans and will most likely continue delay PA2's Kreider 2 Project
and other proposed projects in PA.
The Company believes that Pennsylvania is potentially
‘ground zero’ in the long-standing clean water battle between agriculture and the further regulation of agriculture relative
to nutrient impacts. The ability of Bion and other technology providers to achieve verified reductions from agricultural non-point sources
can resolve the current stalemate and enable implementation of constructive solutions that benefit all stakeholders, providing a mechanism
that ensures that taxpayer funds will be used to achieve the most beneficial result at the lowest cost, regardless of source. All sources,
point and non-point, rural and urban, will be able to compete for tax payer-funded nitrogen reductions in a fair and transparent process;
and since payment from the tax and rate payers would now be performance-based, these providers will be held financially accountable.
See the extended additional discussion regarding these
matters in our Annual Reports on Form 10-K for the year ended June 30, 2020 and prior years.
RECENT FINANCINGS
Sales of Common Stock during 2021 and 2020 Fiscal
Years
During the year ended June 30, 2021, the Company entered
into subscription agreements, under three different offerings, to sell units for $0.50 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, 2021 and pursuant thereto, the Company issued 3,720,000 units for total proceeds of
$1,860,000, net proceeds of $1,699,000 after commissions of $161,000.
During the year ended June 30, 2021 300,000 shares
of the Company’s restricted company stock were sold to an investor for $300,000.
During the year ended June 30, 2021, 129,364 shares
of its unregistered common stock were issued as commissions.
During the year ended June 30, 2021, the company issued
1,186,824 units to various employees/consultants upon the conversion of debt pursuant to the 2006 Consolidated Incentive Plan with
each unit consisting of one share of the common stock and one warrant to purchase one share of the Company’s stock for $0.75 per
share until June 30, 2023.
During the year ended June 30, 2021, Mark Smith elected
to convert deferred compensation, accrued interest and accounts payable of $124,698, $3342 and $52,360 respectively into an aggregate
of 360,805 units at $0.50 per unit, pursuant to the 2006 Consolidated Incentive Plan with each unit consisting of one share of the common
stock and one warrant to purchase one share of the Company’s stock for $0.75 per share until December 31, 2024.
During the year ended June 30, 2021, the Company issued
144,000 units to Mr. Smith for salary of $72,000, pursuant to the 2006 Consolidated Incentive Plan with each unit consisting of one share
of the common stock and one warrant to purchase one share of the Company’s stock for $0.75 per share until December 31, 2024.
During the year ended June 30, 2021, 4,065,988 warrants
were exercised to purchase 4,065,988 shares of the Company’s common stock at $0.75 per share for total proceeds of $3,049,491.
During the year ended June 30, 2020, the Company sold
3,168,001 shares of its unregistered common stock (not including 29,000 shares issued to entities for services and 143,316 shares issued
upon conversion of debt). During the year ended June 30, 2020, the Company sold 18,000 units at $0.50 per unit and received
gross proceeds of $9,000 and net proceeds of $8,100; each unit consisting of one share of the Company’s restricted common
stock and one half warrant to purchase half a share of the Company’s restricted common stock at $0.75 until December 31, 2020.
During the year ended June 30, 2020, the Company also sold 2,000,001 units at $0.50 per unit, and received gross proceeds of
$1,000,000 and net proceeds of $910,500 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 at $0.75 per share until December 31, 2020. In addition,
the Company also sold 1,150,000 units at$0.50 per unit and received gross proceeds of $575,000 and net proceeds of $517,500 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 at $0.75 until December 31, 2021. During the year ended June 30, 2020, Mark Smith elected to convert
a loan payable, accrued expenses and interest of $15,000, $52,830 and $3,828 respectively, into an aggregate 143,316 units at $0.50 per
unit, pursuant to the 2006 Consolidated Incentive Plan with each unit consisting of one share of the common stock and one warrant to purchase
one share of the Company’s stock for $0.75 per share until December 31, 2024.
COMPETITION:
There are a significant number of competitors in the
waste treatment industry who are working on animal related pollution issues. Probably the most efficient way to assess competition in
this industry is to review the Newtrient Technology Catalog, a service provided by Newtrient Technology Catalog, which is produced by
an organization created by the dairy industry to help farmers, technology providers, manure-based
product developers and other stakeholders assess manure related challenges and opportunities.
Many of the technologies reviewed by and organized by Newtrient in their catalog, such as Bion, address manure streams in addition to
dairy. The potential competition has increased with the growing governmental and public concern focused on pollution due to CAFO wastes.
Waste treatment lagoons which depend on anaerobic microorganisms ("anaerobic lagoons") are the most common traditional treatment
process for animal waste on large farms within the swine and dairy industries. Additionally, many beef feedlots, poultry facilities
and dairy farms simply scrape and accumulate manure for later field application. Both lagoon and scrape/pile manure storage approaches
are coming under increasing regulatory pressure due to associated odor, nutrient management and water quality issues and are facing possible
phase-out in some states. Although we believe that Bion’s comprehensive solution is the most economically and technologically
viable solution for the current problems, other alternative (though partial) solutions do exist, including, for example, synthetic lagoon
covers (which are placed on the top of the water in the lagoon to trap the gases), methane digesters (a tank which uses anaerobic microorganisms
to break down the waste to produce methane), multistage anaerobic lagoons and solids separators (processes which separate large solids
from fine solids), as well as various thermal waste-to-energy technologies. Additionally, many efforts are underway to develop and
test new technologies.
Our ability to compete is dependent upon favorable
regulatory conditions, our ability to obtain required approvals and permits from regulatory and other authorities and upon our ability
to introduce and market our Systems in the appropriate industry and geographic segments.
There is also extensive competition in the sustainable
beef and sustainable organic beef market segments and organic soil amendment/fertilizer and feed ingredient markets that are being targeted
by Bion’s 3G Tech JVs as discussed above.
There are many companies that are already selling
products to satisfy demand in the sectors of these markets we are trying to enter. Many of these companies have established marketing
and sales organizations and customer commitments, are supporting their products with advertising, sometimes on a national basis, and have
developed brand name recognition and customer loyalty in many cases.
Because Bion systems offer a comprehensive waste treatment
solution that is designed to produce/augment up to four separate and distinct revenue streams, the Company believes that it has the ability
to be competitive in each of the sectors from which it derives revenue.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
In our JVs/Projects (including Integrated Projects)
business segment, we will most likely be dependent upon one or a few major customers/partners/joint venturers since a relatively limited
number of JVs and/or Projects (including Integrated Projects) will be developed by the Company. We anticipate initially developing, owning
interests in, and operating only one or a few Projects commencing during 2021and 2022 and, thereafter, developing a limited number of
Projects at a time. Thus, at least for the near future, our revenues will be dependent on a relatively small number of major Projects,
participants and/or customers.
In our CAFO Retrofit/remediation business segment,
we currently have only built one system and it is no longer operating and only have contracts with only a single party. However, there
are thousands of CAFO’s in the United States and we anticipate that in the future we will have agreements with many CAFO customers.
PATENTS
We are the sole owner of seven United States patents.
Bion also owns one Australian patent, two Canadian patents, one patent from New Zealand and two patents from Mexico. Additionally, Bion
has one United States patent application pending and has three International patent applications currently pending.
Patent Numbers and date of issue:
United States Currently Issued:
(1)
7,431,839: Low Oxygen Biologically Mediated Nutrient Removal: (NdeN+PwA) James W. Morris & Jere Northrop (Exp 12/26/2021)
(2)
7,879,589: Micro-Electron Acceptor Phosphorous Accumulating Organisms: (NdeN+PwoA Microbial) James W. Morris & Jere Northrop
(Exp 6/20/2023)
(3)
8,039,242: Low Oxygen Biologically Mediated Nutrient Removal: (NdeN+PwoA Microbial) James W. Morris & Jere Northrop (Exp 6/20/2023)
(4)
8,287,734: Method for Treating Nitrogen in Waste Streams: (OCN) Jere Northrop & James W. Morris (Exp 3/20/31)
(5)
10,106,447: Process to Recover Ammonium Bicarbonate from Wastewater: Morton Orentlicher & Mark M. Simon. (Exp. 9/14/2035)
(6) 10,604,432: Process
to Recover Ammonium Bicarbonate from Wastewater; Dominic Bassani, Steve Pagano, Morton Orentlicher & Mark M. Simon. (Exp 6/29/2037)
(7) 10,793,458: Process
to Recover Ammonium Bicarbonate from Wastewater; Dominic Bassani, Steve Pagano, Morton Orentlicher & Mark M. Simon. (Exp 9/14/2035)
Australia Issued:
(1)
2002/227224: Low Oxygen Organic Waste Bioconversion System: (NdeN) Jere Northrop & James W. Morris (Exp 11/8/2021).
Canada Issued:
(1) 2,428,417: Low Oxygen
Organic Waste Bioconversion System: (NdeN) Jere Northrop & James W. Morris (Exp 11/8/21).
(2) 2,503,166: Low Oxygen
Biologically Mediated Nutrient Removal: (NdeN+PwA) Jere Northrop & James W. Morris (Exp 11/8/21).
Mexico Issued:
(1)
240,124: Low Oxygen Organic Waste Bioconversion System; 9/8/06 (notified 3/26/07) (NdeN) Jere Northrop & James W. Morris (Exp 11/8/2021).
(2)
263,375: Low Oxygen Organic Waste Bioconversion System: (NdeN) Jere Northrop & James W. Morris (Exp 11/8/2021).
New Zealand Issued:
(1)
526,342: Low Oxygen Organic Waste Bioconversion System: (NdeN) Jere Northrop & James W. Morris (Exp 11/8/2021).
We are also the sole owner of, or possess the contractual
right to acquire exclusive patent rights to, a pending United States patent application and three international applications as set forth
below:
United States Currently Pending:
(1)
16/790,390: Process to Recover Ammonium Bicarbonate from Wastewater; Dominic Bassani, Steve Pagano, Morton Orentlicher & Mark M. Simon.
International Applications Currently Pending:
|
(1)
|
EP18943551: Process to recover ammonium bicarbonate from wastewater; Dominic Bassani, Steve Pagano, Morton
Orentlicher & Mark M. Simon.
|
|
(2)
|
CA3123802A1: Process to recover ammonium bicarbonate from wastewater; Dominic Bassani, Steve Pagano, Morton
Orentlicher & Mark M. Simon.
|
|
(3)
|
MX/a/2021/007358: Process to recover ammonium bicarbonate from wastewater; Dominic Bassani, Steve Pagano,
Morton Orentlicher & Mark M. Simon.
|
In addition to such factors as innovation, technological
expertise and experienced personnel, we believe that a strong patent position is increasingly important to compete effectively in the
businesses on which we are focused. It is likely that we will file applications for additional patents in the future. There is,
however, no assurance that any such patents will be granted.
The Company has elected to expense all costs and
filing fees related to obtaining patents (resulting in no related asset being recognized in the Company’s consolidated balance sheets)
because the Company believes such costs and fees are immaterial (in the context of the Company’s total costs/expenses) and have
no direct relationship to the value of the Company’s patents.
It may become necessary or desirable in the future
for us to obtain patent and technology licenses from other companies relating to technologies that may be employed in future products
or processes. To date, we have not received notices of claimed infringement of patents based on our existing processes or products,
but due to the nature of the industry, we may receive such claims in the future.
We generally require all of our employees and consultants,
including our management, to sign a non-disclosure and invention assignment agreements upon employment with us.
RESEARCH AND DEVELOPMENT
Current research and development work is focused on
completion of the development and ongoing improvement of our 3G Tech (the initial version of which is ready for implementation in an appropriate
Project) with emphasis on increased recovery of valuable by-products (including nutrients in organic and/or non-organic forms, production
of renewable energy from by-products together with related renewable energy and/or environmental credits). Bion believes its 3G Tech will
produce significantly greater value from the CAFO waste stream through the recovery of a concentrated natural nitrogen fertilizer
and pipeline-quality natural gas.
During the years ended June 30, 2021 and June 30, 2020, respectively, we
expended approximately $547,000 and $478,000 (excluding non-cash stock-based compensation) on research and development activities related
to our technology platform applications in support of large-scale, economically and environmentally sustainable Projects and Retrofits.
Since the 2018 fiscal year, Bion’s research and development has been primarily focused on development work to complete and further
refine development of our 3G Tech which will have the capacity to process dry, poultry CAFO waste streams in addition to wet dairy/beef/swine
CAFO waste streams and increase our ability to recover marketable by-products from the waste stream remediation including renewable natural
gas and nitrogen products (organic and non-organic). Some work has also involved modifying and adding unit processes to our 3G Tech
platform with the objective of reducing capital costs and operating costs, while generating commercial equivalent by-products (and therefore,
potential revenue streams) and significantly increasing environmental efficiency. As a result of these efforts (including their continuation
during the current period), Bion made new (and supplemental) patent filing(s) during the 2019-2021 fiscal years related to our 3G Tech.
The Company anticipates completion of its pilot system and pre-commercial testing for its 3G Tech by end of the current calendar year
to support design finalization for our initial 3G Tech systems. Our technology focus is to separate and aggregate the various “assets”
in the waste stream and then to re-assemble them to maximize their economic value. Our current research and development efforts have been
focused on developments that will minimize water removal requirements thereby significantly reducing the associated energy costs. In addition,
current efforts are focused on fertilizer and soil amendment products (organic and inorganic), water reuse, environmental and reduction
credits (including but not limited to nutrient, carbon, sediment, water and pathogen reduction) while reducing capital costs and operating
costs. Bion continues to focus on “normalizing” its technology platform for use on multiple species. This effort has required
significant work and resource allocation on research regarding balancing the activities of each unit process so that its output enables
the subsequent unit processes to maximize efficiency and discharge to the subsequent unit process in order to produce a feedstock cost
effectively. The by-products of this series of unit processes (which include certain Bion proprietary elements) are then “reassembled”
into products to maximize their economic value. To date, research and development results have supported our objectives.
Environmental Protection/Regulation and Public
Policy
In regards to Retrofits and development of Projects,
we will be subject to extensive environmental (and other) regulations related to CAFO's, biofuel production and end product (e.g. fertilizer)
producers. To the extent that we are a provider of systems and services to others that result in the reduction of pollution, we
are not under direct enforcement or regulatory pressure. However, we are involved in the business of CAFO waste treatment and are
impacted by environmental regulations in at least five different ways:
•
Our marketing and sales success depends, to a substantial degree, on the pollution clean-up requirements of various governmental agencies,
from the Environmental Protection Agency (EPA) at the federal level to state and local agencies;
•
Our System design and performance criteria must be responsive to the changes in federal, state and local environmental agencies' effluent
and emission standards and other requirements;
•
Our System installations and operations require governmental permits and/or other approvals in many jurisdictions;
•
To the extent we own or operate Projects (including Integrated Projects with CAFO facilities and ethanol plants), those facilities will
be subject to environmental regulations; and
•
Appropriate public policies need to be developed and implemented to facilitate environmental clean-up at CAFOs and the sale of nutrient
reductions from such activities in order for the Company to monetize the nutrient reductions generated by its facilities.
Additionally, our activities are affected by many
public policies and regulations (federal, state and local) related to other industries such as municipal waste and storm water treatment,
watershed-wide mandates, and others. For example, the existing differences in the regulatory requirements for agriculture versus municipal
wastewater clean-up currently in place have negatively impaired the development of viable markets for nutrient reduction credits.
Bion system installations and operations may require
verification and compliance with an assortment of voluntary regulatory programs, such as the USDA Organic and USDA Process Verified branding
programs. Each of these programs has a series of compliance verification steps that need to be met in order to maintain proper standing
for use of the USDA shield’s on packaging.
EMPLOYEES
As of September 1, 2021, we had 6 employees and
primary consultants, all of whom are performing services for the Company on a full-time basis. The Company utilizes other consultants
and professionals on an ‘as needed’ basis. Our future success depends in significant part on the continued service of our
key personnel and the ability to hire additional qualified personnel. The competition for highly qualified personnel is intense, and there
can be no assurance that we will be able to retain our key managerial and technical employees or that we will be able to attract and retain
additional highly qualified technical and managerial personnel in the future. None of our employees is represented by a labor union, and
we consider our relations with our employees to be good. None of our employees is covered by "key person" life insurance.