UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the Fiscal Year Ended: June 30, 2022
OR
For the transition period from: __________ to __________
Commission File No. 000-19333
BION ENVIRONMENTAL TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
9 East Park Court
Old Bethpage, New York11804
(Address of Principal Executive Offices, Including
Zip Code)
Registrant’s Telephone Number, including area
code: (516)586-5643
Securities Registered Pursuant to Section 12(b) of
the Act:
Title of Each Class Name of Exchange on Which Registered
None N/A
Securities Registered Pursuant to Section 12(g) of
the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ YES
☒NO
Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the Act.
☐ YES
☒NO
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
☒YES☐ NO
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit).
☒YES☐ NO
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
☒
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Act)
☐ YES
☒NO
The aggregate market value of the approximately 30,000,000 shares of voting
stock held by non-affiliates of the Registrant as of June 30, 2022 approximated $35.5million. As of August 1, 2022, the Registrant had 44,120,320 shares of common stock issued and 43,416,011shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
FORWARD-LOOKING STATEMENTS
THE RISK FACTORS BELOW ARE FURTHER HEIGHTENED BY
THE COVID-19 PANDEMIC AND RESULTING ECONOMIC DOWNTURN AND OTHER RELATED CRISES AS DISCUSSED BELOW.
This Annual Report on Form 10-K (and the documents
incorporated herein by reference) contain forward-looking statements, within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties.
Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "project," "predict," "plan,"
"believe," or "continue," or the negative thereof or variations thereon and/or references to goals, targets, projections
or similar terminology. The expectations reflected in forward-looking statements may prove to be incorrect.
Important factors that could cause actual results
to differ materially from our expectations include, but are not limited to, the following (not set forth in any order that ranks priority
or magnitude):
· the ability of the Company to implement its business strategy;
· the need to develop and re-develop technology and related applications;
· seasonal and climatic conditions;
· the strength and financial resources of the Company's potential competitors;
· industry risks, including environmental related problems;
· delays in anticipated permit approval and/or start-up dates;
We do not undertake and specifically disclaim any
obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence
of anticipated or unanticipated events or circumstances after the date of such statements.
PART I
ITEM 1. BUSINESS.
GENERAL
Bion Environmental Technologies, Inc.'s ("Bion,"
"Company," "We," "Us," or "Our") was incorporated in 1987 in the State of Colorado. Bion’s
mission is to create extraordinary value for our shareholders and employees (all of whom own securities in the Company) while delivering
premium, sustainable products to our customers (and other stakeholders) through ventures developing profitable, transparent, and sustainable
solutions for livestock agriculture.
Our patented and proprietary technology provides
advanced waste treatment and resource recovery for large-scale livestock production facilities (also known as “Concentrated
Animal Feeding Operations” or “CAFOs"). Livestock production and its waste, particularly from CAFOs, has been
identified as one of the greatest soil, air, and water quality problems in the U.S. today. Application of our third generation
technology and business/technology platform (“Gen3Tech”) can largely mitigate these environmental problems, while
simultaneously improving operational/ resource efficiencies by recovering high-value co-products from the CAFOs’ waste stream.
These waste stream ‘assets’ – including primarily nutrients and methane – have traditionally been wasted or
underutilized and are the same ‘pollutants’ that today fuel harmful algae blooms, contaminate groundwater, and
exacerbate climate change.
During the first half of 2022 Bion began marketing
our sustainable beef opportunity to retailers, food service distributors and the meat industry in the U.S. In general, the response
has been favorable. During July 2023, Bion announced a letter of intent (“Ribbonwire LOI”) to develop its first large-scale
commercial project, a 15,000-head sustainable beef cattle feeding operation together with the Ribbonwire Ranch, in Dalhart, Texas (with
a provision to expand to 60,000 head) (“Dalhart Project”). The Dalhart Project will be developed to produce blockchain-verified,
sustainable beef (with reduced the stress on cattle caused by extreme weather and temperatures and resulting higher feed/weight gain efficiency)
while remediating the environmental impacts associated usually associated with cattle CAFOs. Bion’s patented technology will treat
the waste stream and recover/refine valuable coproducts that include clean water, renewable natural gas (RNG), photovoltaic solar electricity,
organic fertilizer and potentially other products. We anticipate converting the Ribbonwire LOI into a definitive agreement with Ribbonwire
Ranch and creating distribution agreements with key retailers and food service distributors during the current fiscal year.
Bion’s business model and technology platform
can create the opportunity for joint ventures (in various contractual forms)(“JVs”) between the Company and large livestock/food/fertilizer
industry participants based upon the supplemental cash flow generated by implementation of our Gen3Tech business model, which cash flows
will support the costs of technology implementation (including servicing related debt). We anticipate this will result in substantial
long-term value for Bion. In the context of such JVs, we believe that the verifiable sustainable branding opportunities (conventional
and organic) in meat will represent the single largest enhanced revenue contributor provided by Bion to the JVs (and Bion licensees).
The Company believes that the largest portion of its business with be conducted through such JVs, but a material portion may involve
licensing and or other approaches.
Bion’s Gen3Tech was designed to capture and
stabilize these assets and produce renewable energy, fertilizer products, and clean water as part of the process of raising verifiably
sustainable livestock. All steps and stages in the treatment process will be third-party verified, providing the basis for additional
revenues, including renewable energy-related credits and, eventually, payment for ecosystem services, such as nutrient credits as described
below. The same verified data will be used to substantiate the claims of a USDA-certified sustainable brand that will support premium
pricing for the meat/ animal protein products that are produced in Bion facilities.
Our business plan is focused on executing
multiple agreements and letters of intent related to the “Bion Beef Opportunity” and commencing development of multiple
sustainable beef joint venture projects over the next twelve-eighteen (12-18) months while moving forward with the Initial Project
(see below) and the Dalhart Project. Bion also intends to pursue other opportunities in the livestock industry enabled by our
Gen3Tech business model. The Ribbonwire LOI announcement has generated significant interest within the livestock industry
(among ranchers, feedlot operators, farmers and other AG industry parties) and food distribution and retail industry. We believe
that this interest, combined with consumer interest in ‘sustainable products’ and the growing enthusiasm among some
livestock industry parties for environmental/sustainable/regenerative practices, provides Bion (and its partners/venturers) with an
opportunity to move forward with a truly sustainable solution in this industry segment.
During the next six months, the Company intends to
construct and begin operations of phase 1 of our Initial Project located near Fair Oaks, Indiana. Bion expects the Initial Project to
provide data that illustrates the effectiveness of our Gen3Tech in a commercial setting by the end of the 2nd quarter in 2023
which will support development of the Dalhart Project (and other projects) during 2023 and thereafter. We believe this data will
also provide additional potential stakeholders (cattle producers, cattle feeders, packers, distributors, retailers and financial institutions)
with the information they need to proceed with confidence in collaborating with Bion on multiple new projects (see below).
Bion
is now focused primarily on: i) development/construction of the Initial Project, our initial commercial-scale Gen3Tech installation (see
below and Notes to Financial Statements,
ii) development/construction of the Dalhart Project, iii) developing applications and markets for its sustainable (conventional and organic)
animal protein products and its low carbon organic fertilizer products , iv) discussions regarding initiation and development of agreements
and joint ventures (“JVs” as discussed below) (and related projects) based on the augmented capabilities of our Gen3Tech
business platform (in the sustainable beef and other livestock segments), while (v) continuing to pursue business opportunities related
to large retrofit projects (such as the Kreider poultry project JV described below) and vi) ongoing R&D activities.
At present, there is essentially no traceable and
verifiable ‘sustainable beef’ available to the US market except for niche products. In response to consumer demand for transparency
and sustainability, Bion expects the meat industry in general, and beef specifically, to evolve towards using new technologies to deliver
these attributes in their products. While we anticipate a faster adoption of tracking, verification and sustainability technologies in
other perishable food categories like produce and dairy due to their harvest and production techniques, meat industry leaders have also
announced their willingness to move forward with initiatives in this area. Bion predicts that within approximately five years, consumers
will be able to track and verify claims including sustainability on 25% (or more) of the products merchandised in the meat department.
Bion believes that the retail market share of verifiably sustainable beef in the US will approach 7-10 % within three (3) years (end of
2025) and 25% in five (5) years (end of 2027) (approximately 2,000,000 cattle annually) (and more thereafter). If Bion can successfully
execute on its sustainable beef business plan, facilities utilizing Bion’s Gen3Tech platform will provide one-third (1/3) or more
of that of the premium market segment (and a higher portion of meat that is actually traceable and verifiably sustainable). Our goal is
to have multiple sustainable beef projects under development (within 3-5 distinct JVs) by the end of 2023. Our first commercial project
is likely to be the Dalhart Project but we anticipate commencing additional sustainable beef projects during 2023 as well. Our current
target is to have at least three (3) facility modules (15,000 head per module)(“Modules”) in development/under construction
during 2023 in three (3) different JVs with the initial barns being populated with livestock by fall/winter 2024-25. Further expansion
in the number of distinct JVs is projected through 2025 aiming at 5-10 JVs in process --- each of which JVs will be pursuing development
of multiple Modules with targets of 12-15 populated Modules by the end of 2025 (approximately 2%-3% of the US beef market) and 30-45 Modules
constructed and populated by 2027-28 (approximately 6%-8% of the US beef market) with further expansion thereafter. Bion’s current
goal is that its Gen3Tech platform will be utilized to produce 33% of the verifiable “sustainable beef” category at the end
of the period (which will equal approximately 2 million cattle annually)(45 Modules).
There is no assurance that the Company will reach
or approach the goals/targets set forth above. Reaching such goals/targets will require access to very large amounts of capital (equity
and debt) as each module is projected to cost in excess of $50 million to construct and require mobilization of substantial personnel,
technical resources and management skills. The Company does not possess either the financial or personnel resources required internally
and will need to source such resources from outside itself.
During this five (5) year period, the Company also
anticipates having additional Gen3Tech projects underway in the pork/dairy/egg sectors of the US animal protein market.
HISTORY, BACKGROUND AND CURRENT ACTIVITIES
Since the Company’s inception, Bion has designed and developed
advanced waste treatment systems for livestock. The first and second generations of Bion’s technology platform were biological systems,
primarily focused on nutrient control. Over 30 of these systems were deployed at New York dairies, Florida food processing facilities
and dairies, North Carolina hog farms, a Texas dairy and a Pennsylvania dairy (“Kreider 1 Project”). The systems were highly
effective at their intended purpose: capturing nitrogen and phosphorus. They produced BionSoil as a byproduct, which was a remarkably
effective soil amendment/ fertilizer product, but whose value was not enough to support a viable business model. As such, these early
technology iterations were entirely dependent on either implementation of new regulations requiring waste treatment, or subsidy/ incentive
programs that would provide ‘payment for ecosystem services’. By the mid-2010’s, it became apparent that neither of
these options were imminent or even assured, so the Company initiated the steps to reimagine and redesign its technology.
From 2016 to 2021 fiscal years, the Company focused
most of its activities and resources on developing, testing and demonstrating the third generation of its technology and technology platform
(“Gen3Tech”) that was developed with an emphasis producing more valuable co-products from the waste treatment process, including
renewable natural gas and ammonium bicarbonate, a low-carbon, organic ’pure’ nitrogen fertilizer product while raising sustainable
livestock.
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 including
food safety, environmental impacts, and inhumane 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 Gen3Tech, 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, both of which 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 Gen3Tech will also produce (as co-products) biogas, solar photovoltaic electricity in appropriate
locations, and valuable low carbon 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 July 2022, the Company entered into a letter
of intent with Ribbonwire Ranch (Dalhart, Texas) (“Ribbonwire LOI”) setting forth the parties’ intention to negotiate
a joint venture agreement (“JVA”) and enter into a joint venture (“JV”) to develop and operate an initial 15,000
head integrated, sustainable beef facility on RWR property (“Dalhart Project”) including:
The Dalhart Project will include expansion capability up to
60,000 head of cattle, in aggregate, located at/around/contiguous to the initial facilities on Ribbonwire property.
The opportunity presented
by the Ribbonwire LOI to commercialize the Company’s Gen3Tech and business model matured more quickly than anticipated (reflecting
strong industry and public momentum in favor of verifiably sustainable food ventures). As a result, we have shifted our plans to focus
resources and make our initial 15,000 head operation in Dalhart, TX a reality as soon as possible.
To place the Ribbonwire LOI and the Dalhart Project in the context of Company’s
business plan (and our prior public disclosure), if the contemplated venture moves forward on the timelines set forth in the Ribbonwire
LOI, active development of the Dalhart Project will commence early in the second quarter of 2023.
Prior to such activity, the Company intends to construct
and operate the initial phase of the previously announced Gen3Tech demonstration project near Fair Oaks, Indiana (“Initial Project”):
i) to validate our existing data and modeling at commercial scale and ii) to optimize the Bion Gen3Tech module for finalization of design
parameters and fabrication details of our planned 15,000 head commercial facilities (including the Dalhart Project). For the purposes
of this initial phase, the Company, in order to accelerate the data acquisition phase, intends to utilize anaerobic digester effluent
from the nearby/contiguous Fair Oaks dairy. Construction and related activities of this demonstration project have commenced with main
module assembly on site targeted to commence during January 2023 (somewhat delayed due to supply chain constraints) followed by operations
through the first half of 2023 to generate the required information. Thereafter, the Company will evaluate what, if any, additional facilities
and testing will take place at that location.
The Initial 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.
The Company anticipates that it will negotiate additional letters of intent
and enter into additional joint ventures related to the development of further commercial-scale sustainable beef projects over the next
6-18 months in addition to the Dalhart Project.
As previously disclosed, during late September 2021,
Bion entered into a lease for the development site of the Initial Project, our initial commercial scale Gen3Tech project, which Initial
Project will be located on approximately four (4) acres of leased land near Fair Oaks, Indiana, and a related agreement regarding disposal
of certain manure effluent with the Curtis Creek Dairy unit of Fair Oaks Farms (“FOF”). Design and pre-development work commenced
during August 2021 and preliminary surveying, site engineering and other work is now underway along with site-specific engineering and
design work. The Initial Project was initially planned to 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. If all phases of the Initial Project are constructed, the facility will include
Bion’s Gen3Tech platform including: i) covered barns (possibly including roof top 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 Gen3Tech facilities capable of treating the waste from approximately 1,500 head). The facility will be large enough to demonstrate
engineering capabilities of Bion’s Gen3Tech at commercial scale, but small enough that it can be constructed and commissioned relatively
quickly. Originally, construction and onsite assembly operations were targeted to commence sometime late in 2022, however, supply chain
backlogs have delayed likely delivery dates for core modules of the Bion system to the site until sometime during January 2023. 3G1 has
been moving forward with the development process of the Initial Project. See Note 3 “Property and Equipment” and Note 12 “Subsequent
Events” (for activities since the start of the first quarter of the 2023 fiscal year).
The Initial 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 Gen3Tech platform scalability
iv. Produce sustainable beef products for initial test marketing efforts.
On January 28, 2022 Bion Environmental Technologies,
Inc. (‘Bion’), on behalf of Bion 3G1 LLC (‘3G1’), a wholly-owned subsidiary, entered into a Purchase Order Agreement
with Buflovak and Hebeler Process Solutions (collectively ‘Buflovak’) in the amount of $2,665,500 (and made the initial 25%
payment ($665,375)) for the core of the ‘Bion System’ portion (without the crystallization modules which will be ordered and
fabricated pursuant to subsequent agreements) of the previously announced Gen3Tech Initial Project. This Purchase Order encompasses the
core of Bion’s Gen3Technology.
On March 21, 2022 the Company received progress
notice re completion of certain work in process and an invoice from Buflovak for the next 25% payment ($665,375) which was paid
during the 2022 fiscal year. On June 6, 2022, the Company received progress notice re completion of certain work in process and
an invoice from Buflovak for the third 25% payment ($665,375) which was paid on July 5, 2022 bringing
the aggregate payments to $1,996,125 as of the date of this report. Buflovak
has worked with the Company on design and testing of its Gen3Tech over several years. 3G1 is working in concert with Integrated
Engineering Services, the primary site engineering firm for the facility, on the integration of all project components/modules at
the Initial Project site. Additional agreements have been entered into various professional services providers (engineers,
surveyors, etc.) for work related to the Initial Project.
The Initial Project will be carried out in stages
with phase one focused on portions of items i. and iii. set forth above.
Upon completing the primary goals of phase 1 of the
Initial Project (coupled with obtaining organic certifications(s) for our solid ammonium bicarbonate fertilizer product line),
Bion expects to be ready to move forward with its plans for development of much larger facilities including the Dalhart Project including
final design of its Gen3Tech modules. The Company anticipates that discussions and negotiations it has begun (together with additional
opportunities that will be generated over the next 6-12 months) regarding potential JVs with strategic partners in the financial, livestock
and food distribution industries to develop large scale projects will continue during the development/construction of the Initial Project
with a 2023 goal of establishing multiple JV’s for large scale projects that will produce sustainable and/or sustainable-organic
corn-fed beef. These 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 Gen3Tech platform.
After the basic technology start-up milestones of
the Initial Project (primarily optimization and steady-state operations of the core modules of our Gen3Tech platform) have been met, the
Company will determine whether to complete the entire Initial Project as originally designed at that location or the relocate the core
modules to an alternative permanent location. The Company is in discussion with the University of Nebraska-Lincoln to jointly develop
an integrated beef facility based on Bion’s Gen3Tech and business model at its Klosterman Feedyard Innovation Center (“KFIC”)
(or other mutually agreed upon location) which facility will include innovative barns, an anaerobic digester and a Bion Gen3Tech system
to conduct ongoing research and development related thereto and the KFIC is a possible site for the long-term re-location of the core
modules. This venture, if it moves forward, is anticipated to include joint preparation of applications for grants and other funding from
the USDA (‘climate smart’ program, rural development, etc.) and other sources. The Company will also evaluate re-locating
the core module of the Initial Project to Dalhart, Texas, where it might be integrated into the first phases of the Dalhart Project.
The Company’s initial ammonium bicarbonate
liquid product completed its Organic Materials Review Institute (“OMRI”) application and review process with approval during
May 2020. Applications for our first solid ammonium bicarbonate product line have been filed with OMRI, the California Department of
Food & Agriculture (“CDFA”) and the Iowa Organic Program (“IOP”) and are in the review processes (which is
likely to require an extended period of time and multiple procedural steps, in part due to the novel nature of our Gen3Tech in the context
of organic certifications). See “Organic Fertilizer Listing/Certification Process” below.
Additionally, the Company believes there will
also be opportunities to proceed with selected ‘retrofit projects’ of existing facilities (see ‘Gen3Tech Kreider
2 Poultry Project’ below as an example) in the swine, dairy and poultry industries utilizing our Gen3Tech.
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, 2019
NYU Stern’s Center for Sustainable Business study found 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, etc.) have shown that a certain segment of
consumers is choosing seemingly sustainable food product offerings, 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.
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 Gen3Tech
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.
Gen3Tech Beef Business Model
Bion believes that at least a premium segment of the
U.S. 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 wholesale/farmgate 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 initially enjoyed steady sales growth until sales began flattening
over the past 12-18 months. 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 primary beef ‘industry response’ to this has been
grass-fed beef, which is regarded as a generally more sustainable offering than grain-fed (largely without empirical evidence) plus a
patina of initiatives invoking the vague term ‘regenerative’ agriculture. 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, segment 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 technical and economic 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 and timeline for availability remain very uncertain at this point.
Each of these items supports Bion’s belief that
there is a potentially very large opportunity to supply premium verifiably sustainable beef products that address these consumer concerns.
We believe that the real meat/beef products that can be cost-effectively produced today using our Gen3Tech platform, both sustainable
and/or sustainable organic, can provide an affordable product that satisfies the consumer’s desire for sustainability, while providing
the superior taste and texture those consumers have grown to prefer.
While
the beef industry has largely continued historic practices, the dairy industry has housed milk cows in barns and has been processing
cow waste through anaerobic digesters (ADs) to generate energy for years. In recent years the renewable biogas (RNG) from the dairy ADshas become increasingly lucrative due to related environmental
credits.
Bion‘s sustainable beef business model, based
on our Gen3Tech platform, will develop and operate large scale facilities that: a) utilize custom designed barns which enable a more
controlled and monitored husbandry environment (and photovoltaic solar electricity generation utilizing the rooftops), b) with continual
manure transfer to ADs, c) which produce RNG and related environmental revenues, and d) then channel the AD waste (including CO2 recovered
from the RNG processing/cleanup) through a series of patented technologies to refine the waste into its various components. The diagram
below depicts a simplified facility schematic/flow chart:
This overall business model unites several interrelated
businesses driven by Bion’s technology and augments and aggregates multiple revenue streams as described below. See “Technology
and Technology Platform” below for descriptions of the 4 major categories of products/revenue streams which Bion anticipates
from its Gen3Tech beef facilities: a) premium ‘sustainable branded’ beef, b) renewable energy and energy/environmental/carbon-related
credits, c) organic fertilizer products and d) nutrient credits.
Sustainable Beef
Bion’s goal is to be first to market with meaningfully
verified sustainable beef products that can be produced at sufficient scale to service national market demand. The cattle produced at
a Bion facility will have a substantially lower carbon footprint, dramatically reduced nutrient impacts to water and air, and an almost
total pathogen kill in the waste stream. Further, the economics of producing these cattle (including the cost of the facility/technology
upgrade) will be greatly enhanced by the revenue realized from the recovery of valuable resources, including renewable energy, high-value
fertilizer products, and clean water.
A Bion sustainable beef facility (see diagram above)
will be comprised of covered barns with slotted floors (allowing the waste to pass through) which will reduce ammonia volatilization and
loss to the atmosphere, as well as odors, thereby improving animal health and human working conditions while preventing air/soil/water
pollution. The manure will be collected and moved directly to customized anaerobic digestion facilities which will produce renewable natural
gas (and re-cycle CO2 from the gas cleaning process). 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’ very large roof surface area will be
utilized (in appropriate geographical locations) for the installation of photovoltaic solar generation systems to produce electricity
for the facility, as well as export to the grid. The barn roofs will also be configured to capture rainwater, which, coupled with the
water recovered from the treatment process, will reduce the projects’ reliance on current water supplies.
Waste treatment and resource recovery will be provided
by Bion’s Gen3Tech platform, which Bion believes offers the most comprehensive solution for livestock waste available today. In
addition to direct environmental benefits, 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.
Recently there have been efforts to establish sustainable
brands (including USDA PVP certification) for a number of small-scale livestock producers (largely in the grass fed beef category). To
date, the reach and extent of such efforts is limited and it is difficult to determine their effectiveness. Additionally, there have
been public announcements of initiatives related to beef sustainability (largely focused on the ‘cow-calf’ segment of the
livestock chain) in procurement by major beef processing companies, but a closer look finds that most consist largely of ‘green
washing’ public proclamations in the wake of environmental and social criticism that re-package prior initiatives and lack any significant
new substance.
At present, there is essentially no traceable and
verifiable ‘sustainable beef’ available to the US market except for niche products. In response to consumer demand for transparency
and sustainability, Bion expects the meat industry in general, and beef specifically, to evolve towards using new technologies to deliver
these attributes in their products. While we anticipate a faster adoption of tracking, verification and sustainability technologies in
other perishable food categories like produce and dairy due to their harvest and production techniques, meat industry leaders have also
announced their willingness to move forward with initiatives in this area. Bion predicts that within approximately five years, consumers
will be able to track and verify claims including sustainability on 25% (or more) of the products merchandised in the meat department.
Bion believes that the retail market share of verifiably sustainable beef in the US will approach 7-10 % within three (3) years (end of
2025) and 25% in five (5) years (end of 2027) (approximately 2,000,000 cattle annually). If Bion can successfully execute on its sustainable
beef business plan, facilities utilizing Bion’s Gen3Tech platform will provide one-third (1/3) or more of that of the premium market
segment (and a higher portion of meat that is actually traceable and verifiably sustainable). Our goal is to have multiple sustainable
beef projects under development (within 3-5 distinct JVs) by the end of 2023. Our first commercial project is likely to be the Dalhart
Project but we anticipate commencing additional sustainable beef projects during 2023 as well. Our current target is to have at least
three (3) facility modules (15,000 head per module)(“Modules”) in development/under construction during 2023 in three (3)
different JVs with the initial barns being populated with livestock by fall/winter 2024-25. Further expansion in the number of distinct
JVs is projected through 2025 aiming at 5-10 JVs in process --- each of which JVs will be pursuing development of multiple Modules --
with targets of 12-15 populated Modules by the end of 2025 (approximately 2%-3%% of the US beef market) and 30-45 Modules constructed
and populated by 2027-28 (approximately 6%-8% of the US beef market) with further expansion thereafter. Bion’s current goal is that
its Gen3Tech platform will be utilized to produce 33% of the verifiable “sustainable beef” category at the end of the period
(which will equal approximately 2 million cattle annually)(45 Modules).
There is no assurance that the Company will reach
or approach the goals/targets set forth above. Reaching such goals/targets will require access to very large amounts of capital (equity
and debt) as each module is projected to cost in excess of $50 million to construct and require mobilization of substantial personnel,
technical resources and management skills. The Company does not possess either the financial or personnel resources required internally
and will need to source such resources from outside itself.
Some portion of which sustainable beef will likely
be organic (see below).
Sustainable Organic Beef
Bion believes it has a unique opportunity to produce,
at scale, affordable corn-fed organic beef that is also 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 Gen3Tech 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 relatively
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 grain-finished organic beef product is largely unavailable in the marketplace today due to the higher
costs of producing organic corn and grain. 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 to this trend 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 CAFOs – where most of the negative environmental impacts take place.
Organic Fertilizer Listing/Certification Process
The Company has focused a large portion of its activities
on developing, testing and demonstrating the 3rd generation of its technology and technology platform (“Gen3Tech”) with emphasis
on increasing the efficiency of production of valuable co-products from the waste treatment process, including ammonia nitrogen in the
form of low carbon and/or organically certified 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.
Applications for our first solid form of concentrated
ammonia, soluble nitrogen fertilizer product line have been filed with OMRI (filed during May 2021), the Iowa Organic Program (“IOP”)(filed
during March 2022) and the California Department of Food & Agriculture (“CDFA”)(filed during May 2022) and are each in
the review process. The review processes are requiring extended periods of time and multiple procedural steps with each entity in part
due to the novel nature of Bion’s Gen3Tech and our solid ammonium bicarbonate product in the context of organic certifications.
The OMRI application has proceeded through multiple stages of review and rebuttal/appeal without receiving a positive result to date.
The Company anticipates has recently filed a new appeal to the most recent determinations. The Company’s CDFA has received initial
comments regarding our solid ammonium bicarbonate product line and we anticipate providing CDFA with the requested updated information
and clarifications during the next 60 days. The Company’s product line is novel in part due to the fact that there is not a formal
listing category for a solid form of concentrated ammonia, soluble nitrogen fertilizers and there is no clear guidance at present from
internal policy manuals on how to categorize this product and the process that produced it. There is also no clear guidance at present
from either the NOP or the National Organic Standards Board (“NOSB”) (which is currently involved in a related review and
recommendations process regarding ‘high nitrogen liquid fertilizers’ derived from ammonia from manure). The Company and its
representatives, along with a number of other stakeholders, are involved in discussions regarding resolution of these matters at all three
levels. The Company anticipates positive resolution of this matter with one or more listings/certifications of this product line well
prior to operational dates for the Company’s initial large scale JV Gen3Tech projects.
Gen3Tech Kreider 2 Poultry Project
Bion has done extensive pre-development work related
to a waste treatment/renewable energy production facility to treat the waste from KF’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 (“JVA”)
with Kreider Farms covering all matters related to development and operation of Kreider 2 system to treat the waste streams from Kreider’s
poultry facilities in Bion PA2 LLC (“PA2”). During May 2011 the PADEP certified a smaller version of the Kreider 2 Project
(utilizing our 2nd generation technology) under the old EPA’s Chesapeake Bay model. The Company anticipates that if and
when new designs are finalized utilizing our Gen3Tech, a larger Kreider 2 Project will be re-certified for a far larger number of credits
(management’s current estimates are between 2-4 million (or more) nutrient reduction credits for treatment of the waste stream from
Kreider’s poultry pursuant to the amended EPA Chesapeake Bay model and agreements between the EPA and PA). Note that this Project
may also be expanded in the future to treat wastes from other local and regional CAFOs (poultry and/or dairy---including the Kreider Dairy)
and/or additional Kreider poultry expansion (some of which may not qualify for nutrient reduction credits). The Company has commenced
discussions with Kreider Farms regarding updating the JVA to reflect the capabilities of our Gen3Tech platform and anticipates executing
an amended (or new) JVA during the current fiscal year. The Company anticipates that if and when PA2 re-commences work on the Kreider
2 Project, it will submit a new application based on our Gen3Tech. Site specific design and engineering work for this facility 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 Pennsylvania, of which there is no assurance, the
Company intends to pursue development, design and construction of the Kreider 2 Project with a goal of achieving operational status for
its initial modules during the following calendar year. The economics (potential revenues and profitability) of the Kreider 2 Project,
despite its proposed use of Bion’s Gen3Tech for increased recovery of marketable by-products and sustainable branding, 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 Pennsylvania nutrient credit market has not yet developed significant breadth and
depth, which lack of liquidity has negatively impacted Bion’s business plans and will most likely delay PA2’s Kreider 2 Project
and other proposed projects in Pennsylvania.
Bion believes that the Kreider 2 Project and/or subsequent
Bion Projects in PA and the Chesapeake Bay Watershed will eventually generate revenue from the sale of: a) nutrient reductions (credits
or in other form), b) renewable energy (and related credits), c) sales of fertilizer products, and/or d) potentially, in time, credits
for the reduction of greenhouse gas emissions, plus e) license fees/premiums related to a ‘sustainable brand’. The Covid-19
pandemic has delayed legislative efforts in Pennsylvania needed to commence its development. However, the Company is currently engaged
in dialogue with the regional EPA office and the Chesapeake Bay Program Office regarding the potential of the Company’s Gen3Tech
Kreider2 Project (and other potential projects) to enable Pennsylvania to move forward toward meeting its Chesapeake Bay clean-up goals.
We believe that the potential market is very large, but it is not possible to predict the exact timing and/or magnitude of these potential
markets at this time.
Technology Deployment: Bion Gen3Tech
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 Gen3Tech business platform has been developed to create opportunities for such
augmented revenue streams, while providing third party verification of sustainability claims. The Gen3Tech 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 Gen3Tech 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 Gen3Tech coverage, and the Company has additional applications pending
and/or planned.
Bion’s business model and technology
platform can create the opportunity for joint ventures s (in various contractual forms) (“JVs”) between the Company and
large livestock/food/fertilizer industry participants based upon the supplemental cash flow generated by implementation of our
Gen3Tech business model, which cash flows will support the costs of technology implementation (including servicing related debt). We
anticipate this will result in substantial long term value for Bion. In the context of such JVs, we believe that the verifiable
sustainable branding opportunities (conventional and organic) in meat will represent the single largest enhanced revenue contributor
provided by Bion to the JVs (and Bion licensees). The Company believes that the largest portion of its business with be conducted
through such JVs, but a material portion may involve licensing and or other approaches.
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 U.S. EPA, the Chesapeake Bay Commission, national livestock
interests, and other key stakeholders. Legislation in Pennsylvania to establish the first such state competitive procurement program passed
the Pennsylvania Senate by a bi-partisan majority during March 2019 but has not yet crossed the hurdles required for actual adoption.
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 our 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 Gen3Tech, during the current 2023 fiscal year.
We believe that Bion’s Gen3Tech 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, to adopt sustainable
practices. Environmental cleanup is inevitable and has already begun - and policies have already begun to change, as well. Bion’s
Gen3Tech was developed for implementation on large scale livestock production facilities, where scale drives both lower treatment costs
and efficient co-products production, as well as 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 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 sustainability.
In the U.S. (according to the USDA’s 2017 agricultural
census) there are over 9 million dairy cows, 90 million beef cattle, 60 million swine and more than 2 billion poultry which provides an
indication of both the scope of the problem addressed by Bion’s technology, as well as the size of Bion’s opportunity. 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.
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) are fertilized, in part, in this
manner. Under current manure management practices, 80% or more of total nitrogen from manure, much of it in the form of ammonia, escapes
during storage, transportation, and during and after soil application, representing both substantial lost value and environmental costs.
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,