SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C.  20549
                             Form 10-QSB


(Mark One)
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED   
      September 30, 1998   OR
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 OR THE TRANSITION PERIOD FROM
      __________ TO __________


Commission file number    0-19333      


                   Bion Environmental Technologies, Inc.          
       (Exact name of registrant as specified in its charter)


           Colorado                              84-1176672          
-------------------------------              ------------------
(State or other jurisdiction of               (I.R.S. Employer
 incorporation or organization)              Identification No.)


   555 17th Street, Suite 3310
      Denver, Colorado                            80202             
   ---------------------------                --------------
    (Address of principal                       (Zip Code)
      executive offices)


                                 (303) 294-0750
              ---------------------------------------------------
              (Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No___

The number of shares outstanding of registrant's  classes of common stock, as of
November 11, 1998:

                      Common Stock, No Par Value, 8,906,372


<PAGE>


Bion Environmental Technologies, Inc.                     Form 10-QSB
                                                   September 30, 1998




                                INDEX



PART I     FINANCIAL INFORMATION                      PAGE NO.


ITEM 1     FINANCIAL STATEMENTS

           Balance Sheets:
                June 30, 1998 and
                September 30, 1998.................        F2

          Statements of Operation:
                For the Three Month Periods Ended
                September 30, 1997 and
                September 30, 1998.................        F3

          Statements of Cash Flows:
                For the Three Month Periods Ended
                September 30, 1997 and
                September 30, 1998.................        F4-F5

          Statement of Changes in Stockholders
          Equity for the Period June 30, 1998
          through September 30, 1998...............        F6

          Notes to Financial Statements............        F7-F10


ITEM 2    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS............................         3



PART II   OTHER INFORMATION

ITEM 1-6  .........................................        23




<PAGE>



    


                        FINANCIAL INFORMATION


PART I

ITEM 1.  FINANCIAL STATEMENTS





                                     F - 1
<PAGE>


                  BION ENVIRONMENTAL TECHNOLOGIES, INC.
                            AND SUBSIDIARIES

                       Consolidated Balance Sheets

                                              September 30,    June 30,
                                                  1998           1998    
                                              -------------  ------------
                                               (Unaudited)      (Audited)
                Assets
Current assets
 Cash and cash equivalents ..........     $     13,830      $     19,104
 Accounts receivable ................           21,349            13,986
 Contract receivable(net of allowance
  of $30,000) .......................           20,902            22,902
 Work in progress (net of allowance
  of $30,000) .......................          385,212           389,712
                                          ------------      ------------
   Total current assets .............          441,293           445,704
                                          ------------      ------------

Property and equipment
 Computers and equipment ............          301,751           298,782
 Accumulated depreciation ...........         (104,963)          (91,727)
                                          ------------      ------------
                                               196,788           207,055

Other assets
 Patents, net .......................           42,258            43,066
 Deferred long-term contract costs ..           71,333            71,333
 Deposits and other .................           13,015            13,044
                                          ------------      ------------
    Total other assets ..............          126,606           127,443
                                          ------------      ------------

Total assets ........................     $    764,687      $    780,202
                                          ============      ============

  Liabilities and Stockholder (Equity)
Current liabilities
 Accounts payable ...................     $    273,506      $    241,384
 Accounts payable - related party ...           23,034            20,324
 Notes payable - stockholders .......          159,171            89,171
 Capital lease obligations ..........           62,158            67,137
 Accrued expenses ...................              384            24,368
 Accrued payroll ....................          359,727           284,250
                                          ------------      ------------
     Total current liabilities ......          877,980           726,634
                                          ------------      ------------

Long-term liabilities
 Note payable - stockholder .........          315,000           210,000
 Capital lease obligation ...........           71,100            83,127
 Deferred contract revenue ..........          151,000           151,000
                                          ------------      ------------
     Total liabilities ..............        1,415,080         1,170,761
                                          ------------      ------------

Commitments and contingencies

Stockholders' (deficit)
 Common stock, no par value,
  100,000,000 shares authorized,
  8,875,384 (September 30, 1998)
  and 8,764,827 (June 30, 1998)
  shares issued and outstanding .....       11,119,868        10,863,469
 Common stock subscribed ............           31,500            21,500
 Accumulated deficit ................      (11,801,761)      (11,275,528)
                                          ------------      ------------
    Total stockholders' (deficit) ...         (650,393)         (390,559)
                                          ------------      ------------

Total liabilities and stockholders'
 (deficit) ..........................     $    764,687      $    780,202
                                          ============      ============


                 See Notes to Consolidated Financial Statements
                                     F - 2
<PAGE>


                     BION ENVIRONMENTAL TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                  Consolidated Statements of Operations


                                              Three Months Ended
                                                 September 30        
                                        ----------------------------
                                              1998           1997   
                                        ------------     -----------

                                         (Unaudited)     (Unaudited)

Contract revenues .................     $    63,872      $    24,837

Contract costs ....................         122,841           93,554
                                        -----------      -----------

    Gross profit (loss) ...........         (58,969)         (68,717)

General and administrative expenses         382,475          469,267
Research and development ..........          66,999           52,757
                                        -----------      -----------

Loss from operations ..............        (508,443)        (590,741)

Other income (expense)
 Interest expense .................         (15,148)         (22,904)
 Other income and expense, net ....          (2,642)             144
                                        -----------      -----------


Net (loss) ........................     $  (526,233)     $  (613,501)
                                        ===========      ===========

Basic (Loss) per weighted average
 share of common stock ............     $     (0.06)     $     (0.16)
                                        ===========      ===========


Weighted common shares outstanding        8,833,960        3,773,656
                                        ===========      ===========

                See Notes to Consolidated Financial Statements.
                                     F - 4

<PAGE>


                  BION ENVIRONMENTAL TECHNOLOGIES, INC.
                            AND SUBSIDIARIES

                  Consolidated Statements of Cash Flows



                                                 Three Months Ended
                                                    September 30,      
                                              --------------------------
                                                  1998           1997    
                                              -----------    -----------
                                              (Unaudited)    (Unaudited)

Cash flows from operating activities
 Net (loss) ..............................     $(526,233)     $(613,501)
 Adjustments to reconcile net loss to
  net cash used in operating activities -
  Depreciation and amortization ..........        14,044         12,724
  Issuance of subscribed stock for
   services, compensation and interest ...        10,725         76,553
  Issuance of subscribed stock for
   services ..............................        11,500         47,500
  Change in assets and liabilities -
   Receivables and work in progress ......          (863)        27,421
   Prepaid expenses and other ............            29          3,000
   Accounts payable ......................        34,832        (27,037)
   Accrued liabilities ...................        51,493         52,750
                                               ---------      ---------

       Net cash used in operating
        activities .......................      (404,473)      (420,590)

Cash flows from investing activities
 Purchases of equipment ..................        (2,969)          --
 Investments in patents ..................          --             (700)
                                               ---------      ---------

       Net cash used in investing
        activities .......................        (2,969)          (700)

Cash flows from financing activities
 Payments on notes payable ...............          --         (133,000)
 Proceeds from notes payable .............       175,000           --
 Proceeds from sale of stock/warrant
  issuances ..............................       161,674        340,721
 Proceeds from exercise of options .......        82,500           --
 Payments on capital lease obligations ...       (17,006)       (16,494)
 Proceeds from the sale of assets,
  net of selling expenses ................          --          227,000
                                               ---------      ---------

       Net cash provided by financing
        activities .......................       402,168        418,227

Net increase (decrease) in cash and
cash equivalents .........................        (5,274)        (3,063)

Cash and cash equivalents at beginning
 of period ...............................        19,104          9,232
                                               ---------      ---------

Cash and cash equivalents at end of period     $  13,830      $   6,169
                                               =========      =========


Footnote:
    Supplemental disclosure of cash flow information
       Cash paid during the quarter for interest was $4,437 (1998)
        and $22,904 (1997).

                See Notes to Consolidated Financial Statements.
                                     F - 5

<PAGE>



                  BION ENVIRONMENTAL TECHNOLOGIES, INC.
                            AND SUBSIDIARIES

                  Consolidated Statements of Cash Flows


Continued from previous page.



    Supplemental disclosure of non-cash financing activities

       For the quarter ended September 30, 1998 -
          Converted  $1,500 of common stock  subscribed into 300 shares
          of common stock.


       For the quarter ended September 30, 1997 -
          Declared and accrued dividends of $2,543 for preferred stock Series B.
          Converted  $2,503 of common stock  subscribed into 598 shares
          of common stock.


                See Notes to Consolidated Financial Statements.
                                     F - 6


<PAGE>


                      BION ENVIRONMENTAL TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

            Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>

                                             Common Stock               Common
                                       --------------------------        Stock          Accumulated
                                         Shares          Amount       Subscribed          Deficit             Total
                                       ---------     ------------    -------------      ------------      -------------

<S>                                    <C>           <C>              <C>             <C>              <C> 
Balances at June 30, 1998 .....        8,764,827     $ 10,863,469     $     21,500      ($11,275,528)     ($   390,559)


Conversion of common stock
  subscriptions to common
  stock .......................              300            1,500           (1,500)             --                --   


Common stock subscriptions
  for services ................             --               --             11,500              --              11,500

Issuance of common stock
  for cash ....................           97,942          161,674             --                --             161,674


Issuance of common stock
  for services ................            2,315           10,725             --                --              10,725

Exercise of stock options .....           10,000           82,500             --                --              82,500


Net (loss) for the period ended
  September 30, 1998 ..........             --               --               --        (    526,233)     (    526,233)
                                      ----------     ------------     ------------      -------------

Balances at
  September 30, 1998 ..........        8,875,384     $ 11,119,868     $     31,500      ($11,801,761)     ($   650,393)
                                      ==========     ============     ============      =============

                 See Notes To Consolidated Financial Statements
                                     F - 7

</TABLE>

<PAGE>


                BION ENVIRONMENTAL TECHNOLOGIES, INC.
                          AND SUBSIDIARIES

             Notes to Consolidated Financial Statements


Note 1 - Summary of Accounting Policies
---------------------------------------

The  summary  of the  significant  accounting  policies  of  Bion  Environmental
Technologies,  Inc.  ("Company") is  incorporated  by reference to the Company's
annual report on Form 10-KSB at June 30,
1998.

The  accompanying  unaudited  financial  statements and disclosures  reflect all
adjustments (all of which are normal recurring  accruals) in the ordinary course
of  business  which  in the  opinion  of  management  are  necessary  for a fair
presentation of the results of operations, financial positions, and cash flow of
the  Company.  The  results of  operations  for the  periods  indicated  are not
necessarily indicative of the results for a full year.


Note 2 - Continued Operations
-----------------------------

The  accompanying  financial  statements  have been prepared on a going con-cern
basis  which   contemplates   the  realization  of  assets  and  liquidation  of
liabilities in the ordinary course of business.  In prior years, the Company had
been in the  development  stage and its  principal  activities  had consisted of
raising  capital,   performing  research  and  development  activities  and  the
development of its products.  The Company has not yet begun earning  significant
revenue from its planned principal operations. Consequently, as of September 30,
1998,  the  Company  has  incurred  accumulated  losses  totaling   $11,801,761,
resulting in an accumulated  stockholders' deficit of $650,393.  Cash flows from
current  operations are not  sufficient to meet the  obligations of the Company.
Management plans include continuing efforts to obtain additional capital to fund
operations  until contract sales along with sales of BionSoil(TM) are sufficient
to fund  operations.  There can be no assurance that the Company will be able to
successfully attain profitable operations or raise sufficient capital.


Note 3 - Cost and Estimated Earnings on Uncompleted Contracts
-------------------------------------------------------------

The  Company's  costs and estimated  earnings on  uncompleted  treatment  system
contracts consist of the following:

                                     September 30,      June 30,
                                         1998             1998  
                                     -------------    ------------ 

     Costs incurred on contracts      $1,985,410       $1,927,813
     Estimated (losses)                 (570,547)        (548,450)
                                      -----------      -----------
                                       1,414,863        1,379,363
     Less billings to date            (1,109,318)      (1,069,318)
                                      -----------      -----------
                                      $  305,545       $  310,045 
                                      ===========      ===========


Note 4 - Capital Structure
--------------------------

Because the Company has a relatively complex capital structure for its size, the
following capital structure details are set forth:



<PAGE>


   Common Stock
   ------------

      As of November 11, 1998 the Company had  8,906,372  shares of Common Stock
      issued and outstanding and 7,653 shares of subscribed stock.

   Options and Warrants
   --------------------

      As of November 11, 1998 the Company has  outstanding  options and warrants
      as follows:

      Options   outstanding   under  the  Fiscal  Year  1994  Incentive
      Compensation  Plan  and the Non  Employee  Director  Compensation
      Plan:

                                           Commences    Expires
                                           ---------    -------
     Director ($1.72)         10,000        8/20/97     8/19/02
              ($2.27)         10,000        8/20/97     8/19/02
                              ------
                              20,000

     Employee ($3.25)         30,000        11/2/98    12/31/98
              ($4.00)          1,247       10/21/97    12/31/01
              ($4.00)          1,200         2/3/98    12/31/01
              ($4.00)          8,519        9/15/97    12/31/01
              ($4.00)            834         6/2/98    12/31/01
              ($4.00)            694       12/16/97    12/31/01
              ($4.00)          1,734         8/4/98    12/31/01
              ($4.00)         17,500         8/1/97      8/1/00
              ($4.00)          1,000        3/31/98     3/31/99
              ($4.00)          1,334        8/11/98    12/31/01
              ($6.00)          1,000        3/31/98     3/31/99
              ($6.00)          8,517        9/15/98    12/31/01
              ($6.00)          5,000        9/15/97    12/31/01
              ($6.00)          1,247       10/21/98    12/31/01
              ($6.00)          1,200         2/3/99    12/31/01
              ($6.00)            693       12/16/98    12/31/01
              ($6.00)          1,733         8/4/99    12/31/01
              ($6.00)          1,333        8/11/99    12/31/01
              ($6.25)          1,000         6/1/98     5/31/00
              ($6.25)          5,000        10/6/97    12/31/98
              ($6.75)          5,000        10/6/97     3/31/99
              ($7.25)         22,500        1/26/98    12/31/98
              ($7.25)         10,000        10/6/97     3/31/99
              ($7.50)         23,000        2/23/98    12/31/98
              ($7.75)         25,000        4/17/98    12/31/98
              ($8.00)         10,000        9/15/98    12/31/01
              ($8.00)          1,246       10/21/99    12/31/01
              ($8.00)          1,200         2/3/00    12/31/01
              ($8.00)            693       12/16/99    12/31/01
              ($8.00)          1,733         8/4/00    12/31/01
              ($8.00)          1,333        8/11/00    12/31/01
              ($8.00)          8,516        9/15/99    12/31/01
             ($10.00)         10,000        9/15/98    12/31/01
             ($12.50)         10,000        9/15/99    12/31/01
             ($15.00)         10,000        9/15/99    12/31/01
                             -------
                             251,006



<PAGE>


      Warrants outstanding as of November 11, 1998 consist of the following:

      $3.00 warrants:
         exercisable 1/22/96 through 1/21/01:              1,003
         exercisable 8/21/96 through 8/20/01:             14,500
         exercisable 9/13/96 through 9/12/01:                827
                                                         -------
                            Total $3.00 warrants 16,330

      $4.00 warrants:
         exercisable 6/5/97 through 6/30/99:              35,000
                            Total $4.00 warrants 35,000

      $5.00 warrants:
         exercisable 6/20/96 through 6/20/99:             25,000
         exercisable 8/21/96 through 8/20/01              10,000
                                                          ------
                           Total $5.00 warrants           35,000

      $6.00 warrants:
         exercisable 6/5/97 through 6/30/00:             100,000
         exercisable 3/1/98 through 10/1/99:              50,000
         exercisable 6/9/98 through 12/31/01:              3,750
         exercisable 2/1/97 through 12/31/01:             10,000
         exercisable 4/21/97 through 4/20/02:              4,172
                                                         -------
                           Total $6.00 warrants          167,922

      $7.00 warrants:
         exercisable 7/1/98 through 6/30/99:           1,000,000
                                                       ---------
                           Total $7.00 warrants        1,000,000

      $7.50 warrants:
         exercisable 7/1/98 through 12/31/00:            187,500
                                                       ---------
                           Total $7.50 warrants          187,500

      $8.00 warrants:
         exercisable 2/1/97 through 12/31/01:             10,000
                                                       ---------
                          Total $8.00 warrants            10,000

      $10.00 warrants:
         exercisable 2/1/97 through 12/31/01:             10,000
                                                       ---------
                           Total $10.00 warrants 10,000

      $12.50 warrants:
         exercisable 2/1/97 through 12/31/01:             10,000
                                                       ---------
                           Total $12.50 warrants 10,000

      $15.00 warrants:
         exercisable 2/1/97 through 12/31/01:            10,000
         exercisable 1/1/00 through 12/31/01:         2,832,909
                                                      ---------
                           Total $15.00 warrants      2,842,909
                                                      ---------

      Total of all warrants currently outstanding     4,314,661
                                                      =========



<PAGE>


Note 5 - Basic and Fully Diluted Loss Per Common Share
------------------------------------------------------

During the second quarter of fiscal 1998, the Company  adopted the provisions of
Statement of Financial  Accounting  Standard No. 128,  "Earnings Per Share" (FAS
128). FAS 128 established  new definitions for calculating and disclosing  basic
and diluted  earnings per share.  In accordance  with FAS 128, all prior periods
have been restated to conform to the new  methodology.  The restated amounts did
not differ  materially from amounts  previously  reported.  Due to the Company's
loss from  operations,  all dilutive  potential common stock is antidilutive and
therefore no diluted earnings per share is presented.


Note 6 - Subsequent Events
--------------------------

On October 31, 1998 the Company borrowed $20,000 from a related party. The short
term note accrues interest at 1% per month.

Effective  November 2, 1998 the Company made awards to five employees  under the
1994  Incentive  Stock Plan.  The Company  granted 30,000 options at an exercise
price of $3.25 per share (exercisable from 11/2/98 - 12/31/98).

Effective  November  5,  1998   LoTayLingKyur,Inc.   converted  the  outstanding
principal and interest  totalling  $77,174 on the existing  Credit Facility into
12,863 shares of restricted and legended stock and 37,500  warrants  exercisable
at $7.50 per share  commencing  on November 5, 1998 and expiring on December 31,
1999. On November 5, 1998 the entire balance was  converted.  (See 8-K dated May
21, 1998.)

Effective November 6, 1998 the Company and  LoTayLingKyur,  Inc. ("LTLK") agreed
that LTLK may subscribe  from time to time to purchase  units at $3.25 per unit,
each unit consisting of:

     a)   1 share of restricted and legended common stock

     b)   2 Class "Z" Warrants  (Class "Z" Warrant is  exercisable at $15.00 per
          share commencing January 1, 2000 and expiring on December 31, 2001).


<PAGE>


                BION ENVIRONMENTAL TECHNOLOGIES, INC.
                          AND SUBSIDIARIES



ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The  Company  designs,  installs  and  operates  advanced  waste and  wastewater
treatment  systems.   These  systems,   which  incorporate  patented  biological
technologies,  are capable of removing solids,  nutrients and other contaminants
from  agricultural,  industrial  and  municipal  waste-water.  In addition,  the
agricultural   systems  installed  on  animal  raising   facilities   produce  a
marketable, nutrient-rich soil-like product, BionSoil(TM).

The Company  currently has systems  treating swine,  dairy,  and fruit and juice
processing waste streams in Florida,  Illinois,  New York,  North Carolina,  and
Washington.  The  Company  has  approximately  380,000  BionAnimals  in  design,
permitting,   construction   and/or   operations  with  an  additional   765,000
BionAnimals under contract. The Company is in the process of raising capital for
operations and future growth,  reviewing  strategic partners for various aspects
of the business,  continuing a research and  development  effort on both systems
applications and byproducts, and strengthening its patent coverage.

The Company has incurred  losses since inception of $11,801,761 and is currently
experiencing  liquidity  problems.  Continued  losses  without  the  infusion of
additional capital raise doubt about its ability to continue as a going concern.
Management plans include continuing efforts to obtain additional capital to fund
operations  until such time, if ever, as contract sales and the sale of BionSoil
are sufficient to fund opera-tions.  No assumptions can be made that the Company
will  be  able  to  successfully  attain  profitable   operations  and/or  raise
sufficient capital to sustain operations.

Liquidity and Capital Resources
-------------------------------

The Company's  current ratio as of September 30, 1998 was 0.50 : 1.0 as compared
to 0.61 : 1.0 as of June 30, 1998.  Cash as of September  30, 1998  decreased to
$13,830 as compared to $19,104 as of June 30, 1998.

During the three months ended September 30, 1998, the Company  borrowed  $70,000
from two shareholders at 1% interest per month.

As of September 30, 1998 the Company has drawn $240,000  against the October 26,
1996 line-of-credit with a shareholder. (See 8-K dated December 1, 1996.)



<PAGE>


On May 21, 1998 the Company  entered into a credit  facility  with a shareholder
for a maximum  amount not to exceed  $1,500,000.  On June 30,  1998 the  Company
converted  all of the  outstanding  debt  ($300,000  of  principal  and  $677 of
interest)  into  50,113  shares of common  stock at $6.00 per share and  150,000
warrants at $7.50 per share  commencing  July 1, 1998 and expiring  December 31,
1999.  (See 8-K dated May 21, 1998.) As of September 30, 1998 the Company had an
outstanding note payable of $75,000 against this credit facility. On November 5,
1998 the entire balance was converted (See Note 6).

For the three months ended  September 30, 1998 the Company  issued 97,942 shares
of common stock for cash  ($161,674),  2,315 shares of common stock for services
($10,725),  and converted 300 shares of subscribed stock to 300 shares of common
stock  valued at $1,500.  All of the above is  legended  and  restricted  common
stock.  The Company also issued 10,000  shares of free trading  common stock for
the exercise of options ($82,500). The Company has increased subscribed stock by
$10,000 for  legended  and  restricted  common  stock  awarded but not issued to
certain employees as additional compensation.

Results of Operations
---------------------

Comparison of the Three Months Ended  September 30, 1998 with Three Months Ended
September 30, 1997
--------------------------------------------------------------------------------

Revenue in the three months  ended  September  30, 1998 was $63,872  compared to
$24,837  for the  corresponding  three  month  period in 1997,  an  increase  of
$39,035.  Contract  costs were higher in the 1998 three month  period by $29,287
due to the  increased  expenses  associated  with  system  design  and New  York
BionSoil  processing.  The above  resulted in a gross loss for the period  ended
September  30,  1998 of $58,969 as  compared  to a gross loss of $68,717 for the
same three month period in 1997.

General and  administrative  expenses were lower by $86,792 due to a decrease in
compensation  and  professional  expenses  ($110,000)  partially  offset  by  an
increase in investor relations expenses ($14,000).

The  Company  recorded  $15,148 in  interest  expense on its notes  payable  and
$66,999 in research and development costs. As a result of the above, the Company
recorded a net loss of $526,233 in the three month  period ended  September  30,
1998,  compared  to a net loss of  $613,501  for the three  month  period  ended
September 30, 1997.

The Company will need to increase sales significantly to obtain profitability.

Year 2000 Issue
---------------

The  Company  is aware of the issues  associated  with the  programming  code in
existing  computer systems as the millennium (year 2000)  approaches.  The "year
2000" problem is pervasive  and complex as virtually  every  computer  operation
will be affected in some way by the rollover of the two-digit  year value to 00.
The issue is whether  computer  systems will properly  recognize  date-sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail. After a review of the Company's computer systems and associated  software,
management  does not  believe  year  2000  will  have a  material  effect on the
operations or financial condition of the Company. The Company cannot predict the
impact that "Year 2000" will have on its customers and vendors.


<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------

The  discussion  below  contains  forward-looking  statements  (denoted  with an
asterisk *) made in reliance upon the provisions of Rule 175  promulgated  under
the Securities Act of 1933 and should be read in conjunction  with the Company's
consolidated financial statements and the Notes thereto. The footnotes set forth
below (at pages 19 to 23) are an integral part of this  discussion and should be
carefully  reviewed to properly  understand  this  section.  This  discussion is
qualified in its entirety by the risk factors discussed herein.

(a)  Plan of Operation

     General Discussion of Current and Proposed Operations
     -----------------------------------------------------

     The audited  financial  statements  contained in this Form 10-QSB show that
     over  $11,151,368  of equity has been  invested in the Company  through the
     close of the fiscal  quarter  ended  September  30, 1998.  These  financial
     statements  also show that, as of that date, the Company had a negative net
     worth of  $650,393,  cumulative  losses  of  $11,801,761,  limited  current
     revenues and substantial current operating losses. Continued losses without
     additional  outside  funding  raise  doubt about the  Company's  ability to
     continue  as  a  going  concern.   Management  plans  to  continue  raising
     additional capital to fund operations until such time, if ever, as Bion NMS
     sales along with the sales of BionSoil and BionSoil products are sufficient
     to fund operations.

     Management believes,  however, that additional  information is necessary to
     evaluate  the  Company  and its  progress  relative  to the  business it is
     pursuing,  its plans for the future,  and the associated  value the Company
     has  developed  during the last several  years.  Therefore,  the  following
     section of this Form 10-QSB is presented by management to give the reader a
     better  understanding  of the development of the business of the Company to
     date, and its goals for growth in the future.

     Business Development
     --------------------

     The Company's  mission is to provide  services,  systems and products which
     solve environmental problems with wastes and wastewater, and in appropriate
     situations,  recycle  wastes into high value  horticultural  products which
     produce superior plant growth  performance.  The Company currently conducts
     its  business in two  complimentary  areas:  first,  the  Company  designs,
     markets,  and oversees the installation and operation of waste,  wastewater
     and storm water treatment  systems,  primarily in the agricultural and food
     processing  area;  and second,  markets  BionSoil  products such as organic
     fertilizers,  potting soils and soil amendments which are produced from the
     nutrient  rich  solids  harvested  from  certain  types  of  the  Company's
     agricultural  systems  installed  on large dairy and swine  farms.  Through
     September 30, 1998 the Company has sold,  designed or has under  contract a
     total of 80 Bion NMS waste or wastewater  treatment systems.  These systems
     include 5 food  processing  or storm water run off  systems,  as well as 75
     Bion NMS,  BionSolids (see footnote 1, below),  producing  systems that are
     designed to contain  approximately 1.1 million  BionAnimals (see definition
     below)  when  completed.  Eventually  the Company  anticipates  emphasizing
     additional  business  areas  including  without  limitation  municipal  and
     industrial wastewater treatment.*

     Prior  to  September  20,  1989,   (when  Bion   Technologies,   Inc.,  was
     incorporated)  through  at least  June 30,  1997,  the  Company  was in the
     technology development mode with limited sales of primarily first-of-a-kind
     wastewater and/or Bion NMS systems.  Initial sales and  installations  were
     wastewater  treatment NMS (no  BionSolids  production)  until 1993 when the
     emphasis shifted to Bion NMS (BionSolids production) applications.

     During the past two years the Company  has been  working to emerge from the
     research and development  stage and transition into the sales and marketing
     of the  Bion  NMS  systems  and the  BionSoil  products  produced  by those
     systems.   The  Company  has  focused  the  majority  of  its  efforts  and
     expenditures  in these two areas and is beginning to see positive  progress
     in both, as described below.* The Company has defined a method for tracking
     both the sale  and  start-up  of Bion NMS  systems  and the  production  of
     BionSoil based on a Company defined  standard unit, the  BionAnimal,  which
     relates BionSoil  production to confined animal weight. When all the manure
     and urine  produced  by one  BionAnimal  is  collected  as  BionSolids  and
     subsequently  converted  into  BionSoil,  the Company  estimates  that each
     BionAnimal will yield  approximately 1 cubic yard of processed BionSoil per
     year.*

     Using this definition of BionAnimal the Company has developed the following
     table relating the number of animals in full  confinement  installations to
     the number of  BionAnimal  equivalents  they  represent.  (See  footnote 2,
     below):

                                       Table 1
   Animal                 Approximate Equivalent BionAnimals
-------------             -----------------------------------
One dairy cow                     10.00
One steer                          4.50
One sow                            1.35
One market hog                     0.90     (1.1 = 1)
One nursery pig                   0.225     (4.4 = 1)
One layer chicken                  0.02      (50 = 1)

     The main emphasis of the Company's  business  during the past two years has
     been  on  the  application  of  the  Bion  NMS  for  large  animal  raising
     agricultural  facilities.  As a result,  the Company's  focus has been more
     specifically  on:  first,  the  design,  sales,   installation   oversight,
     operations  management,  and  material  harvesting  of Bion NMS systems for
     large dairy and swine facilities;  and, second,  BionSoil:  the development
     efforts   associated  with  testing,   processing,   blending,   packaging,
     marketing,  distribution and sales of BionSoil and BionSoil-based  products
     which are produced from the solids  harvested  from the Company's  Bion NMS
     systems.



<PAGE>


     For fiscal year 1998 (see the  Company's  Form 10-KSB dated June 30, 1998),
     the  Company  exceeded  its'  internal  goals by more  than  100% by adding
     approximately 650,000 BionAnimals under contract.  During the first quarter
     of  fiscal  year  1999,  the  Company  has  added  an  additional   315,000
     BionAnimals, approximately 40% of the Company's internal goals for the year
     (see management's goals and targets below).

      Market Size
      -----------

     Management has devoted significant effort to defining markets for both Bion
     NMS systems and potential markets for BionSoil and BionSoil products. These
     efforts have included  formal and informal  studies,  creation of models as
     well as analysis of available statistical data.

     The Company has analyzed the 1992 U.S.  Department  of  Agriculture  Census
     statistics  (the most recent detailed  information  available from the U.S.
     Department  of   Agriculture)   as  well  as  additional   state  by  state
     information,  in some cases current as of December  1997, and developed the
     following  size  estimates for the target market  segments for system sales
     (see footnote 3, below).

     The total United States animal  population,  based on data contained in the
     1992 U.S. Department of Agriculture Census statistics shows that there were
     over 96 million  cattle and  calves,  57 million  hogs and in excess of 1.2
     billion  fowl on farms in the United  States.  These  numbers if  converted
     based on the Company  defined  BionAnimal  unit,  yield  approximately  455
     million BionAnimals.

     However,  not all of  these  BionAnimals  are on farms  that are  potential
     candidates  for a Bion NMS  installation.  The  Company  has  analyzed  the
     economics of system  installation,  minimum  system size  requirements  and
     system operation factors related to the size of farms. Based on this review
     and further  analysis of the census data,  the Company  estimates  that the
     total number of BionAnimals on larger farms,  which meet size criteria,  is
     approximately  140 million (see  footnote 4, below).  Based on this review,
     these  animals are believed by the Company to be the  potential  candidates
     for system  installation  in the U.S.* Further,  the number of large animal
     farms is increasing as the move to consolidate  livestock  operations  into
     larger more efficient farm units is accelerating (see footnote 5, below).



<PAGE>


     Management's  review of the  potential  market for  BionSoil  and  BionSoil
     products  has  included  research  by the  Battelle  Institute  in a  study
     conducted for the Solid Waste  Composting  Council (see footnote 6, below),
     as well as initial market sector  analysis.*  Battelle  calculated that the
     demand for compost and compost-like  products  (including  products ranging
     from manure to composted  organic wastes to manufactured  potting soils and
     soil  enhancers) in selected  areas of the U.S. alone is projected to be in
     excess of one billion  cubic yards per year.* This demand,  categorized  in
     nine application segments:  landscapers,  delivered topsoil, bagged retail,
     nurseries,  landfill final cover, surface mine reclamation, sod production,
     silvaculture,  and agriculture,  far exceeds  projected  supply.*  Targeted
     markets  for  BionSoil  include  these  segments  in  addition to state and
     municipal  park and  transportation  departments,  golf  courses,  athletic
     fields,  home  gardeners,  reforestation  projects  for  timber  and mining
     companies,  the U.S.  Park  Service and  others.*  The Company is currently
     analyzing  specific  market  sectors that are initial  target  market areas
     within this overall  demand  including  container  nursery  products,  golf
     course construction, the turf industry and others (see footnote 7, below).*

      Geographic Expansion
      --------------------

     The activities of the Company to design,  permit,  oversee the installation
     of and  operate  its  systems in the  various  geographic  areas  where the
     Company is  conducting  its business to date have  established  credibility
     with  federal,   state,   and  local  regulators  and   environmental   and
     agricultural professionals.  With the establishment of this credibility and
     recent  contract  signings,  the Company is  positioned  to attempt to gain
     significant  market  penetration  into new geographic  areas.* To date, the
     Company's  geographic  expansion  has been  limited  due to  financial  and
     personnel  constraints (which continue to exist).  However,  as a result of
     heightened  awareness about the major manure treatment and disposal problem
     facing the animal raising industry (see footnote 8, below),  and due to the
     current  proliferation of state and national  legislation being considered,
     management believes that major geographic  expansion is now possible and is
     essential to the Company's ability to achieve successful  operations in the
     future.*

     The Company estimates that the cost associated with the required  staffing,
     servicing,  and  marketing  for  expansion  into  new  geographic  regions,
     including initial sales calls, system design, regulatory approvals,  system
     installation  and  operation  through the cash-flow  break-even  point (the
     Company has not yet achieved  cash-flow  break-even  in any of its regional
     operations),  is  not  less  than  $500,000  per  region,  and  may  exceed
     $1,500,000. The Company's balance sheet does not show any assets created by
     these  expenditures  as they all  have  been  recorded  as  expense  items.
     However,  based on experience to date in the regions where system sales and
     installation  activity  have been  focused,  the Company  believes that the
     money  invested in these  efforts has  created  what might be called  "good
     will," "marketing,"  and/or  "regulatory"  value.  Management believes that
     achieving a greater rate of geographic  expansion will require expenditures
     greater than those  expensed for  previous  expansion.*  (An example of the
     accumulation  of these  expenses  can be  understood  by  reference  to the
     development  and  installation  of the Company's  initial hog farm Bion NMS
     system in North  Carolina  which is described in more detail in footnote 9,
     below).

     As the Company  continues its expansion  into new areas in the future,  and
     this expansion  requires similar or greater additional cash resources to be
     spent, these cash amounts, when expended, will be expensed and not shown as
     balance sheet assets.*

     Technology Expansion
     --------------------

     The Company has six issued  patents (see  footnote 10, below) which provide
     broad coverage of the  fundamental  technology that underlies the Company's
     systems and  processes.  The Company is conducting a review of its existing
     patent  position and anticipates  that additional  patent filings may occur
     based on this  review or as  further  applications  of the  technology  are
     developed.   The  Company  currently   anticipates  the  expansion  of  the
     technology into the cattle feedlot and poultry raising businesses where the
     technology  will need to be  adapted  to treat  waste  with both  different
     characteristics  and different  collection  technologies  than for existing
     dairy or swine waste systems.*

     Other factors that may motivate the expansion of  technology  include,  but
     are  not  limited  to,  current  and/or  new  local,   state,  and  federal
     regulations,  proximity of potential  systems to current  online systems or
     systems under  contract and the market size of poultry,  cattle feedlot and
     other similar operations.

     Just as there are additional expenses associated with geographic expansion,
     there  also are  additional  expenses  associated  with the  adaptation  of
     existing technology for use in regions where climate,  soil, and regulatory
     conditions   are  different   from  those   experienced  in  other  already
     established  installations.  The  majority  of  such  expenses  (which  are
     investments in the Company's  future) will not show as balance sheet assets
     despite the fact that long term technological value is being created.

     The Company  estimates  that a large portion of the net loss through fiscal
     year 1995 (then shown on the  financial  statements as  approximately  $4.0
     million) was actually expended on system development and the enhancement of
     the technology and construction of prototype  systems that are the basis of
     the Company's  planned  future  expansion.  The Company has expensed all of
     these costs.

     Management's  Targets/Goals,  Bion NMS System Sales and  BionAnimals  Under
     Contract
     ---------------------------------------------------------------------------

     Based on the  results of the  limited  current  BionSoil  test  market (see
     BionSoil Economics below),  analysis of the Company's potential markets for
     both BionSoil products and Bion NMS systems,  the large number of proposals
     and preliminary agreements currently being prepared at the specific request
     of  potential  clients,  the recent  signing of  additional  major Bion NMS
     system  installation  contracts  (see  footnote 11, below) and the steadily
     increasing  interest in Bion NMS systems as a cost  effective and efficient
     solution to environmental  issues related to waste and wastewater  handling
     in the large animal agriculture area, management has reviewed the goals for
     system sales and  installations  that were  previously  established  by the
     Company.



<PAGE>


     In June of 1996 the Company set  internal  sales goals for each of the last
     two fiscal years, 1997 and 1998. Note,  however,  that as of June 30, 1997,
     the Company had not met its internal sales goal for systems and BionAnimals
     established for that fiscal year due to a number of factors,  including but
     not limited to capital  availability,  the decision to close the  Company's
     Washington  state  office,  uncertainty  created in certain  markets due to
     pending  legislation which could directly impact animal waste treatment and
     disposal  practices,  the  decision  to cancel  certain  agreements  and/or
     contracts  for systems that did not make  economic  sense due to geographic
     isolation or other factors and the decision to re-negotiate  certain of its
     existing  agreements for systems to establish  more equitable  terms (which
     systems have been removed from all system and BionAnimal  totals until such
     time, if ever, as the re-negotiations result in new signed contracts). (See
     the Company's Form 10-KSB for the fiscal year ended June 30, 1997).

     In July 1997,  following  careful review of its failure to attain the goals
     that had been established for fiscal year 1997 (which ended June 30, 1997),
     Company  management  established  the primary  long range goal to achieve a
     target level of 2,000,000  BionAnimals under contract by June 30, 2000, the
     end of the  Company's  fiscal  year 2000.* To support  achievement  of this
     long-range goal the Company established the addition of 300,000 BionAnimals
     under  contract as the sales target through its fiscal year ending June 30,
     1998 which would  result in the  Company  having  contracts  for a total of
     approximately 390,000 BionAnimals by June 30, 1998. (See the Company's Form
     10-KSB for the fiscal  year ended June 30, 1997 for a  discussion  of these
     goals).

     For fiscal year 1998 (which ended June 30, 1998), the Company significantly
     exceeded  its goals.  During the year,  the Company  signed  contracts  for
     systems designed to contain  approximately  650,000 BionAnimals as compared
     to its goal of  adding  contracts  for  approximately  300,000  BionAnimals
     through the end of the fiscal year. As a result,  the Company  exceeded its
     target for the fiscal year ended June 30,  1998 by over 100%.  When all the
     systems  under  contract,  as of June 30,  1998,  are  complete and in full
     operation (which is expected to take up to two years from signing) they are
     anticipated  to produce  approximately  750,000 cubic yards of BionSoil per
     year.

     Based on these factors and the assumptions  detailed below,  management has
     set the following  revised  performance goals for the number of BionAnimals
     under contract in each of the next four fiscal years, and, following the 15
     to 24 month lag for system design,  permitting,  construction and start-up,
     for  quantities  of BionSoil  that are  anticipated  to be  available to be
     sold:*

                  Table 2* (see footnote 12, below)
                      Management Targets/Goals
         BionAnimal/Contracts and BionSoil (#'s in thousands)
--------------------------------------------------------------------------------

                                  Fiscal Years Ended June 30,
                          -------------------------------------------
                            1999        2000       2001        2002 
                          --------    --------   --------   ---------
Number of BionAnimals
added during fiscal
year (in thousands)* .       800*       950*     1,200*     1,400*

Cumulative number of
BionAnimals under
contract (in
thousands)* ..........     1,550*     2,500*     3,700*     5,100*

BionSoil available
for sale (in thousands
of cubic yards)* .....        30*       300*     1,600*     2,600*

[Note that  through  the first  quarter of fiscal  1999 the  Company has already
achieved  approximately 40% of its goals for the fiscal year.  Through September
30, 1998 the Company had signed a contract  for systems to handle the waste from
approximately  315,000  BionAnimals.   However,  this  contract  is  for  system
installations  in the State of Colorado which may be impacted by the regulations
to be developed by the Colorado Department of Health and Environment required by
the passage of Initiative 14 in the November 1998 election]

The above  goals  will only be  realized  by the  Company  if many  factors  and
assumptions  including  but not  limited to the  following  are met: a) that the
Company will be able to secure sufficient additional funding, most of which will
be raised through capital  investments (of which there can be no guarantee);  b)
that the Company  will be able to hire  sufficient  management  personnel,  i.e.
sales, engineering and operations, in order to promote the growth of the Company
and to properly manage that growth; c) that continuing  regulatory  pressures on
the  agricultural  industries  will lead them to install the Bion NMS or similar
technology in order to solve the environmental problems; d) that legislative and
regulatory  powers will not pass and enforce  non-science  based laws that would
render the Bion NMS  obsolete  or illegal;  e) that the Company  will be able to
expand the application of its technology and accomplish the geographic expansion
into new  regions;  f) that the  pricing  and  features  of the Bion NMS and the
services  provided by the Company can be accomplished  within the constraints of
the Company's economic model; g) that the trend towards market  consolidation in
the  agricultural  community,  whereby  the  total  number  of farms  decreases,
however,  the number of animals produced increases,  continues;  and h) that the
Company is  successful  in  developing,  marketing  and selling the BionSoil and
BionSoil  products  produced  by the  Bion  NMS.*  None  of  these  factors  and
assumptions can be guaranteed.



<PAGE>


These goals for system and BionSoil sales  represent  aggressive  growth for the
Company.* The Company currently believes however,  that its goals are reasonable
in light of recent developments. In fiscal year 1998 the Company added contracts
for Bion NMS  systems  containing  650,000  BionAnimals.  Further,  in the first
quarter of fiscal year 1999 the Company has added  contracts for additional Bion
NMS  systems  designed  to  contain   approximately   315,000  BionAnimals.   An
examination of the size of the target markets for system sales and installations
and  BionSoil  sales (as shown  above)  shows that the  percent of total  market
penetration,  which these goals represent,  is very modest.  On the basis of the
assumptions  above and the  analysis of market size (see page 8), the  Company's
systems sales program has achieved (through June 30, 1998)  approximately a 0.5%
market  penetration,  and the existing system sales goals for fiscal years 1999,
2000,  2001 and 2002 if achieved,  would represent  approximately a 1.1%,  1.8%,
2.6% and 3.6% market penetration  respectively.* Management believes such market
penetrations  represent  realistic  goals if the assumptions set forth above are
accurate.  No assurance can be given however, that these goals will be achieved.
To increase the Company's ability to achieve these system sales goals, effective
November  1,  1998,  the  Company  hired a Vice  President  of system  sales and
marketing.

Financial Discussion of Bion NMS and BionSoil Business
------------------------------------------------------

The  Company  expects to receive  two  distinct  revenue  streams  from Bion NMS
systems: 1) fees for system design,  permitting,  start-up and initial operation
(and, for certain  systems,  periodic  management or technology  fees);  and, 2)
commencing  approximately  nine to fifteen months after the initial  start-up of
BionSoil  production systems installed on large dairy,  swine,  poultry farms or
feedlots, revenue from the sale of BionSoil and BionSoil-based products produced
from the systems  [Note that initial  system  start-up  typically  occurs six to
twelve months after a system contract is signed.  Therefore,  BionSoil  revenues
will  typically  commence  between 15 and 24 months  after a system  contract is
signed],  (see footnote 13, below).* To date, revenues from the sale of BionSoil
have been minimal (first  significant  commercial sales are projected for spring
of 1999).*

Bion NMS Economics 
------------------

The Company may receive multiple design, permit and construction,  and operation
oversight fees.  These fees are paid to the Company by the clients in return for
services  rendered and the  licensing  of a particular  site to use the Bion NMS
technology.  Fees may also be paid to the Company on a regular ongoing basis for
system  oversight as well as regulatory and biological  testing.  These fees are
above and beyond any revenue the Company may receive  from the sale of BionSoil.
In some cases one or more of these  categories of fees may be waived or excluded
in formal negotiated contract terms for a variety of reasons,  including without
limitation,  signing  the first  system  contract  in a new  geographic  region,
signing the first system contract for a new  application of the  technology,  or
offsetting  some or all of the fees  against  reduced or  eliminated  BionSolids
royalties.

To date  the  Company  has lost  money on  system  design,  permitting  support,
construction oversight and initial system operation. However, through installing
these systems at a loss, the Company has been able to establish a number of Bion
NMS systems to use for test sites,  demonstrations and to refine the technology.
Based on experience to date, the Company is working to establish pricing for its
contracts that the Company believes will,  independent of BionSoil revenues,  be
sufficient to cover direct expenses (such as system design,  permitting support,
construction  oversight and initial  system  operation)  related to these system
installations.*  However,  there is no assurance that this goal will be achieved
or that the Company will be  successful  in selling its systems at a price level
sufficient for the Company to generate a profit.

BionSoil Economics
------------------

As Bion NMS systems  are  brought  on-line and  BionSolids  are  harvested  (see
footnote 14,  below),  it is anticipated  that BionSoil,  Inc. will purchase the
harvested  BionSolids from Bion  Technologies,  Inc. to process it into BionSoil
products for sale to customers.*  Some farms may be paid fees as royalty for the
BionSolids harvested from their site.* These payments  potentially  represent an
important  part of the  strategy  developed  by the Company  for the  successful
marketing  of Bion NMS  systems.*  Most large  animal  raising  facilities  have
substantial  operating  costs  associated  with the disposal of manure and waste
products, which are generated in large quantities at these facilities.  With the
construction and operation of a Bion NMS on a farm site, many of these costs may
be substantially  reduced or eliminated,  and the farm may, in some cases,  also
receive a revenue  stream  from the cash  payments  made by the  Company  to the
farm.*

During  the spring of 1998,  the  Company  conducted  a limited  market  test of
BionSoil products through retail and commercial outlets in western New York (see
the Company's  Form 8-K dated July 1, 1998).  The material for this test was New
York  dairy  BionSoil  processed  and  blended  with  Sphagnum  peat moss at the
Company's  Hermitage,  New York facility.  Subsequently  the blended product was
sold in bulk  quantities  or bagged in both 20 pound and 40 pound bags and sold.
The bagged product was sold to a limited number of small retail garden shops and
nurseries at wholesale prices, to the Company,  of $1.97 and $2.97 for 20 and 40
pound  bags  respectively  (resulting  in prices  per cubic  yard of $80.00  and
$108.00  respectively).  Bulk  product  was sold  through  similar  distribution
outlets for prices from $15.00 to $27.95 per cubic yard. The test market program
was conducted with no advertising budget, only limited point-of-sales materials,
and with no participation  of any large chain retail outlets.  The average price
per cubic yard for all blended product sold in this limited test market program,
bagged and bulk combined,  was $39.37 per cubic yard. The average price received
by the Company for the  BionSolids,  before mixing with Sphagnum peat moss,  was
$57.08  per cubic  yard.  Management  believes  that this  test  market  program
provides the Company's first  confirmation  of the market  viability of BionSoil
products.  Management  further  believes  that,  when product  sales efforts are
supported with a strong marketing/advertising program, average sales prices will
increase above $40.00 per cubic yard for the blended BionSoil product.*

Further, it should be noted that a significant portion of the material harvested
from many  systems  in the last year has been  devoted  to both  university  and
private studies  intended to determine  physical  characteristics,  blends,  and
growth results  achievable  using BionSoil in many different  applications  (see
footnotes 15 and 16, below).



<PAGE>


Based on results of the  Company's  current  market test, a review of prices for
soils and soil-enhancing  products in various markets, and target market segment
strategies being  developed,  the Company believes that BionSoil will sell at no
less than an average of $20 per cubic yard when sold in bulk,  and will sell for
higher prices when processed and bagged, which prices may rise to $100 per cubic
yard or  higher.*  [It should be noted that all prices  quoted  within this Form
10-QSB  are  wholesale  only  and may not be  representative  of  actual  retail
prices.] Additionally,  based on actual costs experienced in BionSoil harvesting
and processing to date, anticipated  improvements in processing technologies and
efficiencies,  and lower per unit costs as volumes  increase,  the  Company  has
estimated  costs for the various levels of processing  required to sell BionSoil
products.* Given the contract terms and estimated costs of production and sales,
the potential gross margin (see footnote 17, below) returned to the Company from
BionSoil  products  sales alone has been  calculated  for a series of  potential
price  points  (see  footnote  18,  below) (and the  implied  processing  levels
required to achieve the products to be sold at these price points (see  footnote
19, below)).* Table 3 below presents this information for five selected possible
price points.* This table has been prepared  reflecting  estimates  based on the
Company's  limited  experience  to date with the  harvesting  and  processing of
BionSoil and BionSoil products. (See footnotes 18 and 19, below).*

                              Table 3*
Potential BionSoil    Estimated Related      Calculated
Wholesale Price       BionSoil Expenses     Gross Margin
Per Cubic Yard *      Per Cubic Yard *    Per Cubic Yard *
------------------    -----------------   ----------------
   $ 20*                  13*                7*
     40*                  22*               18*
     60*                  32*               28*
     80*                  41*               39*
    100*                  53*               47*

The  calculated  gross  margin per cubic yard as  presented  in Table 3 above is
equivalent  to the annual  gross margin  contribution  of each  BionAnimal  in a
system  that  is  fully  on line  producing  BionSoil  (see  the  definition  of
BionAnimal  above where one  BionAnimal  produces one cubic yard of BionSoil per
year).

If the Company is  successful  in bringing  targeted  systems on line  producing
BionSoil  within the 18 to 24 month start-up time frame (which cannot be assured
and is subject to  numerous  and  substantial  risks);  and,  if the  Company is
successful in realizing the various potential price levels and expense levels in
columns 1 and 2 of Table 3 (which  also  cannot be  assured  and is  subject  to
numerous and substantial  risks as explained above and below) then column three,
calculated  gross  margin per cubic  yard is also the  calculated  annual  gross
margin contribution of each BionAnimal producing BionSoil. Given that revenue to
the Company from BionSoil sales is anticipated to begin in an average of one and
a half to two years  after the  signing of an  agreement  for a Bion NMS system,
these  calculated  gross  margins,  which are  equivalent  to gross  margins per
BionAnimal, would be anticipated to be repeated each year thereafter for as long
as the installations  remain in operation  (current system contracts are set for
15 years with renewal  option).* If the net present value  (discounted at 8%) of
these gross margins is calculated  for the normal  15-year period of a contract,
assuming no BionSoil  revenues for the first two years, the net present value of
the gross margin from each BionAnimal  under contract would be as shown in Table
4 for each potential price point in Table 3.* (See footnote 20, below).



<PAGE>


                              Table 4*
            Gross Margin Net Present Value Per BionAnimal
            ---------------------------------------------

              Calculated Annual       15 Year Net Present
              Gross Margin Per        Value Per BionAnimal
                 BionAnimal*          Annual Gross Margins*
              -----------------       ---------------------
                $ 7*                      $ 47*
                 18*                       122*
                 28*                       190*
                 39*                       264*
                 47*                       318*

Management  believes  that this NPV  analysis  is useful  because it provides an
indication of the value to the Company of the number of BionAnimals contained in
each contract for Bion NMS systems.

Management Financial Targets/Goals
----------------------------------

Subject to the risks and  uncertainties  included in this General  Discussion of
Current and Proposed  Operations  section of the  Company's  Form 10-QSB and the
footnotes   thereto,   management  has  established   the  following   financial
performance  goals for the Company for fiscal  years 1999 through  2002.  Please
                                                                          ------
carefully  review the risks and  uncertainties  presented above and below and in
--------------------------------------------------------------------------------
the footnotes in conjunction  with the Company goals  summarized in this Table 5
--------------------------------------------------------------------------------
(see especially footnotes 21, 22, 23 and 24 below).
---------------------------------------------------

                               Table 5*
                          Performance Goals
                          -----------------
<TABLE>
<CAPTION>

                                  (Based on BionAnimals under contract and
                                       BionSoil available for Sale as
                                         described in Table 2 above)
                                            (dollars in thousands)
                                          Fiscal Years (ended June 30)
                              ---------------------------------------------------
                                 1999         2000           2001         2002 
                              ----------    ---------     ---------    ----------

<S>                               <C>           <C>          <C>           <C>
Number of BionAnimals
added during fiscal
year (in thousands)* .....          800*          950*        1,200*        1,400*

Cumulative number of
BionAnimals under contract
(in thousands)* ..........        1,550*        2,500*        3,700*        5,100*

BionSoil available
for sale (in thousands
of cubic yards)* .........           30*          300*        1,600*        2,600*

Gross Revenue
(see Footnote 22)* .......     $  1,250*     $ 14,100*     $ 67,100*     $114,750*

Gross Margin
(see Footnote 23)* .......     $    350*     $  4,600*     $ 27,100*     $ 52,000*

Pre-Tax Earnings
(see Footnote 24)*             $ (2,650)*    $    600*     $ 19,100*     $ 37,500*

</TABLE>


<PAGE>


The above table includes gross revenue,  gross margin and pre-tax  earnings that
include  fees and revenues to the Company from both the sale of the Bion NMS and
BionSoil  revenue.  The Table 5 which  appeared in the June 30, 1998 Form 10 KSB
only reflected BionSoil revenue, gross margin and pre-tax earnings.

Note that the goals  presented  in Table 5,  above,  for  fiscal  year 2002 show
5,100,000  BionAnimals under contract but only 2,600,000 cubic yards of BionSoil
being  sold  during  fiscal  year 2002 due to the 15 to 24 month  delay  between
contract signing and BionSoil  availability.*  The Company's goal,  however,  is
that backlog of 2,500,000  additional  cubic yards of BionSoil will be available
in subsequent  years for sale and is  anticipated to increase the goal for gross
revenue to  approximately  $220,000,000  and pre-tax  earnings to  approximately
$72,000,000  in those  later  years,  even if there are no  additional  Bion NMS
system sales thereafter.*

While these goals are very  aggressive,  they are consistent  with the Company's
progress in fiscal year 1998 (the addition of approximately  650,000 BionAnimals
under  contract)  and  progress  in fiscal 1999 to date  (contracts  for 315,000
BionAnimals signed since July 1, 1998).* Throughout the fiscal year 1998 and the
first  quarter of the 1999 fiscal year,  the Company has proven to be aggressive
in setting and attaining such goals and targets.*

The Company has hired a Vice  President  of system  sales and  marketing,  a key
management  position  necessary to help the Company achieve these goals,  and is
actively recruiting to fill other key management, technical and sales positions.
Additionally,  the Company is pursuing  geographical  and  technical  expansion,
strategic  alliances in both the  agricultural  and financial  communities,  and
expansion of its client base.*

Even though the Company is  extremely  small at present,  has not yet  developed
substantial market penetration,  needs to raise additional capital, and has (and
is  continuing  to accrue)  losses to date,  the  potential  return based on the
Company's growth goals is apparent if the Company is successful in achieving its
targets.*

              #   #   #   #   #   #   #   #   #   #   #



<PAGE>


As the discussion  above includes  forward  looking  statements made in reliance
upon the  provisions of Rule 175  promulgated  under the Securities Act of 1933,
readers are  cautioned  that,  although  management  believes it currently has a
reasonable good faith basis for disclosing the substance of some of its internal
projections to the public at this time, there can be no assurance given that the
Company  will ever be  successful  in  achieving  any of its stated  goals.  The
Company  intends to  periodically  report on its progress,  or lack thereof,  in
attaining the goals set forth above.  The ultimate  realization  of most (if not
all) of the  Company's  goals will  require  significant  expenditures  of funds
which, as of this date, are not currently available to the Company.

It is currently anticipated that the selling and installation of additional Bion
NMS  systems  will  require  the  Company  to hire  additional  personnel,  make
significant capital  expenditures and generally increase its overhead.  Further,
the marketing and sale of BionSoil products will require the implementation of a
distribution network of wholesalers and/or retailers and a transportation system
for  delivery  of the  product  to the  intended  recipients,  and  may  require
permitting  in some  locations,  none of which the Company may be  successful in
achieving. Additional expenditures for personnel and equipment will be necessary
to harvest,  process,  package,  sell and deliver the product.  The  projections
stated by management assume that the Company will be successful in obtaining the
requisite  funds on  commercially  reasonable  terms and that the  other  stated
obstacles  will be  successfully  overcome  in the  process  of making  sales of
products in the future.

As the  Company has never  operated at a profit and has a negative  net worth at
the  present  time,  its ability to  successfully  confront  even the  currently
identified  challenges  which lie ahead in meeting its stated  goals is far from
certain.  It is likely that the Company will face additional  challenges,  which
have not as yet even been  identified.  In the event the  Company is not able to
obtain  sufficient  outside  funding  to  accomplish  its goals  within the time
periods  indicated,  the goals would not be met. In the event the Company is not
able to  successfully  overcome  the other  stated  obstacles  in the process of
making  future sales within the time periods  indicated,  the goals would not be
met. As the  Company's  operations  are not  currently  profitable,  readers are
further  cautioned  that, if the Company is not successful in obtaining  outside
funding in an amount  sufficient  for it to meet its operating  expenses even at
its current level, the Company's continued existence is uncertain.


<PAGE>


FOOTNOTES to General Discussion of Current and Proposed Operations

1.   BionSolids  are the solid  materials  that are  produced as a result of the
     bio-conversion  of manure and urine by the Bion Nutrient  Management System
     (NMS).  BionSolids contain a high proportion of beneficial living organisms
     (in contrast to traditional composted manure products),  only trace amounts
     of heavy metals and no human waste.

2.   The  quantities  referred to in Table 1 represent the  Company's  estimate,
     based on data from the American  Society of  Agricultural  Engineers  (ASAE
     D384.1 - 1989)  regarding  animal  waste  production  where all  wastes are
     captured,  of the quantity of BionSolids that is produced per animal in one
     year. These estimates are approximations based on the experience to date of
     the  Company  and are  subject  to change.  The ratio of animal  species to
     BionAnimal is based on the amount of BionSolids required (mixed and blended
     with  other  organic  material)  in order to produce a growth  medium  with
     comparable characteristics that yields one cubic yard of BionSoil.

3.   The 1992 U.S.  Department of Agriculture Census numbers are somewhat out of
     date.  However,  the 1997 U.S.  Department of Agriculture  Census  national
     summary  statistics  will not be available  until the spring of 1999.  Some
     more  current   statistics   used  by   management   are   available  on  a
     state-by-state basis.

4.   All  numbers  of  animals  are taken  from the 1992  Census of  Agriculture
     published by the United States Department of Agriculture.  The numbers used
     are for the animal populations of farms above a specific size as follows: *
     Dairy cows: farms with 200 or more cows * Beef cattle (steers):  farms with
     200 or more  cattle * Hogs and  pigs:  farms  with  1,000 or more * Poultry
     (chickens and turkeys) based on layers, broilers and turkeys

5.   According to a July 1996 report  published by the U.S. Bureau of the Census
     the number of large farms has  increased  from 51,995 in 1969 to 333,865 in
     1992, while at the same time the overall number of farms decreased from 2.7
     million in 1969 to 1.9 million in 1992.  Further  evidence of consolidation
     in the hog  industry  is found in the  greater  than 100%  increase  in the
     number of hogs in the state of North  Carolina  from 1987 to 1992  while at
     the same time  there was a 38%  decrease  in the number of hog farms in the
     state.  These numbers are calculated from data in the 1992 U.S.  Department
     of Agriculture Census.

6.   Battelle  estimated  the total U.S.  market for compost to be 1.04  billion
     cubic  yards per year.  See  "Compost:  United  States  Supply  and  Demand
     Potential" in Biomass and Bioenergy Vol.3, Nos 3-4, pp. 281-299, 1992.

7.   As an example,  study data provided by North Carolina State  University for
     the estimated  volume of potting  media used in container  nurseries in the
     United  States shows  current  demand (1998) to be in excess of 100 million
     cubic yards per year.  Further,  data on U.S. golf course  construction and
     expansion show that, as of May 1998, 13,954 holes (or the equivalent of 775
     18-hole  golf  courses)  were  under  construction,   and  11,677  (or  the
     equivalent of 649 18-hole courses) were in planning for construction.

8.   For further discussion, see, for example, the December 1997 report compiled
     by the U.S. Senate  Committee on Agriculture,  Nutrition,  and Forestry for
     Sen.  Tom  Harkin  (D -  IA)  as  well  as  "Lakes  of  animal  waste  pose
     environmental risk" published by the USA TODAY, December 30, 1997.



<PAGE>


9.   During  February 1994 the Company  opened its office in  Smithfield,  North
     Carolina with one full time sales employee.  Numerous contacts were made in
     both the hog raising and dairy farming industries,  and the first agreement
     (for a hog  system)  was  signed  in  December  1994.  A second  full  time
     employee, required to provide design, engineering,  construction and system
     operation  expertise,  was  transferred to North Carolina in February 1995.
     Adverse weather  conditions  during the  construction  period resulted in a
     longer  construction  time than anticipated;  however,  system start-up was
     achieved in June of 1995,  and the system has been in continuous  operation
     since.  Based on this  investment  of time and  effort  and the  successful
     operation  of the system,  the Company  has  expanded  its efforts in North
     Carolina including hiring a horticulturist for BionSoil product development
     and  testing,  an  additional  engineer,  and a  manager  for  the  region.
     Currently,  the Company has  submitted  proposals  to a number of potential
     customers,  is engaged in  discussions  with  several of these,  has signed
     agreements for six additional system installations,  and has two additional
     Bion NMS that have come on line.  Management  estimates  that,  to date, in
     excess of $1,100,000  has been devoted to the effort to build the Company's
     business in North Carolina.  Current  projections are that it will require,
     at a minimum,  an additional  nine to twelve months before  sufficient cash
     flow will be generated  from system and BionSoil sales in North Carolina to
     offset ongoing expenses for operations conducted in that state.*

10.  Issued U.S. patents include the following  titles:  "Bioconversion  Reactor
     and System",  "Animal Waste Bioconversion  System",  "Bioconverted Nutrient
     Rich Humus",  "Phosphorous Treatment Process", and "Storm Water Remediatory
     Bioconversion  System". In addition,  the Canadian Patent Office has issued
     "Aqueous Stream Treatment Process".

11.  As reported in the  Company's  February  23,  1998,  Form 8-K,  the Company
     entered  into an agreement  with Murphy  Family  Farms,  Inc. of Rose Hill,
     North Carolina,  to design,  oversee installation and operate multiple Bion
     NMS swine  waste  treatment  systems in six  additional  states.  Also,  as
     reported in the Company's July 1, 1998,  Form 8-K, the Company entered into
     an agreement with Crystal Springs Farms, LLC. of Wray, Colorado, to design,
     install and operate  Bion NMS swine waste  treatment  systems  Yuma County,
     Colorado which will contain approximately 315,000 BionAnimals.

12.  Although the  Company's  goals  project for the Company to have 1.5 million
     BionAnimals  under contract in the fiscal year 1999,  only the  BionAnimals
     that are currently in operating systems that have been harvested along with
     a limited number of the new BionAnimals  will produce BionSoil that will be
     available for sale in fiscal year 1999.

13.  The time between contract  signing and BionSoil  revenues is between 15 and
     24 months  broken  down as  follows:  a.) 3-6  months  for the  design  and
     permitting  of the  system;  b.) 3-6  months  for the  construction  of the
     system; c.) 1-2 months for the system to come completely on-line,  and, d.)
     8-10 months for the BionSolids to be produced and mature within the system.
     In some cases,  including  the  Company's  contracts  with Crystal  Springs
     Farms, for example,  there are financing or other  contingencies  which may
     delay the beginning of these activities.

14.  BionSolid  harvests to date have been from  relatively  new systems and the
     Company  has  been  devoting  substantial  effort  to  develop  appropriate
     technology  and sites for  processing  the material for sale.  As a result,
     only small  quantities of BionSoil have been  available for sale during the
     last  twelve  months.  The  results  for a portion of these sales have been
     documented in the above referenced test market.



<PAGE>


     The current  methods for the harvest of BionSolids  and  processing it into
     BionSoil  are  being  continually   refined  and  updated.   Currently  the
     BionSolids  harvested from a dairy Bion NMS are mechanically  harvested and
     then left for initial drying at the farm. Once dried to a sufficient  level
     the  BionSolids  are  transported  to  a  BionSoil  processing  site  where
     additional  drying takes place before final processing or blending and then
     subsequently  bagging or bulk  storage.  Harvesting  of the hog Bion NMS is
     still in the  experimental  stage with multiple methods being studied in an
     ongoing  program.  Currently,  the most efficient  method of harvesting the
     BionSolids is to pump the BionSolids  from the system and then either blend
     them  directly  with an  organic  substrate  (aged  shredded  pine bark for
     example) or dry them before they are processed and blended.

15.  During fiscal year 1998, the Company  initiated a BionSoil Giveaway Program
     during  which  approximately  3,000  cubic yards were given away to private
     gardeners,  local garden  centers and  university  research  centers.  This
     program was formed in order to generate feedback  regarding BionSoil and to
     raise public awareness about the product. It is anticipated that additional
     (and larger)  quantities of BionSoil will be given away in each future year
     for these and other purposes.

16.  Representatives of North Carolina State University ("NCSU"), North Carolina
     Department  of  Agriculture  ("NCDA")  and the North  Carolina  Cooperative
     Extension Service conducted an independent  on-farm research trial in 1996.
     The test compared the plant growth of four woody  ornamental  species grown
     in three  BionSoil  product  mixes to that of the same  species  grown in a
     high-grade   commercial   nursery  potting  soil  with  soluble  fertilizer
     additives.  The  performance  of the plants in the BionSoil  mixes exceeded
     that of the plants in the commercial mix in all trials.  Representatives of
     NCSU,  NCDA,  and Bion  Technologies,  Inc conducted a further  independent
     study in 1997.  The  experiment,  located at a research  facility on NCSU's
     Raleigh, North Carolina campus, compared the plant growth of four different
     species (a flowering  shrub, an annual, a woody ornamental and a perennial)
     grown in three  mix  rates of  BionSoil  with pine bark to that of the same
     species  grown  in a  standard  mix  fertilized  with a  national  brand of
     synthetic   controlled  release   fertilizer  plus  other  additives.   The
     evaluation  also evaluated the performance of the plants in all mixes under
     four  irrigation  regimes.  BionSoil  supplied  a steady  release  of plant
     nutrients  over a  three-month  period  and  proved to be a more  efficient
     source of plant  fertility  under limited water  availability  than did the
     control fertilizer. These study results supports other studies performed by
     the Company and  anecdotal  evidence  gathered  through  plant  trials from
     homeowners and others.  The Company has an extensive  program of additional
     university  and company tests designed and being  implemented  for the 1998
     summer growing season.

17.  The Company's  gross margin (prior to deduction of G&A expenses,  interest,
     depreciation,  taxes,  etc.) per cubic yard of BionSoil is calculated  from
     the  projected  price per cubic yard  obtained from sales of bulk or bagged
     product after  deducting the amount paid to the producer,  if  appropriate,
     and the projected  costs which the Company expects to incur for harvesting,
     processing, bagging, and marketing.

18.  The potential  BionSoil  prices reflect  assumptions  about the mix between
     bulk and bagged product sold. For example,  at a wholesale price of $20 per
     cubic yard the mix would be 100% bulk product with no bagged  product sold,
     while at a wholesale  price of $100 or higher per cubic yard, the mix would
     consist almost entirely of bagged product.



<PAGE>


19.  Due to the  Company's  lack of experience  and start-up  nature in the soil
     processing area,  BionSoil expenses are based on management's  estimate and
     therefore are subject to significant variation.  Actual production costs to
     date are higher  than those  shown in Table 3 due to  significant  start-up
     inefficiencies. Current expenses include but are not limited to harvesting,
     transportation,  processing,  blending and bagging of the  BionSolids  into
     BionSoil.  Management  believes,  however,  that as greater  quantities  of
     BionSoil are harvested and the processing techniques become more efficient,
     the margins may equal or exceed the projected  Gross Margins shown in Table
     3.*

20.  Management  has  changed  the  Net  Present  Value  calculation  from  that
     presented  in its Form 10-KSB  dated June 30, 1997 by lowering the discount
     rate from 10% to 8% to more accurately reflect current  conditions,  and by
     increasing  from 1.5 year to 2.0 years the time  before  BionSoil  revenues
     commence after contract signing.

21.  The  following  risk  factors  should  be  considered  when  reviewing  the
     projections in these tables:  the Company has not made significant sales or
     operated  at a profit,  and the  projections  herein  represent  very large
     advances which management  believes are attainable since the Company is now
     emerging from the development  stage;  there are many difficulties that may
     be encountered by the Company (as it is a start-up),  especially in view of
     the intense competition from existing and more established companies in the
     wastewater,  waste management,  the environmental control and organic soils
     and products  businesses;  the Bion NMS system has had limited  development
     and market  acceptance is uncertain;  the Company is in direct  competition
     with consulting and engineering firms (which may be better capitalized than
     the Company) that may be capable of developing competitive technologies and
     products;  the  business  is  susceptible  to changing  technology  and the
     Company  may  not  have  adequate   patent  and   proprietary   information
     protection;  the Company  may become  subject to  unfavorable  governmental
     regulations,  and may have,  in the future,  liability  (with no  insurance
     coverage) for damage to the  environment;  and, the costs and expenses used
     for all calculations are estimates made on the basis of limited information
     available.

22.  The following assumptions (none of which are guaranteed to occur) have been
     made for the gross revenue calculations:

     a.)  that the BionSoil  available  for sale is sold in the fiscal year that
          it is available;*

     b.)  that the  percentage  of BionSoil sold in each year in bagged form for
          retail  sales  (which  the  Company  does  not  engage  in) will be as
          follows:*  

                                      Fiscal year ending June 30, 
                                  1999       2000      2001        2002
                              -----------  ---------  ---------  ---------
Percent bagged BionSoil sold      10%*       11%*       12%*        14%*

(Management has  established  this mix although it is probable that the mix will
vary considerably over time).*

     c.)  that the average  selling price per cubic yard realized by the Company
          for each fiscal year is as indicated in the following  table:*

                                Fiscal year ending June 30,
                                  (dollars per cubic yard)
                       1999          2000        2001          2002
                     ---------   -----------  ----------    ----------
Selling price 
-------------

Bagged $90.00* .     $   95.00*  $   100.00*  $   100.00*
Bulk ...........         25.00*       27.50*       30.00*     32.50*
Weighted Average         31.50*       34.92*       38.40*     41.95*


<PAGE>


(The  selling  price   increases  shown  above  are  not  related  to  inflation
adjustments, rather they reflect the Company establishing product credibility in
its respective markets as well as further product refinements.)*

     d.)  that the average  selling  price  include  freight to the  customer of
          $7.00 per cubic yard for bagged  product  and $4.50 per cubic yard for
          bulk product.*

23.  The following assumptions (none of which are guaranteed to occur) have been
     made for the  product  costs for gross  margin  calculations:  

     a.)  that the  average  product  direct  cost for  each  fiscal  year is as
          follows:*

                                Fiscal year ending June 30,
                       1999          2000        2001          2002
                     ---------   -----------  ----------    ----------


Direct Cost
 Bagged Product      $   58.00*  $   57.00*  $   55.00*  $   53.00*
Bulk Product ...         13.00*      13.00*      12.50*      12.00*
Weighted Average         17.50*      17.84*      17.60*      17.74*

(The reduction in direct product costs over time reflects increased efficiencies
of operation  that have been  included  based on  anticipated  product  handling
efficiencies  and  economics  of  scale  as  the  volume  of  product  processed
increases.)*

     b.)  that freight  charges for  shipments  to  customers  will be $7.00 per
          cubic  yard for bagged  product  (sold and  shipped  on  pallets  with
          approximately two cubic yards per pallet) and $4.50 per cubic yard for
          bulk product shipped via common carrier truck.*

     c.)  based on the  assumptions  above and in footnote  21, the target gross
          margin per cubic yard of BionSoil  (which is the same as gross  margin
          per  BionAnimal)  is:*  

                                  Fiscal year ending June 30,
                              1999        2000      2001     2002
                             ------      ------    ------   ------

Gross margin per cubic yard   $9.25*    $12.33*   $16.05*   $19.46*

24.  The  Company  has   developed   projections   for   selling,   general  and
     administrative  expenses based on increased  staffing levels and facilities
     required  for  attainment  of the  target  sales and  processing  levels as
     follows:*  

                                             Fiscal year ending June 30,
                                               (dollars in thousands)
                                         1999      2000      2001      2002
                                        ------    ------    ------    ------
Selling, General and Administrative
  Expenses                              $3,000*   $4,000*   $8,000*   $14,500*




<PAGE>


                                OTHER INFORMATION


PART II

ITEM 1.    Legal Proceedings.

The Company knows of no material pending legal  proceedings to which the Company
(or the Subsidiary) is a party or to which any of its systems is the subject and
no such proceedings are known to the Company.

ITEM 2.    Changes in Securities.

(c)  The following  securities were sold in the quarter ended September 30, 1998
     without registering the securities under the Securities Act.:

     47,500  shares of  restricted  and legended  Common Stock to seven  private
     investors   and  two  existing   shareholders   in   privately   negotiated
     transactions for an aggregate amount of $191,125.

     8,000 shares of restricted and legended  Common Stock to one investor under
     the terms of a 1992 agreement  granting such investor a preemptive right to
     acquire such shares for an aggregate amount of $24,000.

     300 shares of restricted and legended  Common Stock to one employee in lieu
     of cash for services rendered valued at, in aggregate, $1,500.

     2,315 shares of restricted and legended  Common Stock to a shareholder  for
     rent and services valued in aggregate at $10,725.

The shares of the  Company's  Common  Stock  which were  issued  pursuant to the
transactions  set forth above were issued in reliance upon the  exemptions  from
registration  afforded  by  Sections  3(b),  4(2),  or other  provisions  of the
Securities Act of 1933, as amended.  Each of the persons to whom such securities
were issued made an informed investment decision based upon negotiation with the
Company and was  provided  with  appropriate  offering  documents  and access to
material  information  regarding  the Company.  The Company  believes  that such
persons had knowledge and experience in financial and business matters such that
they were capable of evaluating  the merits and risks of the  acquisition of the
Company's Common Stock in connection with these  transactions.  All certificates
representing  such common  shares bear an  appropriate  legend  restricting  the
transfer of such  securities,  except in accordance  with the  Securities Act of
1933,  as amended,  and stop  transfer  instructions  have been  provided to the
Company's transfer agent in accordance therewith.

ITEM 3.    Defaults Upon Senior Securities.  None

ITEM 4.    Submission of Matters to a Vote of Security Holders.  None

ITEM 5.    Other Information.  None

ITEM 6.    Exhibits and Reports on Form 8-K.
           (a)  Exhibits:
     
          10.1 Agreement  between Bion  Technologies,  Inc. and Crystal  Springs
               Farms, LLC dated July 1, 1998.*

          10.2 Agreement between Bion Environmental Techno-logies, Inc. and John
               Finamore  dated July 1, 1998.* 27 Financial  data  schedule.  

          (b)  Reports on Form 8-K:  Form 8-K (dated July 1, 1998)  reporting on
               items 5 & 7.









* Previously filed and incorporated by reference.


<PAGE>





                              SIGNATURE




Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly  caused  this  report  to be signed  on its  behalf by the  undersigned
thereunder duly authorized.


                     Bion Environmental Technologies, Inc.




                     /s/ M. Duane Stutzman          
                     ----------------------------------
                     M. Duane Stutzman, Chief Financial
                        Officer




Dated:    November 16, 1998