UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549


                                  FORM 10-QSB


[X] Quarterly report pursuant section 13 or 15(d) of the Securities
    Exchange Act of 1934

    For the quarterly period ended March 31, 2008

[ ] Transition report pursuant section 13 or 15(d) of the Securities
    Exchange Act of 1934

    For the transition period from.____________ to ____________

                      Commission File Number: 000-19333

                       BION ENVIRONMENTAL TECHNOLOGIES, INC.
         (Exact name of small business issuer as specified in its charter)

           Colorado                               84-1176672
(State or Other Jurisdiction          (I.R.S. Employer Identification No.)
     of Incorporation)

        641 Lexington Avenue, 17th Floor, New York, New York 10022
                   (Address of Principal Executive Offices)

                                 212-758-6622
                (Registrant's Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).  Yes  [ ] No [X]

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]

State the shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: On March 31, 2008, there were
8,351,030 Common Shares outstanding.

Transitional Small Business Disclosure Format (Check One):  Yes [ ] No [X]





                      BION ENVIRONMENTAL TECHNOLOGIES, INC.
                                  FORM 10-QSB

                                TABLE OF CONTENTS

                                                                       Page

PART I.   FINANCIAL INFORMATION

Item 1.  Consolidated financial statements (unaudited):

         Balance sheet ...............................................    3

         Statements of operations ....................................    4

         Statements of changes in stockholders' equity ...............    5

         Statements of cash flows ....................................    6

         Notes to consolidated financial statements .................. 7-23

Item 2.  Management's Discussion and Analysis or Plan of Operation ...   24

Item 3.  Controls and Procedures .....................................   35

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings ...........................................   36

Item 2.  Unregistered Sales of Equity Securities and Use of
         Proceeds ....................................................   36

Item 3.  Defaults Upon Senior Securities .............................   36

Item 4.  Submission of Matters to a Vote of Security Holders .........   36

Item 5.  Other Information ...........................................   36

Item 6.  Exhibits ....................................................   36

         Signatures ..................................................   37















                                       2



            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                            CONSOLIDATED BALANCE SHEET
                                  MARCH 31, 2008
                                    (UNAUDITED)

                                     ASSETS

Current assets:
  Cash and cash equivalents                                     $    277,603
  Prepaid rent and expenses                                            1,586
  Deposits and other receivables                                       7,945
                                                                ------------
     Total current assets                                            287,134
                                                                ------------

Restricted cash                                                      128,443
Property and equipment, net                                           61,281
                                                                ------------
     Total assets                                               $    476,858
                                                                ============

                    LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
  Accounts payable and accrued expenses                         $    620,906
  Accrued payable - affiliate                                         41,647
  2006 Series A convertible promissory notes                         771,465
  2007 Series A convertible promissory notes                         848,369
  2007 Series A convertible promissory notes - affiliates          1,046,549
  Deferred compensation                                              741,780
                                                                ------------
     Total current liabilities                                     4,070,716
                                                                ------------
  Deferred rent                                                       70,483
  Convertible notes - affiliates                                     761,413
                                                                ------------
     Total liabilities                                             4,902,612
                                                                ------------
Minority interest                                                    113,930
                                                                ------------
Stockholders' deficit:
  Preferred stock, $.01 par value, 10,000 shares authorized,            -
   no shares issued and outstanding
  Common stock, no par value, 100,000,000 shares authorized,            -
   9,044,829 shares issued, 8,351,030 outstanding
  Additional paid-in capital                                      68,802,571
  Accumulated deficit                                            (73,342,255)
                                                                ------------
     Total stockholders' deficit                                  (4,539,684)
                                                                ------------
     Total liabilities and stockholders' deficit                $    476,858
                                                                ============

See notes to the unaudited consolidated financial statements.

                                     3


             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              THREE AND NINE MONTHS ENDED MARCH 31, 2008 AND 2007
                                  (UNAUDITED)




<TABLE>
<CAPTION>
                                              Three Months Ended            Nine Months Ended
                                                   March 31,                    March 31,
                                             2008           2007           2008         2007
                                         ----------     -----------    -----------    -----------
<S>                                      <C>            <C>            <C>            <C>
Revenue                                  $     -        $      -       $      -       $      -
                                         ----------     -----------    -----------    -----------
Operating expenses:
 General and administrative (including
  stock-based compensation (Note 8))        237,847         (58,910)       546,434        (58,874)
 Research and development (including
  stock-based compensation (Note 8))        573,721         104,233      1,245,389      1,134,950
                                         ----------     -----------    -----------    -----------
   Total operating expenses                 811,568          45,323      1,791,823      1,076,076
                                         ----------     -----------    -----------    -----------
Loss from operations                       (811,568)        (45,323)    (1,791,823)    (1,076,076)
                                         ----------     -----------    -----------    -----------
Other expense and (income):
 Interest expense                            47,251          44,321        150,870        105,427
 Interest income                             (4,530)         (5,351)       (19,899)       (28,652)
 Minority interest                          (12,935)           -           113,930           -
 Other, net (Note 9)                           -               -        (1,258,195)          -
                                         ----------     -----------    -----------    -----------
                                             29,786          38,970     (1,013,294)        76,775
                                         ----------     -----------    -----------    -----------
Loss before cumulative effect of
 change in accounting principle            (841,354)        (84,293)      (778,529)    (1,152,851)

Cumulative effect of change in
 accounting principle (Note 6)                 -               -              -          (731,386)
                                         ----------     -----------    -----------    -----------
Net loss                                 $ (841,354)    $   (84,293)   $  (778,529)   $(1,884,237)
                                         ==========     ===========    ===========    ===========
Net loss per basic and diluted common
 share:
  Before cumulative effect of change in
   accounting principle                  $    (0.10)    $     (0.01)   $     (0.10)   $     (0.14)
  Cumulative effect of change in
   accounting principle                        -               -              -             (0.08)
                                         ----------     -----------    -----------    -----------
Net loss per share                       $    (0.10)    $     (0.01)   $     (0.10)   $     (0.22)
                                         ==========     ===========    ===========    ===========

Weighted-average number of common shares
 outstanding, basic and diluted           8,351,030       8,607,684      8,197,170      8,617,645
                                         ==========     ===========    ===========    ===========
</TABLE>

See notes to the unaudited consolidated financial statements.




                                             4



           BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                        NINE MONTHS ENDED MARCH 31, 2008
                                 (UNAUDITED)

<TABLE>
<CAPTION>


                                                     Additional                        Total
                                  Common Stock        paid-in       Accumulated     stockholders'
                               Shares      Amount     capital         deficit          deficit
                              ---------    ------    -----------    ------------    ------------
<S>                           <C>          <C>       <C>            <C>             <C>

Balances, July 1, 2007        8,770,079    $   -     $67,900,379    $(72,563,726)   $(4,663,347)

 Vesting of options for
  services                         -           -         363,683            -           363,683
 Conversion of debt to
  equity                        274,750                  538,509                        538,509
 Net income                        -           -            -           (778,529)      (778,529)
                              ---------    -------   -----------    ------------    -----------
Balances, December 31, 2007   9,044,829    $   -     $68,802,571    $(73,342,255)   $(4,539,684)
                              =========    =======   ===========    ============    ===========

</TABLE>




See notes to the unaudited consolidated financial statements.






























                                       5



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                   NINE MONTHS ENDED MARCH 31, 2008 AND 2007
                                 (UNAUDITED)

                                                       2008         2007
                                                     ---------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                            $(778,529)  $(1,884,237)
 Adjustments to reconcile net loss to net cash
  used in operating activities:
   Cumulative effect of change in accounting
    principle                                             -          731,386
    Depreciation expense                                12,160         6,565
    Accrued interest on convertible notes and debt     150,870       105,427
    Stock-based compensation                           363,683       442,260
    Decrease in fair value of convertible notes       (548,104)   (1,580,338)
    Minority interest                                  113,930          -
    Decrease in prepaid rent and expenses               18,524        39,065
    (Increase) decrease in deposits and other
     receivables                                        (5,101)        3,058
    (Decrease) increase in accounts payable and
     accrued expenses                                  (27,411)      198,850
    Increase in deferred rent                            4,510        72,097
    Increase in deferred compensation                  554,280       562,500
                                                     ---------   -----------
     Net cash used in operating activities            (141,188)   (1,303,367)

CASH FLOWS FROM INVESTING ACTIVITIES
 Decrease (increase) in restricted cash                 43,502      (171,945)
 Proceeds received from the overpayment of
  property and equipment                                 5,258          -
 Purchase of property and equipment                     (3,078)      (78,623)
                                                     ---------   -----------
     Net cash provided by (used in) investing
      activities                                        45,682      (250,568)
                                                     ---------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from sale of convertible debt                   -        1,245,000
                                                     ---------   -----------
     Net cash provided by financing activities            -        1,245,000
                                                     ---------   -----------
Net decrease in cash and cash equivalents              (95,506)     (308,935)
Cash and cash equivalents at beginning of period       373,109     1,152,199
                                                     ---------   -----------
Cash and cash equivalents at end of period           $ 277,603   $   843,264
                                                     =========   ===========
Supplemental disclosure of cash flow information:
 Cash paid for interest and income taxes             $    -      $      -
                                                     =========   ===========
Non-cash investing and financing transactions:
 Conversion of debt to equity                        $ 538,509   $   607,629
 Return of common stock for unearned services                         40,000



See notes to the unaudited consolidated financial statements

                                       6



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

1.   ORGANIZATION, NATURE OF BUSINESS, GOING CONCERN AND MANAGEMENT'S PLANS:

     Organization and business:

     Bion Environmental Technologies, Inc. ("Bion" or the "Company") was
incorporated in 1987 in the State of Colorado.

     Bion's patented and proprietary technology provides solutions for
environmentally sound clean-up of the waste streams of large-scale animal
farming operations ("confined animal feeding operations" or "CAFO's") (dairy,
cattle feedlot, hogs, etc.) and creates economic opportunities for
development of integrated complexes including alternative renewable energy
production, ethanol production, sustainable animal husbandry and organic
soil/fertilizer and feed production ("Projects" or "Integrated Projects").
Bion's technology also potentially allows direct integration with dairy end-
users (bottling operations, cheese and ice cream plants, etc.) and the end-
users of other CAFO's that can potentially increase the profitability and
quality control of each participant while mitigating the environmental impact
of the entire integrated complex. The Company is in the process of finalizing
engineering, design and economic modeling for dairy and beef applications and
Integrated Projects based on its second-generation technology.

     Bion is currently evaluating sites in multiple states and anticipates
selecting a site for its initial Integrated Project during calendar year
2008. At present it is probable, but not certain, that development of Bion's
initial Project will take place in St. Lawrence County, New York.  Bion is
presently establishing its implementation management team (including
consultants) with the intention of commencing permitting, development and
construction of the initial Project during calendar year 2008. In addition,
Bion will seek to site additional Projects during 2008 and 2009 to create a
pipeline of Projects that will ensure significant market share and
profitability within 3-5 years (both regionally and nationally).  Each
Project is expected to include: a) Bion waste treatment modules, b)
processing the CAFO waste stream from the equivalent of  40,000 (or more)
beef and/or dairy cows in modules, c) while producing renewable energy to
replace natural gas or other energy use within the Project's CAFO modules and
ethanol plant, d) solids to be marketed as feed and/or fertilizer, e) which
is integrated with a 40+M gallon/year ethanol plant (though some smaller
projects may be undertaken in appropriate situations). At the end of the 5-
year period, Bion hopes to have numerous Projects in various stages of
development ranging from full operation to early construction stage.

     Through 2001 the Company was primarily an environmental service company
focused on the needs of CAFOs. Thereafter, Bion elected to cease sales of its
first generation systems and focused its activity on development of its
second-generation technology.







                                     7


             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

1.   ORGANIZATION, NATURE OF BUSINESS, GOING CONCERN AND MANAGEMENT'S PLANS:

     Going concern and management's plans:

     The consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred net losses
of approximately $2,549,000 and $5,173,000 during the years ended June 30,
2007 and 2006, respectively, and net losses of approximately $841,000 and
$779,000 for the three and nine months ended March 31, 2008, respectively.
At March 31, 2008, the Company has a working capital deficiency and a
stockholders' deficit of approximately $3,784,000 and $4,540,000,
respectively.  These factors raise substantial doubt about the Company's
ability to continue as a going concern. The report of the independent
registered public accounting firm on the Company's financial statements as of
and for the year ended June 30, 2007 includes a "going concern" explanatory
paragraph which means that the accounting firm has expressed substantial
doubt about the Company's ability to continue as a going concern. The
accompanying consolidated financial statements do not include any adjustments
relating to the recoverability or classification of assets or the amounts and
classification of liabilities that may result should the Company be unable to
continue as a going concern.  The following paragraphs describe management's
plans with regard to these conditions.

     As discussed in Note 9, during September 2007, the Company received net
proceeds of $1,258,000 consisting of $828,000 from litigation settlements and
$430,000 from the release of escrowed funds.  During April and May 2008 the
Company issued 75,000 shares of its restricted common stock in private
transactions at $2.00 per share resulting in proceeds to the Company of
$150,000.

     The Company continues to explore sources of additional financing to
satisfy its current operating requirements.

     While the Company currently does not face a severe working capital
shortage, it is not currently generating any revenues. The Company will need
to obtain additional capital to fund its operations and technology
development, to satisfy existing creditors and to develop Projects. The
Company anticipates that it will seek to raise from $3,000,000 to $50,000,000
(debt and equity) during the next twelve months.  There is no assurance the
Company will be able to obtain the funds that it needs to stay in business,
complete its technology development or to successfully develop its business.

     There can be no assurance that funds required during the next twelve
months or thereafter will be generated from operations or that those funds
will be available from external sources such as debt or equity financings or
other potential sources. The lack of additional capital resulting from the
inability to generate cash flow from operations or to raise capital from
external sources would force the Company to substantially curtail or cease
operations and would, therefore, have a material adverse effect on its
business. Further, there can be no assurance that any such required funds, if
available, will be available on attractive terms or that they will not have a
significantly dilutive effect on the Company's existing shareholders.

                                     8



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

2.   SIGNIFICANT ACCOUNTING POLICIES:

     Principles of consolidation:

     The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Bion Technologies, Inc., BionSoil,
Inc. and Bion Dairy Corporation ("Dairy") and its 57.7% owned subsidiary,
Centerpoint Corporation ("Centerpoint").  All significant intercompany
accounts and transactions have been eliminated in consolidation.

     The accompanying consolidated financial statements have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC").  The consolidated financial statements reflect
all adjustments (consisting of only normal recurring entries) that, in the
opinion of management, are necessary to present fairly the financial position
at March 31, 2008 and the results of operations and cash flows of the Company
for the three and nine months ended March 31, 2008 and 2007.  Operating
results for the three and nine months ended March 31, 2008 are not
necessarily indicative of the results that may be expected for the year
ending June 30, 2008.

     The unaudited consolidated financial statements should be read in
conjunction with the Company's audited financial statements and footnotes
thereto included in its Annual Report on Form 10-KSB for the year ended June
30, 2007.

     Recent accounting pronouncements:

     The Company adopted the provisions of Financial Accounting Standards
Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes - an Interpretation of FASB Statement No. 109 ("FIN 48"), on July 1,
2007. There were no unrecognized tax benefits and, accordingly, there was no
effect on the Company's financial condition or results of operations as a
result of implementing FIN 48.

     The Company files income tax returns in the U.S. federal jurisdiction
and various state jurisdictions. The Company is no longer subject to U.S.
federal and state tax examinations for fiscal years before 2003. Management
does not believe there will be any material changes in our unrecognized tax
positions over the next 12 months.

     The Company's policy is to recognize interest and penalties accrued on
any unrecognized tax benefits as a component of income tax expense. As of the
date of adoption of FIN 48, there was no accrued interest or penalties
associated with any unrecognized tax benefits, nor was any interest expense
recognized during the quarter.






                                     9



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

2.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     In December 2007, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 141 (Revised 2007), Business Combinations ("SFAS
141R"). SFAS 141R continues to require the purchase method of accounting to
be applied to all business combinations, but it significantly changes the
accounting for certain aspects of business combinations. Under SFAS 141R, an
acquiring entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions. SFAS 141R will change the accounting treatment for
certain specific acquisition related items including: (1) expensing
acquisition related costs as incurred; (2) valuing noncontrolling interests
at fair value at the acquisition date; and (3) expensing restructuring costs
associated with an acquired business. SFAS 141R also includes a substantial
number of new disclosure requirements. SFAS 141R is to be applied
prospectively to business combinations for which the acquisition date is on
or after July 1, 2009 for the Company.  The Company does not expect that the
adoption of SFAS 141R will have an impact on its consolidated financial
statements unless the Company enters into business acquisitions in the
future.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements ("SFAS 160"). SFAS 160 establishes new
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary (minority interest) is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements and separate from the parent company's
equity. Among other requirements, this statement requires consolidated net
income to be reported at amounts that include the amounts attributable to
both the parent and the noncontrolling interest. It also requires disclosure,
on the face of the consolidated statement of operations, of the amounts of
consolidated net income attributable to the parent and to the noncontrolling
interest. This statement is effective for the Company on July 1, 2009.  The
Company is currently evaluating the effect the adoption of this statement
will have on its consolidated financial statements.

3.   MINORITY INTEREST OF CENTERPOINT CORPORATION:

     In January 2002, Bion purchased a 57.7% majority interest in Centerpoint
from a third party.  For the years ended June 30, 2007 and 2006, the losses
applicable to the minority interest in Centerpoint exceeded the minority
interest in the equity capital of Centerpoint, therefore the losses
attributable to the minority interest were charged against the Company's
earnings as there was no obligation of the minority interest to make good on
such losses.  During the nine months ended March 31, 2008, Centerpoint had
earnings of approximately $664,700, of which the Company utilized
approximately $395,500 to offset minority interest losses previously
absorbed.  The remaining $269,200 was allocated between the Company and
Centerpoint's minority interest holders creating a minority interest of
$113,930 as of March 31, 2008.


                                     10



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

3.   MINORITY INTEREST OF CENTERPOINT CORPORATION (CONTINUED):

     Property and equipment consists of the following as of March 31, 2008:

     Research and development equipment        $ 305,266
     Leasehold improvements                       31,336
     Furniture                                    28,932
     Computers and office equipment               29,364
                                               ---------
                                                 394,898
     Less accumulated depreciation              (333,617)
                                               ---------
                                               $  61,281
                                               =========

     Depreciation expense was $4,094 and $3,482 for the three months ended
March 31, 2008 and 2007, respectively, and $12,160 and $6,565 for the nine
months ended March 31, 2008 and 2007, respectively.

5.   CONVERTIBLE PROMISSORY NOTES:

     2006 Series A Convertible Promissory Notes:

     On September 13, 2006, the Company closed the offering of its 2006
Series A Convertible Promissory Notes, totaling $700,000 (the "2006 Notes").
The holders of the 2006 Notes earn interest on the unpaid principal balance
of the 2006 Notes at 6% per annum, payable on May 31, 2008, the maturity date
of the 2006 Notes.  All of the principal and accrued interest under the 2006
Notes shall be converted into common shares of the Company at the conversion
rate of one share for each $6.00 that is owed under the terms of the 2006
Notes if the following conditions are met:

     A) The closing market price of the Company's shares has been at or above
$7.20 per share for 10 consecutive trading days, and

     B) The earliest of the following events:

     1)  An effective registration allowing public resale of the shares to be
received by the 2006 Note holders upon conversion, or

     2)  One year after the initial closing date of the offering, and

     3)  No conversion without an effective registration statement shall take
place until the Company has become a "reporting company" with the SEC
pursuant to the Securities Exchange Act of 1934, as amended, which occurred
on January 13, 2007.






                                     11


             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

5.   CONVERTIBLE PROMISSORY NOTES (CONTINUED):

     The 2006 Notes may also be convertible, in whole or in part, into the
Company's common shares at any time at the election of the 2006 Note holders
at a conversion rate of $6.00 per share, which was above the approximate
market price of the Company's common shares at the commitment date of the
offering.  For the three months ended March 31, 2008 and 2007, the 2006 Notes
accrued interest of $11,247 and $10,489 respectively, and $33,491 and $27,243
the nine months ended March 31, 2008 and 2007, respectively.

     2007 Series A Convertible Promissory Notes:

     In March and April 2007, the Company sold $800,000 of its 2007 Series A
Convertible Notes (the "2007 Notes") for cash proceeds. In addition the
Company issued 2007 Notes to affiliates totaling  $986,521 in exchange for
promissory notes with convertible features and deferred compensation (Note
7).  The 2007 Notes are convertible into shares of the Company's common stock
at the price of $4.00 per share until maturity on July 1, 2008, or at the
election of the 2007 Note holder, and accrue interest at 6% per annum.  The
2007 Note holders also have the option to exchange the 2007 Notes, plus
interest, into securities substantially identical to securities the Company
sells in any offering prior to the completion of an offering in which the
Company raises less than $3,000,000.    The Company has the right to require
the 2007 Notes (principal plus interest) be converted into its common shares
at the lesser of $4.00 per share or the price of an offering in which the
Company raises $3,000,000 or more.  The conversion price of the 2007 Notes of
$4.00 per share is above the approximate market price of the Company's common
shares at the commitment date of the offering.   The 2007 Notes accrued
interest of $27,626 and $82,262 for the three and nine months ended March 31,
2008, respectively.

6.   CONVERTIBLE NOTES - AFFILIATES:

     On April 4, 2006 convertible deferred compensation payable to the
Company's president, Mark A. Smith, pursuant to an April 2003 deferred
compensation agreement, was exchanged for a promissory note and conversion
agreement.  The promissory note and conversion agreement have the same terms
and conversion features as the April 2003 deferred compensation agreement.
Under the agreements, the president earned compensation of $150,000 annually,
all of which has been deferred to date.  Sums accrued through March 31, 2006,
accrue interest at 6% per annum, and are convertible into the Company's
common stock at the lower of the current market value at the time of
conversion, or $2.00 per share.  Through July 1, 2007, conversions could
occur by mutual agreement between the Company and Mr. Smith. The Company may
convert the deferred compensation, in whole or in part, at any date after
July 1, 2007 and the convertible deferred compensation owed to Mr. Smith is
mandatorily convertible to common stock of the Company on July 1, 2009.
Through June 30, 2006, the Company accounted for this employee stock-based




                                     12



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

6.   CONVERTIBLE NOTES - AFFILIATES (CONTINUED):

compensation agreement under Accounting Principal Board Opinion No. 25 ("APB
25") and recorded the intrinsic value of the deferred compensation agreement
at each reporting date.  On July 1, 2006, the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 123 Revised,
"Share-Based Payment" ("SFAS 123(R)"), which supersedes APB 25.  In
accordance with SFAS 123(R), outstanding instruments previously classified as
liabilities and measured at intrinsic values, are to be measured initially at
fair value with differences to be recorded as the cumulative effect of a
change in accounting principle.  The fair value of deferred compensation owed
to Mr. Smith on July 1, 2006 was $1,521,609, and the cumulative effect of the
change in accounting principle of $308,870 was recorded.  Fair value at July
1, 2006 was calculated using a Black-Scholes option pricing model with the
following assumptions: a dividend yield of zero, a risk-free interest rate of
5.13%, volatility of 181%, a remaining contractual life of 3 years and a
stock price of $6.40.  On December 2, 2007, under the terms of the agreement,
the deferred compensation plus interest owed Mr. Smith of $412,125 was
converted into 274,750 common shares of the Company.  At December 2, 2007 the
fair value of deferred compensation owed to Mr. Smith was re-measured as
$538,509 and resulted in a credit to earnings of $237,383 for the nine months
ended March 31, 2008.  Fair value at December 2, 2007 was calculated
utilizing the following assumptions: a dividend yield of zero, a risk-free
interest rate of 3.03%, volatility of 59%, a remaining contractual life of
1.58 years and a stock price of $1.50.

     On December 31, 2005, convertible deferred compensation payable to
Bright Capital, Ltd. ("Brightcap") for services provided to the Company by
Dominic Bassani, the former general manager of Dairy, between April 1, 2003
and September 30, 2005 was exchanged for a promissory note and conversion
agreement with the same terms and features as the deferred compensation
agreement.  Effective March 31, 2005, Brightcap entered into an agreement to
continue to provide Mr. Bassani's services to the Company through March 31,
2009 and Brightcap earns compensation of $300,000 annually with payment
deferred.  Sums accrued through September 30, 2005, accrue interest at 6% per
annum and are convertible into the Company's common stock at the lower of the
current market value at the time of conversion or $2.00 per share. Through
January 1, 2007 conversions could occur by mutual agreement between the
Company and Brightcap.  The Company may convert the deferred compensation, in
whole or in part, at any date after January 1, 2007 and, on July 1, 2009, the
convertible deferred compensation owed to Brightcap is mandatorily
convertible to common stock of the Company. Through June 30, 2006, the
Company accounted for this employee stock-based compensation agreement under
APB 25 and recorded the intrinsic value of the deferred compensation
agreement at each reporting date.  On July 1, 2006, the Company adopted the
provisions of SFAS 123(R), which supersedes APB 25.  The fair value of
deferred compensation owed to Brightcap on July 1, 2006 was $2,081,475, and
the cumulative effect of the change in accounting principle of $422,516 was
recorded.  Fair value at July 1, 2006 was calculated using a Black-Scholes
option pricing model with the following assumptions: a dividend yield of
zero, a risk-free interest rate of 5.13%, volatility of 181%, a remaining

                                     13



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

6.   CONVERTIBLE NOTES - AFFILIATES (CONTINUED):

contractual life of 3 years and a stock price of $6.40.  At March 31, 2008
the fair value of deferred compensation owed to Brightcap was re-measured as
$761,412 and resulted in a charge/(credit) to earnings of $50,856 and
$(310,721) for the three and nine months ended March 31, 2008, respectively.
Fair value at March 31, 2008 was calculated utilizing the following
assumptions: a dividend yield of zero, a risk-free interest rate of 1.6%,
volatility of 64%, a remaining contractual life of 1.25 years and a stock
price of $2.12.

     Effective September 30, 2006, Mr. Bassani no longer serves in the
capacity of general manager of Dairy.  However, he continues to provide
services through Brightcap in the area of strategic planning pursuant to the
agreement above.

7.   DEFERRED COMPENSATION:

     As of July 1, 2006, the Company had also recorded deferred compensation
liabilities of $412,500 for three officers of the Company consisting of
$37,500 to Mr. Smith, $225,000 to Brightcap, and $150,000 to Salvatore Zizza,
a former officer and director of the Company, who assumed the position of
Chairman and director of Dairy with an annual salary of $300,000.  Through
December 31, 2006, an additional $375,000 was accrued ($75,000 to Mr. Smith,
$150,000 to Brightcap and $150,000 to Mr. Zizza).  Effective January 1, 2007,
the Company entered into agreements converting deferred compensation amounts
owed as of December 31, 2006 into promissory notes with conversion
agreements.  The notes accrue interest at 6% per annum, with principal and
interest due and payable on January 1, 2009, if not previously paid.  The
conversion agreements allow for the conversion of the notes into shares of
the Company's common stock at the equivalent price of the Company's next
private financing in excess of $2,000,000 as follows: a) by the holder at any
time after July 1, 2007; b) by the Company any time after there has been an
effective registration including the shares underlying conversion of the
notes for six months; c) by the holder and the Company by mutual agreement at
any time prior to payment by the Company of outstanding principal and
interest.  As of March 31, 2007 the accrued principal and interest owed under
the promissory notes with conversion agreements, $787,500 and $11,521,
respectively, in addition to deferred compensation owed for the three months
ended March 31, 2007 ($37,500 to Mr. Smith, $75,000 to Brightcap, $75,000 to
Mr. Zizza) were converted to 2007 Series A Promissory Notes (Note 5).

     As of March 31, 2008, the Company owed deferred compensation totaling
$741,780 ($141,780 to Mr. Smith, $300,000 to Brightcap and $300,000 to Mr.
Zizza).







                                     14



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

8.   STOCKHOLDERS' EQUITY:

     Common stock:

     Holders of common stock are entitled to one vote per share on all
matters to be voted on by common stockholders.  In the event of liquidation,
dissolution or winding up of the Company, the holders of common stock are
entitled to share in all assets remaining after liabilities have been paid in
full or set aside. Common stock has no preemptive, redemption or conversion
rights.  The rights of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of any other series of
preferred stock the Company may designate in the future.

     In December 2007, under the terms of a promissory note with a conversion
agreement, Mr. Smith converted deferred compensation plus interest of
$412,125 into 274,750 common shares of the Company's common stock (Note 6).

     Warrants:

     As of March 31, 2008 the Company had the following common stock warrants
outstanding and exercisable:

                      Number of      Exercise
                       Shares         Price        Expiration Date
                      ---------     ----------     ---------------

Class SVDB 1-6          800,000     $     3.00     July 31, 2013
Class SVDM-1            387,343     $     5.00     July 31, 2008
Class DB-1              600,000     $     1.00     January 31, 2014
Class A 1-3             600,000     $     2.50     May 14, 2015
Class SVMAS-1            67,500     $     3.50     May 31, 2009
Class SVMAS-1A           40,000     $     3.50     October 11, 2009
Class SVMAS-2            32,500     $     2.50     September 30, 2009
Class SVMAS-3            40,000     $     2.50     September 30, 2015
Class SVB 1-3            50,000     $     2.50     April 30, 2015
Class SVB-4              75,000     $     2.50     April 30, 2015
Class SVC 1-5           125,000     $     4.25     December 31, 2012
Class SV-SEI 1-2         41,667     $     1.50     June 30, 2009
Class C, D, E           725,000     $     2.50     April 30, 2015
Class O                 100,000     $     3.00     December 31, 2008
                      ---------
                      3,684,010
                      =========

     The weighted average exercise price for the outstanding warrants is
$2.72 and the weighted average remaining contractual life as of March 31,
2008 is 5.3 years.





                                     15


             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

8.   STOCKHOLDERS' EQUITY (CONTINUED):

     Stock options:

     Prior to June 2006, the Company had various incentive plans (the
"Plans") that provided for incentive stock options to be granted to selected
employees and directors of the Company, and selected non-employee advisors to
the Company.  Effective June 2006, the Company approved the 2006 Consolidated
Incentive Plan (the "2006 Plan"), which consolidated previously reserved
incentive stock options under the Plans into the 2006 Plan.  The Company has
reserved 3,200,000 shares, the maximum number of shares of the common stock
of the Company issuable pursuant to the 2006 Plan. Terms of exercise and
expiration of options granted under the 2006 Plan may be established at the
discretion of the Board of Directors, but no option may be exercisable for
more than ten years.

     The Company recorded compensation expense related to stock options of
$78,925 and $141,170 for the three months ended March 31, 2008 and 2007,
respectively and $443,891 and $441,426 for the nine months ended March 31,
2008 and 2007, respectively.  During the nine months ended March 31, 2008,
the Company granted 145,000 options, while 20,000 options expired and 25,000
options were forfeited.  The fair value of the options granted during the
nine months ended March 31, 2008 was estimated on the grant date using the
Black-Scholes option-pricing model with the weighted average following
assumptions:

     Stock options (continued):

          Volatility                    70%
          Dividend yield                 0%
          Risk-free interest rate     3.53%
          Expected life (years)          2

     The expected volatility was based on the historical price volatility of
the Company's common stock.  The dividend yield represents the Company's
anticipated cash dividend on common stock over the expected life of the stock
options.  The U.S. Treasury bill rate for the expected life of the stock
options was utilized to determine the risk-free interest rate.  The expected
term of stock options represents the period of time the stock options granted
are expected to be outstanding based upon management's estimates.

     A summary of option activity under the 2006 Plan for the nine months
ended March 31, 2008 is as follows:









                                     16



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

8.   STOCKHOLDERS' EQUITY (CONTINUED):

                                                    Weighted-
                                         Weighted-  Average
                                         Average    Remaining     Aggregate
                                         Exercise   Contractual   Intrinsic
                               Shares    Price      Life          Value
                             ---------   --------   -----------   ----------
Outstanding at July 1, 2007  1,833,333   $  3.33
 Granted                       145,000      2.21
 Exercised                        -          -
 Forfeited                     (25,000)     5.50
 Expired                       (20,000)     7.50
                             ---------   -------        ---       --------
Outstanding at March 31,
  2008                       1,933,333   $  3.17        4.0       $ 17,700
                             =========   =======        ===       ========
Exercisable at March 31,
  2008                       1,550,000   $  3.08        3.4       $ 17,700
                             =========   =======        ===       ========

     The weighted-average grant-date fair value of options granted during the
nine months ended March 31, 2008 and 2007 was $0.72 and $5.13, respectively.

     The following table presents information relating to nonvested stock
options as of March 31, 2008:

                                                     Weighted Average
                                                     Grant-Date Fair
                                        Shares             Value
                                      -----------    -----------------
     Nonvested at July 1, 2007          560,833           $ 2.34
      Granted                           145,000              .72
      Vested                           (297,500)           (1.65)
      Forfeited                         (25,000)           (4.89)
                                       --------           ------
     Nonvested at March 31, 2008        383,333           $ 2.10
                                       ========           ======

     The total fair value of stock options that vested during the nine months
ended March 31, 2008 and 2007 was $443,950 and $208,941, respectively.  The
intrinsic value of stock options exercised during the nine months ended March
31, 2008 and 2007 was $0 as there were no options exercised during these
periods.  As of March 31, 2008 the Company had $350,722 of unrecognized
compensation cost related to stock options that will be recorded over a
weighted average period of less than one year.






                                     17



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

8.   STOCKHOLDERS' EQUITY (CONTINUED):

     Stock Options (continued):

     The Company has issued options to purchase shares of the Company's
common stock in exchange for services.  As of March 31, 2008, non-employee
options represented 630,833 of the 1,933,333 options outstanding under the
Company's 2006 Consolidated Incentive Plan.  Of the 630,833 non-employee
options outstanding, 260,833 were fully vested and contained no service
conditions as of March 31, 2008. These non-employee options were valued using
the Black-Scholes option-pricing model.  The fully vested options have been
fully amortized on the straight-line method and resulted in expense of $0 and
$8,565 for the three months ended March 31, 2008 and 2007, respectively and
$0 and $34,102 for the nine months ended March 31, 2008 and 2007,
respectively.

     The remaining 370,000 non-employee options outstanding include service
conditions and have graded vesting schedules through May 1, 2009.  As of
March 31, 2008, 195,000 of these options were fully vested.  Generally for
these agreements, the measurement date of the services occurs when the
options vest.  In accordance with Emerging Issues Task Force ("EITF") Issue
No. 96-18, recognition of compensation cost for reporting periods prior to
the measurement date is based on the then current fair value of the options
as of each of the interim reporting dates. Any subsequent change in fair
value is recorded on the measurement date.   The fair value of these options
were determined using the Black-Scholes option-pricing model, using the
following assumptions at March 31, 2008; a dividend yield of zero, a risk-
free interest rate of 2.9%, volatility of 167% and an expected life of 7.1
years.  Consulting cost in connection with options that are not fully vested
as of March 31, 2008 is being recognized on a straight-line basis over the
requisite service period for the entire award.  Non-cash fair value
(credits)/charges of $(10,062) and $(211,111) were recorded as research and
development expenses during the three months ended March 31, 2008 and 2007,
respectively and $(80,208) and $834 for the nine months ended March 31, 2008
and 2007, respectively.

     Stock-based compensation charges/(credits) in operating expenses in the
Company's financial statements for the three and nine months ended March 31,
2008 and 2007 are as follows:













                                     18



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

8.   STOCKHOLDERS' EQUITY (CONTINUED):

     Stock Options (continued):
<TABLE>
<CAPTION>
                                    Three        Three       Nine         Nine
                                    months       months      months       months
                                    ended        ended       ended        ended
                                    March        March       March        March
                                   31, 2008     31, 2007    31, 2008     31, 2007
                                   ---------    --------    ---------    ---------
<S>                                <C>          <C>         <C>          <C>
General and administrative:
 Fair value remeasurement of
  convertible notes - affiliates
  (Note 6)                         $    -       $(338,634)  $(237,383)   $(667,315)
 Amortization of expenses
  prepaid with stock options
  granted to non-employees
  (Note 8)                              -             398        -           9,601
 Fair value of stock options
  expensed under SFAS 123(R)          16,331       58,800     244,776       74,810
                                   ---------    ---------    --------    ---------
     Total                         $  16,331    $(279,436)   $  7,393    $(582,904)
                                   =========    =========    ========    =========
Research and development:
 Fair value remeasurement of
  convertible notes - affiliates
  (Note 6)                         $  50,856    $(463,110)   $(310,721)  $(913,023)
 Fair value remeasurement of
  options with service conditions
  (Note 8)                           (10,062)    (211,111)     (80,208)        834
 Amortization of expenses prepaid
  with stock options granted to
  non-employees                         -           8,167         -         24,500
 Fair value of stock options
  expensed under SFAS 123(R)          62,594       82,370      199,115     366,616
                                   ---------    ---------    ---------   ---------
     Total                         $ 103,388    $(583,684)   $(191,814)  $(521,073)
                                   =========    =========    =========   =========
</TABLE>



9.   LITIGATION SETTLEMENT AND RETURN OF ESCROWED FUNDS:

     The Company, its president and Dairy were defendants in a class
action/derivative action lawsuit in Delaware Chancery Court (TCMP#3 Partners,
LLP, et al v. Trident Rowan Group, Inc., et al, Civil Action No. 170-N) (the
"TCMP Litigation") and on August 10, 2007 a settlement was approved.
Pursuant to the settlement, the Company, its president and Dairy paid
$165,000, through insurance, into a settlement fund.  As part of the
settlement reached in the TCMP Litigation, the Company, Centerpoint and
certain shareholders of the Company ("Shareholder Class") filed an action




                                     19



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

9.   LITIGATION SETTLEMENT AND RETURN OF ESCROWED FUNDS (CONTINUED):

against Comtech Group, Inc. ("Comtech") (formerly known as Trident Rowan
Group, Inc.), OAM S.p.A ("OAM") and others in the Court of Chancery in the
State of Delaware (the "Comtech Litigation"), along with a stipulated
settlement of the litigation.  Pursuant to that settlement, Comtech and OAM
agreed to deliver to the Shareholder Class:  a) 144,240 shares of the
Company's common stock; b) a warrant to purchase 100,000 shares of the
Company's common stock, and c) 140,000 shares of the common stock of
Centerpoint.  It is anticipated that delivery of these securities (net of 10%
attorneys' fees) will take place during the second half of fiscal 2008 and
each member of the Shareholder Class will receive the equivalent of
approximately .05 of the Company's shares for each share of the Company's
common shares (split adjusted) owned on January 15, 2002.  Additionally,
Comtech and OAM assigned to the Company all of their rights to the proceeds
of an escrow established from the sale of Centerpoint's assets to Aprilia
S.p.A. (the "Aprilia Escrow") and any proceeds from litigation related to the
transaction with Aprilia.  On September 18, 2007 the Company received gross
proceeds of $798,210 (net receipts were $159,642 to Centerpoint and $558,747
to Bion, after payment of attorneys' fees of $79,821) from the Aprilia
Escrow.  As part of the settlement, one of the other defendants in the
Comtech litigation paid $150,000 into a settlement fund, through insurance,
from which the Company and Centerpoint received $110,000, in aggregate, on
September 10, 2007.  As there are no contingencies on the settlement, the
Company recognized the net proceeds of $828,389 as other income for the nine
months ended March 31, 2008.

     Also on September 18, 2007, Centerpoint received $429,806 from its
direct 35% ownership interest in the Aprilia Escrow which is included in
other income as of March 31, 2008.

10.  OPERATING LEASE:

     The Company entered into a non-cancellable operating lease commitment
for office space in New York, effective August 1, 2006 and expiring November
30, 2013.  In conjunction with the signing of the lease, the Company provided
the lessor with a secured letter of credit.  As of March 31, 2008 the Company
has reflected $128,443 as restricted cash related to the secured letter of
credit.  The Company's obligations under the lease are partially guaranteed
by Salvatore Zizza, chairman of Bion Dairy.  The Company has entered into two
separate agreements to sub-lease approximately 32% of the Company's lease
obligation and the tenants have also agreed to reimburse the Company for
leasehold improvements and furnishings.  Because the lease contains an
escalation clause, the Company is recognizing rent under the straight-line
method resulting in an average monthly rent expense of $15,820.  The Company
is also recognizing the sub-lease rental income from its tenants under the
straight-line method, with a monthly average of $5,250.  The difference
between the straight-line method, and the actual lease payments have resulted
in a deferred rent liability of $70,483 as of March 31, 2008.   Rent expense,
net of sub-lease rental income was $16,553 and $33,404, and $72,887 and
$106,609 for the three and nine months ended March 31, 2008 and 2007,
respectively.

                                     20



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

10.  OPERATING LEASE (CONTINUED):

At March 31, 2008, future minimum rental payments due under non-cancelable
leases and future minimum rental payments to be received under non-cancelable
subleases are:

                                                                Net
                                        Operating               operating
                                        lease        Sublease   lease
                                        payments     rentals    payments
Fiscal year:                            ----------   --------   --------

Three months ended June 30, 2008        $   44,591   $ 14,269   $ 30,322
2009                                       184,484     59,035    125,449
2010                                       191,405     61,249    130,156
2011                                       198,602     63,553    135,049
2012                                       212,775     68,088    144,687
Thereafter                                 322,975    103,352    219,623
                                        ----------   --------   --------
Total                                   $1,154,832   $369,546   $785,286
                                        ==========   ========   ========

11.  COMMITMENTS AND CONTINGENCIES:

     Employment and consulting agreements:

     The Company had an employment agreement with its president, Mr. Smith,
through December 31, 2007 providing $150,000 per year compensation.  On
November 7, 2007, the Company extended the employment agreement through
December 31, 2008 and granted Mr. Smith options to purchase 125,000 shares of
the Company's common stock at $2.20 per share, expiring on December 31, 2011.

     Effective March 31, 2005, an agreement with Brightcap, through which the
services of Dominic Bassani, are provided, was extended through March 31,
2009.  Under the terms of the agreement, Brightcap will be paid $300,000
annually for Mr. Bassani's services.

     Effective May 1, 2005, the Company entered into a four-year
consulting/employment agreement with a former officer and director of the
Company, Salvatore Zizza.  As of January 1, 2006, the former officer and
director assumed the position of Chairman and director of Dairy, with an
annual salary of $300,000.

     Effective May 1, 2005, the Company entered into a four-year
consulting/employment agreement with Jeff Kapell.  Under the terms of the
agreement, Mr. Kapell provided part-time services to the Company through
March 2006.  In April 2006, Mr. Kapell was appointed Dairy's Vice President-
Renewables at a salary of $120,000 per year.




                                     21



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

11.  COMMITMENTS AND CONTINGENCIES (CONTINUED):

     Employment and consulting agreements (continued):

     Effective September 18, 2006, the Company entered into a four-year
employment agreement with Jeremy Rowland whereby Mr. Rowland assumed the
position of Chief Operating Officer of Dairy at an annual salary of $150,000.

     Effective June 1, 2007, the Company entered into an employment
agreement, effective through August 31, 2009, with Craig Scott whereby Mr.
Scott was appointed Vice President of Capital Markets/Investor Relations at
an annual salary of $120,000.

     In May 2005 the Company declared contingent deferred stock bonuses of
690,000 shares to its key employees and consultants.  The stock bonuses of
492,500 and 197,500 shares are contingent upon the Company's stock price
exceeding $10.00 and $20.00 per share, respectively, and the grantees still
being employed by or providing services to the Company at the time the target
prices are reached.

     Joint venture agreement:

     In June 2006, the Company entered into an agreement with Fair Oaks Dairy
Farm ("FODF") to construct a Bion facility ("Stage I System") at FODF.  Bion
has been working with FODF since May 2005 for the purpose of installing a
waste treatment facility at FODF that could become the basis for a future
Integrated Project.  The June 2006 agreement contemplates expansion beyond
the initial waste treatment facility.    The Stage I System, if constructed,
will initially be used for testing necessary for: a) finalization of design
criteria for permitting and construction of, and b) optimization of renewable
energy production and utilization for the full scale Integrated Projects.
The Company is currently in negotiations toward an amended agreement with
FODF pursuant to which: a) the Company will construct a commercial scale Bion
System designed to handle the waste stream from approximately 3,500-6,200
milking cows ("Initial System") at existing FODF facilities in Indiana which
will incorporate and expand the scope of the Stage I System; and b) when the
Initial System has completed start-up phase and demonstrated environmental
results consistent with the published results achieved at Bion's DeVries
research facility, the Initial System will become the basis of expansion into
an Integrated Project at FODF through development stages including dairy
expansion, construction of additional Bion System modules, including
renewable energy production, solids processing facilities, and construction
of an ethanol plant.  Preliminary engineering, design and site work at FODF
has begun pursuant to the existing agreement.  However, due to the inability
to resolve certain technical and financial issues, it is uncertain whether
any of these facilities will be constructed.  FOFD is owned and controlled by
Michael McCloskey and Timothy Den Dulk who have served as consultants to the
Company since May 2005.




                                     22



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED MARCH 31, 2008

11.  COMMITMENTS AND CONTINGENCIES (CONTINUED):

     Claims contingency:

     In May 2002, Arab Commerce Bank Ltd. ("ACB"), an unaffiliated party,
filed a complaint against the Company in the Supreme Court of the State of
New York regarding $100,000 of the Company's convertible bridge notes
("Bridge Notes") that were issued to ACB in March 2000.  The complaint
includes a breach of contract claim asserting that the Company owes ACB
approximately $285,000 plus interest of $121,028 plus interest based on ACB's
interpretation of the terms of the Bridge Notes and subsequent amendments.
Effective June 30, 2001, the Company issued ACB 5,034 shares of common stock
in full satisfaction of the Bridge Notes based on the Company's
interpretation of the Bridge Notes, as amended. The Company has filed an
answer to the complaint denying the allegations. No activity has taken place
on this lawsuit since early 2003.  The Company believes that the ultimate
resolution of this litigation will not have a material adverse effect on the
Company, its operations or its financial condition.

12.  RELATED PARTY TRANSACTIONS:

     The Company has an accrued payable of $41,647 as of March 31, 2008, to a
company controlled by Salvatore Zizza for rental of office space in 2003.

13.  SUBSEQUENT EVENTS:

     Centerpoint

     On April 30, 2008 Centerpoint received and cancelled 126,000 shares of
its previously outstanding common stock in connection with the litigation
settlement described at Note 9, which increased Bion's ownership from 57.7%
to 58.9%.

     Private Placement

     During April and May 2008 the Company issued 75,000 shares of its
restricted common stock in private transactions at $2.00 per share resulting
in proceeds to the Company of $150,000.













                                     23



PART I.   FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

     The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements filed with the Company's Form 10-KSB for the year ended June 30,
2007.

     BUSINESS OVERVIEW

     The Company has been focused on completion of the development of its
second-generation technology which provides solutions for environmentally
sound clean-up of the waste streams of large-scale CAFO's and creates
economic opportunities for integration of renewable energy production,
ethanol production, sustainable animal husbandry and organic soil/fertilizer
and feed production.  We believe our technology will also allow development
of Projects that can also directly integrate with dairy (and other CAFO) end-
users and that can potentially increase profitability and quality control of
each participant while mitigating the environmental impact of the entire
integrated complex.  The Company is in the process of finalizing engineering,
design and economic modeling for applications and Integrated Projects and
expects to select the site for, begin permitting and, commence development of
its initial Integrated Project during the 2008 calendar year.

     The financial statements for the years ended June 30, 2007 and 2006 have
been prepared assuming the Company will continue as a going concern.  The
Company has incurred net losses of approximately $2,549,000 and $5,173,000
during the years ended June 30, 2007 and 2006, respectively.  At June 30,
2007, the Company had a working capital deficiency and a stockholders'
deficit of approximately $1,219,000 and $4,663,000, respectively.  The
financial statements for the three and nine months ended March 31, 2008 and
2007 have also been prepared assuming the Company will continue as a going
concern.  The Company has incurred net losses of approximately $841,000 and
$779,000 during the three and nine month periods ended March 31, 2008,
respectively.  At March 31, 2008, the Company has a working capital
deficiency and a stockholders' deficit of approximately $3,784,000 and
$4,540,000, respectively.  The report of the independent registered public
accounting firm on the Company's financial statements as of and for the year
ended June 30, 2007 includes a "going concern" explanatory paragraph which
means that the accounting firm has expressed substantial doubt about the
Company's ability to continue as a going concern.  Management's plans with
respect to these matters are described in the Liquidity and Capital Resources
section of this report and in our financial statements, and this material
does not include any adjustments that might result from the outcome of this
uncertainty.  There is no guarantee that we will be able to raise the funds
or raise further capital for the operations planned in the near future.

CRITICAL ACCOUNTING POLICIES

     Management has identified the following policies below as critical to
our business and results of operations.  Our reported results are impacted by
the application of the following accounting policies, certain of which
require management to make subjective or complex judgments.  These judgments


                                     24



involve making estimates about the effect of matters that are inherently
uncertain and may significantly impact quarterly or annual results of
operations.  For all of these policies, management cautions that future
events rarely develop exactly as expected, and the best estimates routinely
require adjustment.   Specific risks associated with these critical
accounting policies are described in the paragraphs below.

Revenue Recognition

     While the Company has not recognized any operating revenues for the past
two fiscal years, the Company anticipates that future revenues will be
generated from product sales, technology license fees, annual waste treatment
fees and direct ownership interests in Integrated Projects.  The Company
expects to recognize revenue from product sales when persuasive evidence that
an arrangement exists, when title has passed, the price is fixed or
determinable, and collection is reasonably assured.  The Company expects that
technology license fees will be generated from the licensing of Bion's
Systems.  The Company anticipates that it will charge its customers a non-
refundable up-front technology license fee, which will be recognized over the
estimated life of the customer relationship.  In addition, any on-going
technology license fees will be recognized as earned based upon the
performance requirements of the agreement. Annual waste treatment fees will
be recognized upon receipt. Revenues, if any, from the Company's interest in
Projects will be recognized when the entity in which the Project has been
developed recognizes such revenue.

Compensation Cost for Options with Service Conditions and Graded Vesting
Schedules

     The Company has issued non-employee options that include service
conditions and have graded vesting schedules.  Generally for these
arrangements, the measurement date of the services occurs when the options
vest.  In accordance with Emerging Issues Task Force Issue No. 96-18,
recognition of compensation cost for reporting periods prior to the
measurement date is based on the then current fair value of the options.
Fair value of the options is determined using a Black-Scholes option-pricing
model.  Compensation cost in connection with options that are not fully
vested is being recognized on a straight-line basis over the requisite
service period for the entire award.

Stock-based compensation

     On July 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123 (Revised), "Share-Based
Payment" (SFAS 123(R)), which supercedes Accounting Principles Board Opinion
No. 25 ("APB 25"), and generally requires that share-based compensation
transactions be accounted and recognized in the statement of income based on
their fair values.  The Company adopted SFAS 123(R)using the modified
prospective application under which all share based awards granted on or
after the adoption date and  modifications, repurchases or cancellation of
prior awards made after the adoption date shall be accounted for under SFAS
123(R).  The modified prospective application does not require the Company to
restate prior period's financial results to reflect the adoption.



                                     25



     In accordance with SFAS 123(R), outstanding instruments previously
classified as liabilities and measured at intrinsic values, are to be
measured initially at fair value with differences to be recorded as a
cumulative effect of a change in accounting principle.  The Company recorded
the cumulative effect of a change in accounting principle of $731,000 due to
the calculation of the fair value of convertible deferred compensation owed
to Mark A. Smith ($1,522,000) and Brightcap ($2,081,000) as of July 1, 2006.
The Company re-measures the fair value of the convertible notes at each
reporting period after July 1, 2006, using a Black-Scholes model approach,
and records any adjustments as non-cash compensation expense in the re-
measurement period.

RECENT ACCOUNTING PRONOUNCEMENTS

     The Company adopted the provisions of Financial Accounting Standards
Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109 ("FIN 48"), on July 1, 2007. There
were no unrecognized tax benefits and, accordingly, there was no effect on
the Company's financial condition or results of operations as a result of
implementing FIN 48.

     The Company files income tax returns in the U.S. federal jurisdiction
and various state jurisdictions. The Company is no longer subject to U.S.
federal and state tax examinations for fiscal years before 2003. Management
does not believe there will be any material changes in our unrecognized tax
positions over the next 12 months.

     The Company's policy is to recognize interest and penalties accrued on
any unrecognized tax benefits as a component of income tax expense. As of the
date of adoption of FIN 48, there was no accrued interest or penalties
associated with any unrecognized tax benefits, nor was any interest expense
recognized during the quarter.

     In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations ("SFAS 141R"). SFAS 141R continues to require the purchase
method of accounting to be applied to all business combinations, but it
significantly changes the accounting for certain aspects of business
combinations. Under SFAS 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS 141R will
change the accounting treatment for certain specific acquisition related
items including: (1) expensing acquisition related costs as incurred;
(2) valuing noncontrolling interests at fair value at the acquisition date;
and (3) expensing restructuring costs associated with an acquired business.
SFAS 141R also includes a substantial number of new disclosure requirements.
SFAS 141R is to be applied prospectively to business combinations for which
the acquisition date is on or after July 1, 2009 for the Company.  The
Company does not expect that the adoption of SFAS 141R will have an impact on
its consolidated financial statements unless the Company enters into business
acquisitions in the future.






                                       26



     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements ("SFAS 160"). SFAS 160 establishes new
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary (minority interest) is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements and separate from the parent company's
equity. Among other requirements, this statement requires consolidated net
income to be reported at amounts that include the amounts attributable to
both the parent and the noncontrolling interest. It also requires disclosure,
on the face of the consolidated statement of operations, of the amounts of
consolidated net income attributable to the parent and to the noncontrolling
interest. This statement is effective for the Company on July 1, 2009.  The
Company is currently evaluating the effect the adoption of this statement
will have on its consolidated financial statements.

THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31,
2007

General and Administrative

     Total general and administrative expenses increased $297,000 from
$(59,000) to $238,000 for the three months ended March 31, 2007 and 2008,
respectively.

     General and administrative expenses, excluding stock-based compensation
charges/(credits) of $16,000 and $(280,000) for the three months ended March
31, 2008 and 2007, respectively, were $222,000 versus $221,000, respectively.
While overall costs were relatively constant between the two periods,
consulting expenses were $50,000 higher during the three months ended March
31, 2008 compared to the same period in 2007, due to increased monies spent
on lobbying efforts and public relations for projects in various areas.  The
higher consulting expenses were offset by lower legal and accounting and
audit fees of $8,000 and $45,000, respectively, due to the absence of costs
in the current year for expenses related to the finalization of the Form 10SB
registration and related Securities and Exchange Commission comment letter
and filing of corporate tax returns.

     General and administrative stock-based compensation for the three months
ended March 31, 2008 and 2007 consist of the following:

                                                 Three        Three
                                                 months       months
                                                 ended        ended
                                                March 31,    March 31,
                                                  2008         2007
                                                ---------    ---------
     Fair value remeasurement of convertible
      notes - affiliates                        $  -         $(339,000)
     Amortization of expenses prepaid with
      stock options granted to non-employees       -              -
     Fair value of stock options expensed
      under SFAS 123(R)                          16,000         59,000
                                                -------      ---------
                                                $16,000      $(280,000)
                                                =======      =========

                                       27




     Stock-based compensation expenses increased to $16,000 for the three
months ended March 31, 2008 from $(280,000) for the three months ended March
31, 2007.  The credit of $339,000 for the three months ended March 31, 2007
relates to the President's convertible deferred compensation and is primarily
due to the decrease in the price of the Company's stock from $5.75 at
December 31, 2006 to $3.90 per share at March 31, 2007.  There is no similar
credit for the three months ended March 31, 2008 as the note was converted
into common shares of the Company in December 2007.  For the three months
ended March 31, 2008 the Company recognized expense relating to the fair
value of stock options for general and administrative employees of $16,000,
compared to $59,000 during the same period in 2007.  The amount decreased as
no new stock options were issued during the three months ended March 31, 2008
and several of the stock options granted in prior periods have been fully
vested.

Research and development

     Total research and development expenses have increased $470,000 from
$104,000 to $574,000 for the three months ended March 31, 2007 and 2008,
respectively.

     Research and development expenses, excluding stock-based compensation
charges/(credits) of $103,000 and $(584,000) for the three months ended March
31, 2008 and 2007, respectively, decreased $217,000 from $688,000 to $471,000
for the three months ended March 31, 2007 and 2008, respectively.  The
decrease is primarily due to the absence of bonuses declared during the three
months ended March 31, 2007 for research and development employees and
consultants of $170,000 and lower legal fees of $8,000 due to decreased
patent work for the three months ended March 31, 2008 compared to the same
period in the prior year.

     Research and development stock-based compensation for the three months
ended March 31, 2008 and 2007 consist of the following:

                                                 Three        Three
                                                 months       months
                                                 ended        ended
                                                March 31,    March 31,
                                                  2008         2007
                                                ---------    ---------
     Fair value remeasurement of convertible
      notes - affiliates                        $ 51,000     $(463,000)
     Fair value remeasurement of options with
      service conditions                         (10,000)     (211,000)
     Amortization of expenses prepaid with
      stock options granted to non-employees        -            8,000
     Fair value of stock options expensed
      under SFAS 123(R)                           62,000        82,000
                                                --------     ---------
                                                $103,000     $(584,000)
                                                ========     =========





                                    28


     Stock-based compensation expense increased from $(584,000) for the three
months ended March 31, 2007 to $103,000 for the same period in 2008.  The
change is attributable to Brightcap's convertible deferred compensation, and
compensation costs relating to the Company's options with service conditions
and graded vesting and expensing of stock options for research and
development employees.  Stock-based compensation fair value adjusted
charges/(credits) of $51,000 and $(463,000) for the three months ended March
31, 2008 and 2007, respectively, was recorded to re-measure the fair value of
Brightcap's convertible deferred compensation at March 31, 2008 and 2007,
respectively, due primarily to the change in the price of the Company's stock
from $2.34 to $2.12 per share for the three months ended March 31, 2008,
compared to the decrease from the $5.75 per share to $3.90 per share for the
three months ended March 31, 2007.  Stock-based compensation fair value
adjusted expense of $(10,000) and $(211,000) was recorded for the three
months ended March 31, 2008 and 2007, respectively for the non-employee
options that include service conditions and have graded vesting schedules.
The decrease is due in part to the decrease in the stock price from $3.90 per
share at March 31, 2007 compared to $2.12 per share at March 31, 2008. The
Company recorded stock-based compensation expense of $62,000 and $82,000
under the provisions of SFAS 123(R)for the three months ended March 31, 2008
and 2007, respectively for options vested to research and development
employees.

Loss from Operations

     As a result of the factors described above, the loss from operations was
$812,000 and $45,000 for the three months ended March 31, 2008 and 2007,
respectively.

Other expense

     Other expense was $30,000 and $39,000 for the three months ended March
31, 2008 and 2007, respectively.  Interest expense increased $3,000 from
$44,000 for the three months ended March 31, 2007 to $47,000 for the three
months ended March 31, 2008.  The minority interest of the Company was
$(13,000) for the three months ended March 31, 2008 due to expenses incurred
for legal and management costs.

Net Loss

     As a result of the factors described above, the net loss was $841,000
and $84,000 for the three months ended March 31, 2008 and 2007, respectively,
representing a $0.09 increase in the net loss per basic and diluted common
share from $0.01 for the three months ended March 31, 2007 to $0.10 for the
same period in 2008.

NINE MONTHS ENDED MARCH 31, 2008 COMPARED TO NINE MONTHS ENDED MARCH 31, 2007

General and Administrative

     Total general and administrative expenses for the nine months ended
March 31, 2008 increased $605,000 from $(59,000) for the nine months ended
March 31, 2007 to $546,000 for the nine months ended March 31, 2008.


                                       29



     General and administrative expenses, excluding stock-based compensation
charges/(credits) of $7,000 and $(582,000) for the nine months ended March
31, 2008 and 2007, respectively, were $539,000 versus $523,000 for the nine
months ended March 31, 2008 and 2007, respectively.  While total general and
administrative expenses remained relatively constant, the Company had lower
legal costs for the nine months ended March 31, 2008 due to the insurance
reimbursement of Centerpoint related legal fees.  In addition accounting and
audit costs were lower due to the absence of costs in the current year for
services related to the Form 10SB registration. The Company also incurred
lower rent expense due to additional sub-tenant rentals during the nine
months ended March 31, 2008.  These lower costs were offset by higher salary
expense due to the hiring of an investor relations manager during the nine
months ended March 31, 2008 and the hiring of consultants for additional
lobbying and public relations during the nine months ended March 31, 2008.

     General and administrative stock-based compensation for the nine months
ended March 31, 2008 and 2007 consist of the following:

                                                 Nine         Nine
                                                 months       months
                                                 ended        ended
                                                March 31,    March 31,
                                                  2008         2007
                                                ---------    ---------
     Fair value remeasurement of convertible
      notes - affiliates                        $(237,000)   $(667,000)
     Amortization of expenses prepaid with
      stock options granted to non-employees        -           10,000
     Fair value of stock options expensed
      under SFAS 123(R)                          244,000        75,000
                                                --------     ---------
                                                $  7,000     $(582,000)
                                                ========     =========

     Stock-based compensation charges/(credits) increased to $7,000 for the
nine months ended March 31, 2008 from $(582,000) for the nine months ended
March 31, 2007.  The change in stock-based compensation fair value adjusted
expense relating to the President's convertible deferred compensation is
primarily due to the decrease in the price of the Company's stock from $3.25
at June 30, 2007 to $1.50 per share at his conversion date of December 2,
2007 versus the decrease from the $6.40 per share to $3.90 per share for the
nine months ended March 31, 2007. For the nine months ended March 31, 2008
the Company recognized expense relating to the fair value of stock options
for general and administrative employees of $244,000, compared to $75,000
during the same period in 2007 due to the issuance of stock options to Mr.
Smith during December 2007 which were immediately vested.

Research and development

     Total research and development expenses have increased $110,000 from
$1,135,000 to $1,245,000 for the nine months ended March 31, 2007 and 2008,
respectively.



                                      30



     Research and development expenses, excluding stock-based compensation
credits of $(192,000) and $(521,000) for the nine months ended March 31, 2008
and 2007, respectively, were $1,437,000 and $1,656,000 for the nine months
ended March 31, 2008 and 2007, respectively.  The decrease in the nine months
ended March 31, 2008 is primarily due to the fact that during the nine month
period ended March 31, 2007 the Company declared bonuses to certain research
and development employees and consultants of $170,000.

     Research and development stock-based compensation for the nine months
ended March 31, 2008 and 2007 consist of the following:

                                                 Nine         Nine
                                                 months       months
                                                 ended        ended
                                                March 31,    March 31,
                                                  2008         2007
                                                ---------    ---------
     Fair value remeasurement of convertible
      notes - affiliates                        $(311,000)   $(913,000)
     Fair value remeasurement of options with
      service conditions                          (80,000)       1,000
     Amortization of expenses prepaid with
      stock options granted to non-employees         -          24,000
     Fair value of stock options expensed
      under SFAS 123(R)                           199,000      367,000
                                                ---------    ---------
                                                $(192,000)   $(521,000)
                                                =========    =========

     Stock-based compensation expense increased from $(521,000) for the nine
months ended March 31, 2007 to $(192,000) for the same period in 2008.
Stock-based compensation fair value adjusted credits of $(311,000) and
$(913,000) for the nine months ended March 31, 2008 and 2007, respectively,
was recorded to re-measure the fair value of Brightcap's convertible deferred
compensation at March 31, 2008 and 2007, respectively, due, in part, to the
change in the price of the Company's stock from $3.25 to $2.12 per share for
the nine months ended March 31, 2008, compared to the decrease from the $6.40
per share to $3.90 per share for the nine months ended March 31, 2007.
Stock-based compensation fair value adjusted (credit)/expense of $(80,000)
and $1,000 was recorded for the nine months ended March 31, 2008 and 2007,
respectively for the non-employee options that include service conditions and
have graded vesting schedules.  The decrease is primarily due to the decrease
in the stock price from $3.90 per share at March 31, 2007 compared to $2.12
per share at March 31, 2008. The Company recorded stock-based compensation
expense of $199,000 and $367,000 under the provisions of SFAS 123(R)for the
nine months ended March 31, 2008 and 2007, respectively for options vested to
research and development employees.  The decrease is due to no new stock
options issuances to research and development employees during the nine
months ended March 31, 2008 and decreased vesting of prior year issuances.






                                       31



Loss from Operations

     As a result of the factors described above, the loss from operations was
$1,792,000 and $1,076,000 for the nine months ended March 31, 2008 and 2007,
respectively.

Other (income) and expense

     Other (income) and expense was $(1,013,000) and $77,000 for the nine
months ended March 31, 2008 and 2007, respectively.  Interest expense
increased $46,000 from $105,000 for the nine months ended March 31, 2007 to
$151,000 for the nine months ended March 31, 2008.  Interest expense
increased due to the higher debt balances on the 2006 and 2007 Series A Notes
for the nine months ended March 31, 2008, but was partially offset by lower
interest on convertible deferred compensation balances from the prior year
due to conversions.  The Company recognized other income of $1,258,000 due to
the receipts of $828,000 from litigation settlements and $430,000 from
release of previously escrowed funds owed to Centerpoint during the nine
months ended March 31, 2008.  The receipts of the litigation settlement
proceeds and the escrowed funds resulted in a positive net equity position
for the Company's 57.7% held subsidiary, Centerpoint, which resulted in the
recording of the $114,000 minority interest expense of Centerpoint for the
nine months ended March 31, 2008.

Cumulative Effect of Change in Accounting Principle

     During the nine months ended March 31, 2007, the Company recorded the
cumulative effect of a change in accounting principle of $731,000.

     On July 1, 2006, the Company adopted the provisions of SFAS 123(R),
which supersedes APB 25, using the modified prospective application.  In
accordance with SFAF 123(R), outstanding instruments previously classified as
liabilities and measured at intrinsic values, are to be measured initially at
fair value with differences to be recorded as a cumulative effect of a change
in accounting principle.  The Company recorded the cumulative effect of a
change in accounting principle of $731,000 due to the calculation of the fair
value of convertible deferred compensation owed Mark A. Smith and Brightcap
as of July 1, 2006.  The cumulative effect of change in accounting principle
increased the net loss per common share of $0.08 for the nine months ended
March 31, 2007.

Net loss

     As a result of the factors described above, the net loss was $779,000
and $1,884,000 for the nine months ended March 31, 2008 and 2007,
respectively, representing a $0.04 decrease in the net loss per basic and
diluted common share before the cumulative effect of change in accounting
principle from $0.14 for the nine months ended March 31, 2007 to $0.10 for
the same period in 2008.





                                       32





LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 2008, the Company had cash and cash equivalents of
approximately $278,000.  As previously noted, the Company is currently not
generating revenue and accordingly has not generated cash flows from
operations.  The Company does not anticipate generating sufficient revenues
to offset operating and capital costs for a minimum of two to five years.
While there are no assurances that the Company will be successful in its
efforts to develop and construct its Projects and market its Systems, it is
certain that the Company will require significant funding from external
sources.

Investing Activities

     During the nine months ended March 31, 2008 the Company used $3,000 of
cash for investing activities to purchase property and equipment in addition
to receiving a refund of $5,000 for leasehold improvements and having $44,000
of restricted cash released for operating use.  The Company had no other
investing activities for the nine months ended March 31, 2008.

Financing Activities

     The Company had no financing activities during the nine months  ended
March 31, 2008.

     As of March 31, 2008 the Company has significant debt obligations
consisting primarily of mandatorily convertible notes - affiliates of
$761,000, 2006 Series A convertible promissory notes - current of $771,000,
2007 Series A convertible promissory notes - affiliates of 1,047,000, 2007
Series A convertible promissory notes of $848,000 and deferred compensation
of $742,000.  The Company has entered into an 88-month operating lease for
office space in New York City, with an average monthly lease expense of
$15,820.

Plan of Operations and Outlook

     As of March 31, 2008 the Company had cash and cash equivalents of
approximately $278,000.  Based on our operating plan, management believes
that existing cash on hand will be sufficient to fund the Company's basic
overhead through the end of the 2008 fiscal year.  However, the Company will
need to raise additional capital to execute our business plan discussed
below.

     The Company currently intends to seek financing of between $3,000,000
and $50,000,000 during calendar year 2008 in the form of equity and/or debt.
The proceeds would be used to expand and accelerate the development
activities of Bion's initial Integrated Projects and for general corporate
purposes and pay current obligations.  If we do not receive sufficient
funding on a timely basis, it could have a material adverse effect on our
liquidity, financial condition and business prospects.  Additionally, in the
event that we receive funding, it may be on terms that are not favorable to
the Company and its shareholders.  There is no assurance that the Company
will successfully complete any financings.



                                      33




     Currently, Bion is focused on using applications of its patented waste
management technology to develop Integrated Projects which will include large
CAFOs, such as large dairies, beef cattle feed lots and hog farms, with Bion
waste treatment System modules processing the aggregate CAFO waste stream
from the equivalent of 40,000 or more beef and/or dairy cows (or the waste
stream equivalent of other species) while producing solids to be utilized for
renewable energy production and to be marketed as feed and/or fertilizer,
integrated with an ethanol plant capable of producing 40 (or more) million
gallons of ethanol per year.

     In June 2006, the Company entered into an agreement with Fair Oaks Dairy
Farm ("FODF") to construct a Bion facility ("Stage I System") at FODF.  Bion
has been working with FODF since May 2005 for the purpose of installing a
waste treatment facility at FODF that could become the basis for a future
Integrated Project.  The June 2006 agreement contemplates expansion beyond
the initial waste treatment facility.    The Stage I System, if constructed,
will initially be used for testing necessary for: a) finalization of design
criteria for permitting and construction of, and b) optimization of renewable
energy production and utilization for the full scale Integrated Projects.  We
are currently in discussions toward an amended agreement with FODF. However,
due to the inability to resolve certain technical and financial issues, it is
uncertain whether any of these facilities will be constructed.

     Bion is currently working with local, state and federal officials and
with potential industry participants to evaluate sites in multiple states and
anticipates selecting a site for its initial Project during the 2008 calendar
year. At present it is probable, but not certain, that the initial Integrated
Project will be located in St. Lawrence County, New York. In addition, Bion
intends to choose sites for additional Projects during fiscal year 2008 and
2009 to create a pipeline of Projects. Management has a 5-year development
target (through calendar year 2013) of approximately 12-25 Integrated
Projects.  At the end of the 5-year period, Bion projects that 8 or more of
these Integrated Projects will be in full operation in 3-8 states, and the
balance would be in various stages ranging from partial operation to early
construction stage. No Integrated Project has been developed to date.

     Bion is presently establishing its implementation management team with
the intention of commencing development and construction of an initial
Project during calendar year 2008. Bion will need to continue to hire
additional management and technical personnel as it moves from the technology
re-development phase to the implementation phase during the 2008 calendar
year.

CONTRACTUAL OBLIGATIONS

     We have the following material contractual obligations (in addition to
employment and consulting agreements with management and employees):

     1) The Company executed a non-cancelable operating lease for office
space in New York City effective August 1, 2006 and extending to November 30,
2013. The average monthly rent expense under the lease is $15,820.  The
Company has provided the lessor with a letter of credit in the amount of
$128,443 in connection with the lease as of March 31, 2008.  The Company's
obligations under the lease are partially guaranteed by Salvatore Zizza,
Chairman of Bion Dairy.  The Company has entered into sub-leases with non-
affiliated parties for approximately 32% of the obligations under the lease.

                                       34



     2) In June 2006, the Company entered into an agreement with Fair Oaks
Dairy Farm ("FODF") to construct a Bion facility ("Stage I System") at FODF.
Bion has been working with FODF since May 2005 for the purpose of installing
a waste treatment facility at FODF that could become the basis for a future
Integrate Project.  The June 2006 agreement contemplates expansion beyond the
initial waste treatment facility.  The Stage I System, if constructed, will
initially be used for testing necessary for: a) finalization of design
criteria for permitting and construction of, and b) optimization of renewable
energy production and utilization for, full scale Integrated Projects. The
estimated cost of Stage I under the June 2006 agreement, including Stage I
System construction and testing operations, is $750,000, which Bion and FODF
have agreed to split equally net of any grants. However, certain technical
and financial issues concerning this facility remain unresolved between Bion
and FODF and, therefore, permitting and construction have not yet commenced.
It is not possible to predict when and if these matters will be resolved or
whether this installation will ever be constructed.

OFF-BALANCE SHEET ARRANGEMENTS

     We do not have any off-balance sheet arrangements (as that term is
defined in Item 303 of Regulation S-K) that are reasonably likely to have a
current or future material effect on our financial condition, revenue or
expenses, results of operations, liquidity, capital expenditures or capital
resources.

ITEM 3. CONTROLS AND PROCEDURES.

     (a)  Evaluation of Disclosure Controls and Procedures.

     The term "disclosure controls and procedures" is defined in Rules 13a-
15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). This term refers to the controls and procedures of a company
that are designed to ensure that information required to be disclosed by a
company in the reports that it files under the Exchange Act is recorded,
processed, summarized, and reported within the required time periods. Our
Chief Executive Officer and Principal Financial Officer has evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this quarterly report, and has concluded that, as of that
date, our disclosure controls and procedures were effective at ensuring that
required information will be disclosed on a timely basis in our reports filed
under the Exchange Act.

     (b)  Changes in Internal Control over Financial Reporting.

     No change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.






                                       35




                           PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

      There have been no material developments in the legal proceedings
described in our Form 10-SB since the filing of the last amendment to that
registration statement except the settlement of certain Delaware litigation
described in Note 9 to the financial statements included herein.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

     Not Applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

     Not Applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Not applicable.

ITEM 5.  OTHER INFORMATION.

     Not Applicable

ITEM 6.  EXHIBITS.

Exhibit No.                           Description

    31.1      Certification of CEO and Principal Financial Officer pursuant
              to Rule 13a-14(a) or Rule 15d-14(a).

    32.1      Certification of CEO and Principal Financial Officer pursuant
              to Section 906 of the Sarbanes- Oxley Act of 2002.





















                                      36


                                 SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                   BION ENVIRONMENTAL TECHNOLOGIES, INC.



Date:   May 7, 2008                By:/s/ Mark A. Smith
                                      Mark A. Smith, President (Chief
                                      Executive Officer) and Interim Chief
                                      Financial Officer (Principal Financial
                                      and Accounting Officer)









































                                       37