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 December 31, 2007

[ ] 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 February 5, 2008, there were
9,044,829 Common Shares issued and 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' deficit ............    5

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

           Notes to consolidated financial statements ................ 7-22

Item 2.   Management's Discussion and Analysis or Plan of Operation ..   23

Item 3.   Controls and Procedures ....................................   33

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings ..........................................   33

Item 2.   Unregistered Sales of Equity Securities and Use of
          Proceeds ...................................................   33

Item 3.   Defaults Upon Senior Securities ............................   33

Item 4.   Submission of Matters to a Vote of Security Holders ........   34

Item 5.   Other Information ..........................................   34

Item 6.   Exhibits ...................................................   34

          Signatures .................................................   34

















                                       2



            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEET

                              DECEMBER 31, 2007
                                 (UNAUDITED)

                                    ASSETS

Current assets:
  Cash and cash equivalents                                    $    723,444
  Prepaid rent and expenses                                           2,923
  Deposits and other receivables                                      9,929
                                                               ------------
     Total current assets                                           736,296

Restricted cash                                                     171,945
Property and equipment, net                                          65,375
                                                               ------------
     Total assets                                              $    973,616
                                                               ============

                    LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
  Accounts payable and accrued expenses                        $    619,225
  Accrued payable - affiliate                                        41,647
  2006 Series A convertible promissory notes                        760,218
  2007 Series A convertible promissory notes                        836,001
  2007 Series A convertible promissory notes - affiliates         1,031,292
  Deferred compensation                                             554,280
                                                               ------------
     Total current liabilities                                    3,842,663

  Deferred rent                                                      69,101
  Convertible notes - affiliates                                    702,179
                                                               ------------
     Total liabilities                                            4,613,943
                                                               ------------
Minority interest                                                   126,865
                                                               ------------
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                                     68,733,709
  Accumulated deficit                                           (72,500,901)
                                                               ------------
     Total stockholders' deficit                                (3,767,192)
                                                               ------------
     Total liabilities and stockholders' deficit               $    973,616
                                                               ============




See notes to the unaudited consolidated financial statements.

                                      3



           BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS

           THREE AND SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006
                                (UNAUDITED)



<TABLE>
                                              Three Months Ended            Six Months Ended
                                                December 31,                   December 31,
                                            2007           2006           2007           2006
                                         ----------     -----------    -----------    -----------
<S>                                      <C>            <C>            <C>            <C>
Revenue                                  $     -        $      -       $      -       $      -
                                         ----------     -----------    -----------    -----------
Operating expenses:
 General and administrative (including
  stock-based compensation (Note 8))        154,731         284,031        308,587             36
 Research and development (including
  stock-based compensation (Note 8))        544,700         922,333        671,668      1,030,717
                                         ----------     -----------    -----------    -----------
     Total operating expenses               699,431       1,206,364        980,255      1,030,753
                                         ----------     -----------    -----------    -----------
Loss from operations                       (699,431)     (1,206,364)      (980,255)    (1,030,753)
                                         ----------     -----------    -----------    -----------
Other (income) and expense:
 Interest expense                            51,229          33,008        103,619         61,106
 Interest income                            (10,444)        (11,863)       (15,369)       (23,301)
 Minority interest                           53,348            -           126,865           -
 Other, net (Note 9)                           -               -        (1,258,195)          -
                                         ----------     -----------    -----------    -----------
                                             94,133          21,145     (1,043,080)        37,805
                                         ----------     -----------    -----------    -----------
(Loss) income before cumulative effect
 of change in accounting principle         (793,564)     (1,227,509)       62,825      (1,068,558)
Cumulative effect of change in
 accounting principle (Note 6)                 -               -             -           (731,386)
                                         ----------     -----------    -----------    -----------
Net (loss) income                        $ (793,564)    $(1,227,509)   $    62,825    $(1,799,944)
                                         ==========     ===========    ===========    ===========
Net (loss) income per basic and
 diluted common share:
  Before cumulative effect of change
   in accounting principle               $    (0.10)    $     (0.14)   $      0.01    $     (0.12)
  Cumulative effect of change in
   accounting principle                         -               -              -            (0.08)
                                         ----------     -----------    -----------    -----------
Net (loss) income per share              $    (0.10)    $     (0.14)   $      0.01    $     (0.20)
                                         ==========     ===========    ===========    ===========
Weighted-average number of common
 shares outstanding, basic and diluted    8,021,789       8,619,039      7,976,993      8,622,518
                                         ==========     ===========    ===========    ===========


See notes to the unaudited consolidated financial statements.

</TABLE>






                                                 4




                   BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

                             SIX MONTHS ENDED DECEMBER 31, 2007
                                       (UNAUDITED)


<TABLE>



                                                     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                         -           -         294,821            -           294,821
 Conversion of debt to
  equity                        274,750                  538,509                        538,509
 Net income                        -           -            -             62,825         62,825
                              ---------    -------   -----------    ------------    -----------
Balances, December 31, 2007   9,044,829    $   -     $68,733,709    $(72,500,901)   $(3,767,192)
                              =========    =======   ===========    ============    ===========

</TABLE>




See notes to the unaudited consolidated financial statements.




























                                       5



             BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                   SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006
                                  (UNAUDITED)

                                                      2007          2006
                                                   ---------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss)                                 $  62,825    $(1,799,944)
 Adjustments to reconcile net income (loss)
  to net cash provided by (used in) operating
  activities:
   Cumulative effect of change in accounting
    principle                                           -           731,386
   Depreciation expense                                8,066          2,655
   Accrued interest on convertible notes and debt    103,619         16,727
   Stock-based compensation                          294,821        512,201
   Decrease in fair value of convertible notes      (598,960)      (778,593)
   Minority interest                                 126,865           -
   Decrease in  prepaid rent and expenses             17,187         46,528
   Increase in deposits and other receivables         (7,085)       (37,642)
   Decrease in accounts payable and accrued
    expenses                                         (29,091)        (9,704)
   Increase in deferred rent                           3,128         78,221
   Increase in deferred compensation                 366,780        419,378
                                                   ---------    -----------
    Net cash provided by (used in) operating
     activities                                      348,155       (818,787)
                                                   ---------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
 Increase in restricted cash                            -          (171,945)
 Proceeds from refund of property and equipment        5,258           -
 Purchase of property and equipment                   (3,078)       (76,150)
                                                   ---------    -----------
    Net cash provided by (used in) investing
     activities                                        2,180       (248,095)
                                                   ---------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from sale of convertible debt                 -           545,000
                                                   ---------    -----------
    Net cash provided by financing activities           -           545,000
                                                   ---------    -----------
Net increase (decrease) in cash and cash
 equivalents                                         350,335       (521,882)

Cash and cash equivalents at beginning of period     373,109      1,152,199
                                                   ---------    -----------
Cash and cash equivalents at end of period         $ 723,444    $   630,317
                                                   =========    ===========
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    $      -
                                                   =========    ===========

See notes to the unaudited consolidated financial statements.

                                      6



            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

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 fiscal 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 insure 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.

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 (loss) income of approximately $(794,000) and

                                     7


            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

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

Going concern and management's plans (continued):

$63,000 for the three and six months ended December 31, 2007, respectively.
At December 31, 2007, the Company has a working capital deficiency and a
stockholders' deficit of approximately $3,106,000 and $3,767,000,
respectively.  These factors raise 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.

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.

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.

                                     8


            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

2.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Principles of consolidation (continued):

The accompanying consolidated financial statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission.  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
December 31, 2007 and the results of operations and cash flows of the Company
for the three and six months ended December 31, 2007 and 2006.  Operating
results for the three and six months ended December 31, 2007 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.

Basic earning (loss) per share amounts are calculated using the weighted
average number of shares of common stock outstanding during the period.
Diluted earnings (loss) per share assumes the conversion, exercise or
issuance of all potential common stock instruments, such as options or
warrants, unless the effect is to reduce the loss or increase earnings per
share.  For the six months ended December 31, 2007 the calculation of diluted
earnings per share was not materially different from basic earnings per
share.

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.



                                     9


            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

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 six months ended December 31, 2007, Centerpoint had
earnings of approximately $695,000, of which the Company utilized
approximately $395,000 to offset minority interest losses previously
absorbed.  The remaining $300,000 was allocated between the Company and
Centerpoint's minority interest holders creating a minority interest of
$126,865 as of December 31, 2007.

4.   PROPERTY AND EQUIPMENT:

Property and equipment consists of the following as of December 31, 2007:

     Research and development equipment     $  305,266
     Leasehold improvements                     31,336
     Furniture                                  28,932
     Computers and office equipment             29,364
                                            ----------
                                               394,898

     Less accumulated depreciation            (329,523)
                                            ----------
                                            $   65,375
                                            ==========

Depreciation expense was $4,046 and $1,891 for the three months ended
December 31, 2007 and 2006, respectively, and $8,066 and $2,655 for the six
months ended December 31, 2007 and 2006, 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%, 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


                                     10


            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

5.   CONVERTIBLE PROMISSORY NOTES (CONTINUED):

2006 Series A Convertible Promissory Notes (continued):

     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 Securities and Exchange Commission pursuant to the
           Securities Exchange Act of 1934, as amended, which occurred on
           January 13, 2007.

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 December 31, 2007 and 2006, the 2006
Notes accrued interest of $11,205 and $10,559 respectively, and $22,244 and
$16,727 the six months ended December 31, 2007 and 2006, 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 will accrue interest at 6% per annum.
The 2007 Note holders 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 $27,520 and $54,636 for the three and six months ended December
31, 2007, respectively.

6.   CONVERTIBLE NOTES - AFFILIATES:

On April 4, 2006 convertible deferred compensation due 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

                                     11


            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

6.   CONVERTIBLE NOTES - AFFILIATES (CONTINUED):

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 the president is mandatorily converted
to common stock of the Company on July 1, 2009.  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.  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 Mark A. 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 Mark A. 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 Mark A. Smith was re-measured as
$538,509 and resulted in a credit to earnings of $42,921 and $237,383 for the
three and six months ended December 31, 2007, respectively.  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
Company's obligation owed 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

                                     12


            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

6.   CONVERTIBLE NOTES - AFFILIATES (CONTINUED):

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 contractual life of 3 years and a
stock price of $6.40.  At December 31, 2007 the fair value of deferred
compensation owed to Brightcap was re-measured as $702,179 and resulted in a
credit to earnings of $95,634 and $361,577 for the three and six months ended
December 31, 2007.  Fair value at December 31, 2007 was calculated utilizing
the following assumptions: a dividend yield of zero, a risk-free interest
rate of 3.2%, volatility of 58%, a remaining contractual life of 1.5 years
and a stock price of $2.34.

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 Mark A. 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 Mark A.
Smith, $150,000 to Brightcap and $150,000 to Savatore 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 Mark A. Smith, $75,000 to
Brightcap, $75,000 to Salvatore Zizza) were converted to 2007 Series A
Promissory Notes (Note 5).

As of December 31, 2007, the Company owed deferred compensation totaling
$554,280 ($104,280 to Mark A. Smith, $225,000 to Brightcap and $225,000 to
Salvatore Zizza).

                                     13



            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

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 December 31, 2007 the Company had the following common stock warrants
outstanding:

                     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 for the outstanding warrants is $2.72 and the
weighted average life as of December 31, 2007 is 5.5 years.




                                     14



            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

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
$220,174 and $82,368 for the three months ended December 31, 2007 and 2006,
respectively and $364,966 and $300,255 for the six months ended December 31,
2007 and 2006, respectively.  During the six months ended December 31, 2007,
the Company granted 145,000 options, while 45,000 options were cancelled.
During the six months ended December 31, 2006, the Company granted options to
purchase 235,000 shares of the Company's common stock.  The fair value of the
options granted during the six months ended December 31, 2007 is estimated on
the grant date using the Black-Scholes option-pricing model with the weighted
average following assumptions:

          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.














                                     15



            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

8.   STOCKHOLDERS' EQUITY (CONTINUED):

Stock options (continued):

A summary of option activity under the 2006 Plan for the six months ended
December 31, 2007 is as follows:

                                                    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                        -          -
 Cancelled                     (45,000)     6.39
                             ---------   -------       -----      ---------
Outstanding at December 31,
 2007                        1,933,333   $  3.17         4.3      $  69,450
                             =========   =======       =====      =========
Exercisable at December 31,
 2007                        1,391,667   $  3.18         3.6      $  51,150
                             =========   =======       =====      =========

The weighted-average grant-date fair value of options granted during the six
months ended December 31, 2007 and 2006 was $0.70 and $5.07, respectively.

The following table presents information relating to nonvested stock options
as of December 31, 2007:

                                                     Weighted Average
                                                     Grant-Date Fair
                                        Shares             Value
                                      -----------    -----------------
     Nonvested at July 1, 2007          560,833           $ 2.34
     Granted                            145,000              .72
     Vested                            (139,167)           (2.67)
     Cancelled                          (25,000)           (4.89)
                                       --------           ------
     Nonvested at December 31, 2007     541,666           $ 1.71
                                       ========           ======

The total fair value of stock options that vested during the six months ended
December 31, 2007 and 2006 was $342,800 and $193,875, respectively.  The
intrinsic value of stock options exercised during the six months ended
December 31, 2007 and 2006 was $0 as there were no options exercised during
these periods.  As of December 31, 2007 the Company had $429,647 of
unrecognized compensation cost related to stock options that will be recorded
over a weighted average period of approximately 1.25 years.

                                      16



            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

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 December 31, 2007, 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 December 31, 2007. 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 $12,767 for the three months ended December 31, 2007 and 2006,
respectively and $0 and $25,536 for the six months ended December 31, 2007
and 2006, respectively.

The remaining 370,000 non-employee options outstanding include service
conditions and have graded vesting schedules through May 1, 2009.  As of
December 31, 2007, 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
based on the market price of the Company's common shares as of the reporting
date. 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 December 31,
2007; a dividend yield of zero, a risk-free interest rate of 3.7%, volatility
of 159% and an expected life of 7.33 years.  Consulting cost in connection
with options that are not fully vested as of December 31, 2007 is being
recognized on a straight-line basis over the requisite service period for the
entire award.  Non-cash fair value charges (credits) of $80,792 and $214,866
were recorded as research and development expenses during the three months
ended December 31, 2007 and 2006, respectively and $(70,146) and $211,945 for
the six months ended December 31, 2007 and 2006, respectively.
















                                     17


            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

8.   STOCKHOLDERS' EQUITY (CONTINUED):

Stock options (continued):

Stock-based compensation charges/(credits) in operating expenses in the
Company's financial statements for the three and six months ended December
31, 2007 and 2006 are as follows:
<TABLE>

                                    Three        Three        Six          Six
                                    months       months      months       months
                                    ended        ended       ended        ended
                                   December     December    December     December
                                   31, 2007     31, 2006    31, 2007     31, 2006
                                   ---------    --------    ---------    ---------
<S>                                <C>          <C>         <C>          <C>
General and administrative:
 Fair value remeasurement of
  convertible notes - affiliates
  (Note 6)                         $ (42,921)   $ 48,535   $(237,383)   $(328,681)
 Amortization of expenses
  prepaid with stock options
  granted to non-employees
  (Note 8)                              -          4,601        -           9,203
 Fair value of stock options
  expensed under SFAS 123(R)
  (Note 8)                           150,013      16,009     228,445       16,009
                                   ---------    --------   ---------    ---------
     Total                         $ 107,092    $ 69,145   $  (8,938)   $(303,469)
                                   =========    ========   =========    =========
Research and development:
 Fair value remeasurement of
  convertible notes - affiliates
  (Note 6)                         $ (95,634)   $ 66,376   $(361,577)   $(449,913)
 Fair value remeasurement of
  options with service conditions
  (Note 8)                            80,792     214,866     (70,146)     211,945
 Amortization of expenses prepaid
  with stock options granted to
  non-employees (Note 8)                -          8,166                   16,333
 Fair value of stock options
  expensed under SFAS 123(R)
  (Note 8)                            70,161      66,359     136,521      284,246
                                   ---------    --------   ---------    ---------
     Total                         $  55,319    $355,767   $(295,202)   $  62,611
                                   =========    ========   =========    =========
</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

                                     18


            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

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

settlement reached in the TCMP Litigation, the Company, Centerpoint and
certain shareholders of the Company ("Shareholder Class") filed an action
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 six
months ended December 31, 2007.

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 December 31, 2007.

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 in the amount of $171,945, which is
reflected as restricted cash as of December 31, 2007.  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


                                     19



            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

10.  OPERATING LEASE (CONTINUED):

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 $69,101 as of December 31, 2007.   Rent expense, net of sub-
lease rental income was $20,053 and $39,628, and $51,234 and $72,019 for the
three and six months ended December 31, 2007 and 2006, respectively.

At December 31, 2007, 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:                       ----------   --------   --------

     Six months ended June 30, 2008     $   89,182   $ 28,538   $ 60,644
     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                            $1,199,423   $383,815   $815,608
                                        ==========   ========   ========

11.  COMMITMENTS AND CONTINGENCIES:

Employment and consulting agreements:

The Company had an employment agreement with its president, Mark A. 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.

                                      20


            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

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.  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.



                                    21



            BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
                                 (UNAUDITED)

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 to a company controlled by
Salvatore Zizza for rental of office space in 2003.




























                                     22


PART I.   FINANCIAL INFORMATION

ITEM 6.  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 its 2008 fiscal 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 six months ended December 31, 2007 and
2006 have also been prepared assuming the Company will continue as a going
concern.  The Company has incurred net (loss) income of approximately
$(794,000) and $63,000 during the three and six month periods ended December
31, 2007,  respectively.  At December 31, 2007, the Company has a working
capital deficiency and a stockholders' deficit of approximately $3,106,000
and $3,767,000, 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 this section 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
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

                                     23



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 there is 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.  Any subsequent changes in fair value will be recorded on the
measurement date.  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.  As of
December 31, 2007 the Company had $430,000 of unrecognized compensation cost
related to stock options that will be recorded over a weighted average period
of approximately 1.25 years.



                                     24



     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 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.  At December 2, 2007 and December 31, 2007, the fair value of
deferred compensation owed Mark Smith and Brightcap was re-measured at
$539,000 and $702,000, respectively, and resulted in a credit to earnings of
$237,000 and $362,000, respectively, for the six months ended December 31,
2007.

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.

THREE MONTHS ENDED DECEMBER 31, 2007 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 2006

General and Administrative

     Total general and administrative expenses decreased $129,000 from
$284,000 to $155,000 for the three months ended December 31, 2006 and 2007,
respectively.

     General and administrative expenses, excluding stock-based compensation
expense of $107,000 and $70,000 for the three months ended December 31, 2007
and 2006, respectively, were $48,000 versus $214,000. The decrease of
approximately $166,000 was due primarily to lower legal costs for the three
months ended December 31, 2007 due to an insurance reimbursement for legal
fees related to the Centerpoint litigation of $133,000.  Also contributing to
lower general and administration costs for the three month period ended
December 31, 2007 compared to the same period in 2006 was lower rent expense
of $16,000 due to more sub-tenant offsets, and lower accounting and audit

                                     25



fees of $16,000, due to the absence of costs in the current year for
accounting and audit fees related to the Form 10SB registration during the
three months ended December 31, 2006, and lower consulting costs of $18,000
due to lower investor relations fees.

     General and administrative stock-based compensation for the three months
ended December 31, 2007 and 2006 respectively consist of the following:

                                              Three months    Three months
                                                 ended           ended
                                              December 31,    December 31,
                                                  2007            2006
                                              -------------   -------------
Fair value remeasurement of convertible
  notes - affiliates                            $(43,000)       $ 49,000
Amortization of expenses prepaid with
  stock options granted to non-employees            -              5,000
Fair value of stock options expensed
  under SFAS 123(R)                              150,000          16,000
                                                --------        --------
     Total                                      $107,000        $ 70,000
                                                ========        ========

     Stock-based compensation expenses increased to $107,000 for the three
months ended December 31, 2007 from $70,000 for the three months ended
December 31, 2006.  The change in stock-based compensation fair value
adjusted expense relating to the President's convertible deferred
compensation is due to the decrease in the price of the Company's stock from
$2.20 at September 30, 2007 to $1.50 per share at his conversion date of
December 2, 2007 versus the increase from the $5.25 per share to $5.75 per
share for the three months ended December 31, 2006. For the three months
ended December 31, 2007 the Company recognized expense relating to the fair
value of stock options for general and administrative employees of $150,000,
compared to $16,000 during the same period in 2006 due to more stock options
being issued during the three months ended December 31, 2007.

Research and development

     Total research and development expenses have decreased $377,000 from
$922,000 to $545,000 for the three months ended December 31, 2006 and 2007,
respectively.

     Research and development expenses, excluding stock-based compensation
expense of $55,000 and $355,000 for the three months ended December 31, 2007
and 2006, respectively, decreased $77,000 from $567,000 to $490,000 for the
three months ended December 31, 2006 and 2007, respectively.  The decrease is
primarily due to lower legal fees of $71,000 due to decreased patent work for
the three months ended December 31, 2007 compared to the same period in the
prior year.

     Research and development stock-based compensation for the three months
ended December 31, 2007 and 2006 consist of the following:


                                     26



                                              Three months    Three months
                                                 ended           ended
                                              December 31,    December 31,
                                                  2007            2006
                                              -------------   -------------
Fair value remeasurement of convertible
  notes - affiliates                            $(96,000)       $ 66,000
Fair value remeasurement of options with
  service conditions                              81,000         215,000
Amortization of expenses prepaid with
  stock options granted to non-employees            -              8,000
Fair value of stock options expensed under
  SFAS 123(R)                                     70,000          66,000
                                                --------        --------
     Total                                      $ 55,000        $355,000
                                                ========        ========

     Stock-based compensation expense decreased from $355,000 for the three
months ended December 31, 2006 to $55,000 for the same period in 2007.  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
(credits)/charges of $(96,000) and $66,000 for the three months ended
December 31, 2007 and 2006, respectively, was recorded to re-measure the fair
value of Brightcap's convertible deferred compensation at December 31, 2007
and 2006, respectively, due, in part, to the change in the price of the
Company's stock from $2.20 to $2.34 per share for the three months ended
December 31, 2007, compared to the increase from the $5.25 per share to $5.75
per share for the three months ended December 31, 2006.  Stock-based
compensation fair value adjusted expense of $81,000 and $215,000 was recorded
for the three months ended December 31, 2007 and 2006, respectively for the
non-employee options that include service conditions and have graded vesting
schedules.  The decrease is due to the decrease in the stock price from $5.75
per share at December 31, 2006 compared to $2.34 per share at December 31,
2007. The Company recorded stock-based compensation expense of $70,000 and
$66,000 under the provisions of SFAS 123(R)for the three months ended
December 31, 2007 and 2006, 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
$699,000 and $1,206,000 for the three months ended December 31, 2007 and
2006, respectively.

Other (income) and expense

     Other (income) and expense was $94,000 and $21,000 for the three months
ended December 31, 2007 and 2006, respectively.  Interest expense increased
$18,000 from $33,000 for the three months ended December 31, 2006 to $51,000
for the three months ended December 31, 2007.  Interest expense increased due
to the higher debt balances due to the 2006 and 2007 Series A Notes, but was
partially offset by lower interest on convertible deferred compensation
balances due to conversions.  The minority interest of the Company was
impacted due to the insurance reimbursement of Centerpoint litigation fees
during the three months ended December 31, 2007.

                                     27



Net Loss

     As a result of the factors described above, the net loss was $794,000
and $1,228,000 for the three months ended December 31, 2007 and 2006,
respectively, representing a $0.04 decrease in the net loss per basic and
diluted common share from $0.14 for the three months ended December 31, 2006
to $0.10 for the same period in 2007.

SIX MONTHS ENDED DECEMBER 31, 2007 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
2006

General and Administrative

     Total general and administrative expenses for the six months ended
December 31, 2007 increased $309,000 compared to the six months ended
December 31, 2006.

     General and administrative expenses, excluding stock-based compensation
credits of $9,000 and $304,000 for the six months ended December 31, 2007 and
2006, respectively, were $318,000 versus $304,000 for the six months ended
December 31, 2007 and 2006, respectively.  While total expenses remained
relatively constant, the Company had lower legal costs for the six months
ended December 31, 2007 due to the insurance reimbursement of Centerpoint
related legal fees.  These lower legal fees were offset by higher salary
expense due to the hiring of an investor relations manager during the six
months ended December 31, 2007.

     General and administrative stock-based compensation for the six months
ended December 31, 2007 and 2006 respectively consist of the following:

                                               Six months     Six months
                                                 ended           ended
                                              December 31,    December 31,
                                                  2007            2006
                                              -------------   -------------
Fair value remeasurement of convertible
  notes - affiliates                            $(237,000)     $(329,000)
Amortization of expenses prepaid with
  stock options granted to non-employees             -             9,000
Fair value of stock options expensed
  under SFAS 123(R)                               228,000         16,000
                                                ---------      ---------
     Total                                      $  (9,000)     $(304,000)
                                                =========      =========

     Stock-based compensation credits decreased to $9,000 for the six months
ended December 31, 2007 from $304,000 for the six months ended December 31,
2006.  The change in stock-based compensation fair value adjusted expense
relating to the President's convertible deferred compensation is 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 $5.75 per share for the six months ended
December 31, 2006. For the six months ended December 31, 2007 the Company
recognized expense relating to the fair value of stock options for general
and administrative employees of $228,000, compared to $16,000 during the same
period in 2006 due to the issuance of 135,000 options to general and
administrative employees during the six months ended December 31, 2007 versus
85,000 options during the same period in the prior year.

                                     28



Research and development

     Total research and development expenses have decreased $359,000 from
$1,031,000 to $672,000 for the six months ended December 31, 2006 and 2007,
respectively.

     Research and development expenses, excluding stock-based compensation
(credits) charges of $(295,000) and $62,000 for the six months ended December
31, 2007 and 2006, respectively, were $967,000 and $969,000 for the six
months ended December 31, 2007 and 2006, respectively.

     Research and development stock-based compensation for the six months
ended December 31, 2007 and 2006 consist of the following:

                                               Six months     Six months
                                                 ended           ended
                                              December 31,    December 31,
                                                  2007            2006
                                              -------------   -------------
Fair value remeasurement of convertible
  notes - affiliates                           $(362,000)      $(450,000)
Fair value remeasurement of options with
  service conditions                             (70,000)        212,000
Amortization of expenses prepaid with
  stock options granted to non-employees            -             16,000
Fair value of stock options expensed under
  SFAS 123(R)                                    137,000         284,000
                                               ---------       ---------
     Total                                     $(295,000)      $  62,000
                                               =========       =========

     Stock-based compensation expense decreased from $62,000 for the six
months ended December 31, 2006 to $(295,000) for the same period in 2007.
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 credits
of $(362,000) and $(450,000) for the six months ended December 31, 2007 and
2006, respectively, was recorded to re-measure the fair value of Brightcap's
convertible deferred compensation at December 31, 2007 and 2006,
respectively, due, in part, to the change in the price of the Company's stock
from $3.25 to $2.34 per share for the six months ended December 31, 2007,
compared to the decrease from the $6.40 per share to $5.75 per share for the
six months ended December 31, 2006.  Stock-based compensation fair value
adjusted (credit) expense of $(70,000) and $212,000 was recorded for the six
months ended December 31, 2007 and 2006, respectively for the non-employee
options that include service conditions and have graded vesting schedules.
The decrease is due to the decrease in the stock price from $5.75 per share
at December 31, 2006 compared to $2.34 per share at December 31, 2007. The
Company recorded stock-based compensation expense of $137,000 and $284,000
under the provisions of SFAS 123(R) for the six months ended December 31,
2007 and 2006, respectively for options vested to research and development
employees.


                                     29



Loss from Operations

     As a result of the factors described above, the loss from operations was
$980,000 and $1,031,000 for the six months ended December 31, 2007 and 2006,
respectively.

Other (income) and expense

     Other (income) and expense was $(1,043,000) and $38,000 for the six
months ended December 31, 2007 and 2006, respectively.  Interest expense
increased $43,000 from $61,000 for the six months ended December 31, 2006 to
$104,000 for the six months ended December 31, 2007.  Interest expense
increased due to the higher debt balances due to the 2006 and 2007 Series A
Notes for the six months ended December 31, 2006, 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 six
months ended December 31, 2007.  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 $127,000 minority interest expense of Centerpoint for the
six months ended December 31, 2007.

Cumulative Effect of Change in Accounting Principle

     During the six months ended December 31, 2006, 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 Statement of
Financial Accounting Standards ("SFAS") No. 123 (Revised), "Share-Based
Payment" (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 Smith and Brightcap as of July 1, 2006.  The
cumulative effect of change in accounting principle resulted in a net loss
per common share of $0.08 for the six months ended December 31, 2006.

Net Income (loss)

     As a result of the factors described above, the net income (loss) was
$63,000 and $(1,800,000) for the six months ended December 31, 2007 and 2006,
respectively, representing a $0.13 increase in the net income (loss) per
basic and diluted common share before the cumulative effect of change in
accounting principle from $(0.12) for the six months ended December 31, 2006
to $0.01 for the same period in 2007.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2007, the Company had cash and cash equivalents equal
to $723,000.  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

                                     30



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 six months ended December 31, 2007 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.  The Company had
no other investing activities for the six months ended December 31, 2007.

Financing Activities

     The Company had no financing activities during the six months ended
December 31, 2007.

     As of December 31, 2007 the Company has significant debt obligations
consisting primarily of mandatorily convertible notes - affiliates of
$702,000, 2006 Series A convertible promissory notes - current of $760,000,
2007 Series A convertible promissory notes - affiliates of 1,031,000, 2007
Series A convertible promissory notes of $836,000 and deferred compensation
of $554,000.  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 December 31, 2007 the Company had cash and cash equivalents of
$723,000.  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.  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.

     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.

                                     31



     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 fiscal
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
$171,945 in connection with the lease.  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.

     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

                                   32



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.

                           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 at 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.


                                     33


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.



                                 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:   February 6, 2008           By:/s/ Mark A. Smith
                                      Mark A. Smith, President (Chief
                                      Executive Officer) and Interim Chief
                                      Financial Officer (Principal Financial
                                      and Accounting Officer)
























                                    34