Item 3. Legal Proceedings
ITEM 3. LEGAL PROCEEDINGS.
The Company is currently involved in no litigation
matters except:
A: Website: Domain Sale/Resolved
Litigation/Hacking/Theft
On March 23,
2022 the Company entered into an agreement to sell domain name <biontech.com> and other related assets to BioNTech SE (“BNTX”)
for the sum of $950,000 (before expenses related to the transaction) which sale was closed/completed on April 2, 2022 with a one-time
gain of $902,490. The Company has been using www.bionenviro.com as its primary website (and domain) since July 2021 due to the
events described below. The Company has not been using biontech.com as its primary website since July 2021 so domain name <biontech.com>
no longer represented a core asset of the Company.
As previously reported, on
Saturday morning, July 17, 2021, our historical website domain – biontech.com – and email services were compromised
and disabled. Research indicated that an unknown party had ‘hijacked’ the domain in a theft attempt. On September 10, 2021,
the Company filed a federal lawsuit ‘in rem’ to recover the <biontech.com> domain and the unknown ‘John Doe’
who hacked and attempted to steal the website. The litigation was filed in the United States District Court for the Eastern District of
Virginia, Alexandria Division under the heading ‘Bion Environmental Technologies, Inc., Plaintiff, vs John Doe and <biontech.com>,
Defendants’ (Case No. 1:21-cv-01034), seeking recovery of the domain name and other relief as set forth therein.
On November 19, 2021, the
United States District Court for the Eastern District of Virginia, Alexandria Division issued an order stating that “… ORDERED,
ADJUDGED and Decreed that plaintiff Bion Environmental Technologies, Inc. (‘plaintiff) Is the lawful owner of domain name <biontech.com>
….” under the heading ‘Bion Environmental Technologies, Inc., Plaintiff, vs John Doe and <biontech.com>, Defendants’
(Case No. 1:21-cv-01034). The Company has moved the domain name <biontech.com> to a new registrar and reactivated it for the Company’s
use (paired currently with its current bionenviro.com website).
No shareholder, sensitive
or confidential information was available to be breached which has limited damages from the hack/theft to date. However, the Company’s
email operations were subject disruption and expenses were incurred related to the matter including legal fees.
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The Company created ‘work-arounds’
as a result. These issues have been resolved and the Company has moved our website (and email) to a new domain: bionenviro.com. Website
access is now www.bionenviro.com. To send emails to Bion personnel, one uses the same name identifier previously used, but in the
address, substitute ‘bionenviro.com’ for “biontech.com’: For example cscott@biontech.com (no longer functional)
is cscott@bionenviro.com and mas@biontech.com (no longer functional) is now mas@bionenviro.com.
B: Pennvest Loan and Dissolution
of Bion PA1, LLC (“PA1”)
PA1, the Company’s
wholly-owned subsidiary, was dissolved on December 29, 2021 on which date it owed approximately $10,010,000 under the terms of the Pennvest
Loan related to the construction of the Kreider 1 System including accrued interest and late charges totaling $2,255,802 as of that date.
Through the date of the dissolution, PA1 was a wholly-owned subsidiary of the Company and its assets and liabilities were included on
the Company’s consolidated balance sheets. At September 30, 2021, PA1’s total assets were $297 and its total liabilities were
$10,154,334 (including the Pennvest Loan in the aggregate amount of $9,939,148, accounts payable of $214,235 and accrued liabilities of
$950) which sums were included in the Company’s consolidated balance sheets in its Form 10-Q for the quarter ended September 30,
2021. Subsequent to the dissolution of PA1, its assets and liabilities are no longer consolidated and included in the Company’s
balance sheets. As of December 29, 2021, PA1’s total assets were nil and its total liabilities were $10,234,501 (including the Pennvest
Loan in the aggregate amount of $10,009,802, accounts payable of $212,263 and accrued liabilities of $12,436. The net amount of $10,234,501
was recognized as a gain on the legal dissolution of a subsidiary in other (income) expense.
As background, the terms
of the Pennvest Loan provided for funding of up to $7,754,000 which was to be repaid by interest-only payments for three years, followed
by an additional ten-year amortization of principal. The Pennvest Loan accrued interest at 2.547% per annum for years 1 through 5 and
3.184% per annum for years 6 through maturity. The Pennvest Loan required minimum annual principal payments of approximately $5,886,000
in fiscal years 2013 through 2021, and $846,000 in fiscal year 2022, $873,000 in fiscal year 2023 and $149,000 in fiscal year 2024. The
Pennvest Loan was collateralized by PA1’s Kreider 1 System and by a pledge of all revenues generated from Kreider 1 including, but
not limited to, revenues generated from nutrient reduction credit sales and by-product sales. In addition, in consideration for the excess
credit risk associated with the project, Pennvest was entitled to participate in the profits from Kreider 1 calculated on a net cash flow
basis, as defined. The Company has incurred interest expense related to the Pennvest Loan of $123,444 and $246,887 for the years
ended June 30, 2022 and 2021, respectively. Based on the limited development of the depth and breadth of the Pennsylvania nutrient
reduction credit market, PA1 commenced discussions and negotiations with Pennvest related to forbearance and/or re-structuring the obligations
under the Pennvest Loan during 2013. In the context of such negotiations, PA1 elected not to make interest payments to Pennvest on the
Pennvest Loan since January 2013. Additionally, the PA1 did not make any principal payments, which were to begin in fiscal 2013, and,
therefore, the Company classified the Pennvest Loan as a current liability through the dissolution of PA1 on December 29, 2021.
During August 2012, the Company
provided Pennvest (and the PADEP) with data demonstrating that the Kreider 1 system met the ‘technology guaranty’ standards
which were incorporated in the Pennvest financing documents and, as a result, the Pennvest Loan has been solely an obligation of PA1 since
that date. Note, however, the Company’s consolidated balance sheets as of June 30, 2021 reflects the Pennvest Loan as a liability
of $9,868,495 despite the fact that the obligation (if any) was solely an obligation of PA1 .
On September 25, 2014, the
Pennsylvania Infrastructure Investment Authority (“Pennvest”) exercised its right to declare the PA1’s Pennvest Loan
in default, accelerated the Pennvest Loan and demanded that PA1 pay $8,137,117 (principal, interest plus late charges) on or before October
24, 2014. PA1 did not make the payment and did/does not have the resources to make the payments demanded by Pennvest. PA1 commenced discussions
and negotiations with Pennvest concerning this matter but Pennvest rejected PA1’s proposal made during the fall of 2014. PA1 made
a final proposal to Pennvest during September 2021 which proposal was also rejected by Pennvest. PA1 provided Pennvest with its financial
statements (which include a description of system status) annually. During the 2021 fiscal year, Pennvest’s auditors requested a
‘corrective action plan’ and PA1 informed Pennvest that “… there is no viable corrective action plan for the
Pennvest Loan (‘Loan’). The facility funded by the Loan has been shut down for many years (which has been disclosed in the
annual financial reports to Pennvest and in public filings by the parent of Bion PA 1, LLC) and the technology utilized in the facility
is now obsolete. The facility has not been commercially operated for approximately six years and has generated zero income. We recommend
that Pennvest take appropriate steps to remove and sell the equipment.” Pennvest responded favorably to the approach of selling
the equipment.
On December 29, 2021, the
Company approved and executed a ‘Consent of the Sole Member of Bion PA 1’ (the “Consent to Dissolution”) that
authorized the complete liquidation and dissolution of PA1. A Statement of Dissolution was filed by PA1 with the Colorado Secretary of
State on December 29, 2021. The Company is of the understanding that the liquidation value of Bion PA 1’s property is substantially
below the current amount outstanding under the Funding Agreement dated October 27, 2010 by and between PA1 and Pennvest, the only known
secured creditor of PA1. Post-dissolution, PA1’s activities will be limited entirely to activities required to properly distribute
its net assets to creditors and wind down its business.
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PA1 and Pennvest agreed to
have the equipment sold by a third party auctioneer who arranged for the sale of its property and delivery of all proceeds (net of
commissions and customary costs of sale) to Pennvest. The auction took place during the period between May 13-18, 2022. The Company’s
personnel assisted PA1 with this process as needed at no cost to PA1. The net sum of $104,725 was realized from the asset sale, which
sum was delivered to Pennvest on June 15, 2022. The remaining unsold assets will be transferred to Kreider Farms during the next quarter
in order to complete the winding up of the Kreider 1 project.
Upon the complete distribution
of all assets of PA1, whether by transfer or sale and distribution of net proceeds as provided above, PA1 will use commercially reasonable
efforts to cause the cessation of all activities. No distributions of PA1’s assets will be made to the Company or its affiliates.
The Consent to Dissolution authorized Mark A. Smith, the Company’s President and the sole manager of PA1, to cause to be delivered
for filing the Statement of Dissolution, to give notice of the dissolution, and to take any other act necessary to wind up and liquidate
the business.
PA1 has made no payments
to vendors or other creditors in connection with the dissolution. No distributions or payments of any kind have ever been made to the
Company, the sole member of PA1 since inception and no payment will be made to the Company or any affiliate in connection with the dissolution.
For more information regarding
the history and background of the Pennvest Loan and PA1, please review our Form’s 10-K for the years from 2008 through 2021 including
the Notes to the Financial Statements included therein.
The Company currently is not involved in any other material litigation
or similar events.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
PART II
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