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.
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.
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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.
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.
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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
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.