Note 5 - Loans Payable

6 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Loans Payable to Affiliates

5.

     LOANS PAYABLE:

Pennvest

PA1,

the Company's wholly-owned subsidiary, owes

$9,727,189

as of

December 31, 2020

under the terms of the Pennvest Loan related to the construction of the Kreider

1

System including accrued interest and late charges totaling

$1,973,189

as of

December 31, 2020.

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 accrues 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

$5,067,000

in fiscal years

2013

through

2020,

and

$819,000

in fiscal year

2021,

$846,000

in fiscal year

2022,

$873,000

in fiscal year

2023

and

$149,000

in fiscal year

2024.

The Pennvest Loan is collateralized by the 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 is 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

$61,722

for both the

three

months ended

December 31, 2020

and

2019,

respectively. The Company has also incurred interest expense related to the Pennvest Loan of

$123,444

for both the

six

months ended

December 31, 2020

and

2019,

respectively. Based on the limited development of the depth and breadth of the Pennsylvania nutrient reduction credit market to date,

PA1

commenced negotiations with Pennvest related to forbearance and/or re-structuring the obligations under the Pennvest Loan. In the context of such negotiations,

PA1

has elected

not

to make interest payments to Pennvest on the Pennvest Loan since

January 2013.

Additionally, the Company has

not

made any principal payments, which were to begin in fiscal

2013,

and, therefore, the Company has classified the Pennvest Loan as a current liability as of

December 31, 2020.

On

September 25, 2014,

Pennvest exercised its right to declare the Pennvest Loan in default and has 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 does

not

have the resources to make the payment demanded by Pennvest.

PA1

has engaged in on/off discussions and negotiations with Pennvest concerning this matter but

no

such discussions/negotiations are currently active. As of the date of this report,

no

proposals (formal or informal) are under consideration and only sporadic communication has taken place regarding the matters involved in over

5

years. It is

not

possible at this date to predict the outcome of this matter given the extended period which has passed without resolution and the fact that the technology employed in the Kreider

1

system is now outdated. However, the Company believes that a loan modification agreement (coupled with an agreement regarding an update and restart of the full operation of Kreider

1

may

in the future be possible in conjunction with the Kreider

2

project, subject to the results of the negotiations with Pennvest and pending development of a more robust market for nutrient reductions in Pennsylvania. The Covid-

19

pandemic has further increased uncertainties.

PA1

and Bion will continue to evaluate various options with regard to Kreider

1

over the next

six

to

twelve

months.

In connection with the Pennvest Loan financing documents, the Company provided a ‘technology guaranty' regarding nutrient reduction performance of Kreider

1

which was structured to expire when Kreider

1's

nutrient reduction performance had been demonstrated. During

August 2012

the Company provided Pennvest (and the PADEP) with data demonstrating that the Kreider

1

System had surpassed the requisite performance criteria and that the Company's ‘technology guaranty' was met. As a result, the Pennvest Loan is solely an obligation of

PA1.

Paycheck Protection Program

During the year ended

June 30, 2020,

the Company received proceeds from a loan in the amount of

$34,800

from Covenant Bank as the lender, pursuant to the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The loan is uncollateralized, has a fixed interest rate of

one

percent, a term of

two

years and the

first

payment is deferred for

six

months. Under the CARES Act, borrowers are eligible for forgiveness of principal and interest on PPP loans to the extent that the proceeds were used to cover eligible payroll costs, rent and utility costs over either an

8

- or

24

-week period after the loan was made. As of

December 31, 2020,

the total PPP loan and accrued interest was

$35,026.

Management believes that the Company has met the conditions for full forgiveness of the PPP loan and will be applying for forgiveness once Covenant Bank and the SBA are ready to accept applications.