Note 5 - Loans Payable

9 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Loans Payable to Affiliates

5.

         

LOANS PAYABLE:

Pennvest

PA1,

the Company's wholly-owned subsidiary, owes

$9,797,842

as of

March 31, 2021

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

1

System including accrued interest and late charges totaling

$2,043,842

as of

March 31, 2021.

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

March 31, 2021

and

2020,

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

$185,166

for both the

nine

months ended

March 31, 2021

and

2020,

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

March 31, 2021.

On

September 25, 2014,

Pennvest exercised its right to declare the Pennvest Loan in default and 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 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.

No

formal proposals are presently under consideration and only sporadic communication has taken place regarding the matters involved over the last

7

years.

PA1

provides Pennvest with its financial statements (which include a description of system status) annually. During the current 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 recently responded  favorably to the  approach of selling the equipment but

no

actions have yet taken place. The Company expects to have additional communication with Pennvest on this matter during the current quarter. It is

not

possible at this date to predict the final outcome of this matter, but the Company believes it is likely that that the equipment will be sold with the proceeds delivered to Pennvest during our next fiscal year. However, the manner and means of such equipment sale has

not

been agreed upon as of this date. It remains possible that a loan modification agreement (coupled with an agreement regarding a technology update and re-start of full operations at the Kreider

1

dairy)

may

be reached in the future in the context of the development of the Kreider

2

poultry Project if/when a more robust market for nutrient reductions develops in Pennsylvania, of which there is

no

assurance.

PA1

will evaluate the appropriate manner to resolve/wrap-up its business over the balance of this calendar year.

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 was uncollateralized, had 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 were 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

March 31, 2021,

the total PPP loan and accrued interest was fully forgiven by the SBA.