U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,September 30, 2021

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _________

Commission File No. 000-19333

Bion Environmental Technologies, Inc.

(Name of registrant in its charter)

9 East Park Court

Old Bethpage, New York11804

(Address of principal executive offices)

516-586-5643516-586-5643

(Registrant’s telephone number, including area code) 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Securities Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.

xYeso No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). xYeso No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes xNo

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Not applicable.

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On May 10,October 30, 2021, there were 37,086,41141,580,573 Common Shares issued and 36,382,10240,876,264 Common Shares outstanding.

BION ENVIRONMENTAL TECHNOLOGIES, INC.

FORM 10-Q

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "project," "predict," "plan," "believe" or "continue" or the negative thereof or variations thereon or similar terminology. The expectations reflected in forward-looking statements may prove to be incorrect.

BION ENFIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements

BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED MARCH 31, 2021 AND 2020

(UNAUDITED)

See notes to consolidated financial statements

BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements

BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED) 

See notes to consolidated financial statements

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

NINE
THREE MONTHS ENDED MARCH 31,SEPTEMBER 30, 2021 AND 2020

(UNAUDITED) 

See notes to consolidated financial statements

BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED) 

See notes to consolidated financial statements

BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED MARCH 31, 2021 AND 2020

See notes to consolidated financial statements

BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NINETHREE MONTHS ENDED MARCH 31,SEPTEMBER 30, 2021 AND 2020

1.       ORGANIZATION, NATURE OF BUSINESS, GOING CONCERN AND MANAGEMENT’S PLANS:PLANS:

Organization and nature of business:

Bion Environmental Technologies, Inc.'s ("Bion," "Company," "We," "Us," or "Our") was incorporated in 1987 in the State of Colorado. Our patented and proprietary technology provides comprehensive environmental solutions to one of the greatest water air and water quality problems in the U.S. today: pollution from large-scale livestock production facilities (also known as “Concentrated Animal Feeding Operations” or “CAFOs").  Application of our technology and technology platform can simultaneously remediate environmental problems and improve operational/resource efficiencies by recovering value high-value co-products from the CAFOs’ waste stream that have traditionally been wasted or underutilized, including renewable energy, nutrients (including ammonia nitrogen) and water.

From 2016 to present,2021 fiscal years, the Company has focused a large portion of its activities on developing, testing and demonstrating the 3rd generation of its technology and technology platform (“3G Tech”) with emphasis on increasing the efficiency of production of valuable co-products of itsfrom the waste treatment process, including ammonia nitrogen in the form of organic ammonium bicarbonate products. The Company is now ready to develop its initial 3G Tech system. The Company’s initial ammonium bicarbonate liquid product completed its Organic Materials Review Institute (“OMRI”) application and review process with approval during May 2020 (and certain restrictions were removed effective April 28, 2021). The Company filed an additional OMRI2020. An application on May 3, 2021 for the initial crystallizedour first solid ammonium bicarbonate co-products produced by ourproduct – AD Nitrogen – has been filed and is in the review process (which may take an extended period of time due to the novel nature of Bion’s 3G Tech.Tech in the context of organic certifications).

The Company believes that, in addition to providing superior environmental remediation,Bion is now focused primarily on: i) development/construction of its initial commercial-scale 3G Tech will create the opportunityinstallation, ii) developing applications and markets for large scale production of sustainable and/or organic branded livestock products that will command premium pricing due in large part to our ability---based upon ongoing monitoring and third-party verification of environmental performance--- to provide meaningful assurances concerning sustainability to both consumers and regulators. As co-products, our 3G Tech will produce valuableits organic fertilizer products which can be: a) utilized in the production of organic grains for use as feed in supportand its sustainable (conventional and organic) animal protein products, and iii) initiation and development of joint venture Projectsventures (“JVs”) raising organic livestock, and/or b) marketed to the growing organic fertilizer market. Our 3G Tech patented technology was developed to be part of a comprehensive technology platform that could generate multiple present and projected future revenue streams to offset the costs of technology adoption. Bion’s technology platform includes onsite monitoring and data collection as well as independent 3^rd party verified lab data confirming the environmental reduction impacts. The third party verified data regarding the environmental impact reductions will also be used to qualify the final consumer products (livestock protein—including meat, eggs and dairy products) for a US Department of Agriculture (“USDA”) “Environmentally Sustainable” brand.

From 2014 through the current 2021 fiscal year, the Company has focused its research and development on augmenting the basic ‘separate and aggregate’ approach of its technology platform to provide additional flexibility and to increase recovery of marketable nutrient by-products (in organic and non-organic forms) and renewable energy production (either/both biogas and/or renewable electricity), thereby increasing potentialdiscussed below) (and related revenue streams and reducing dependence of its future projectsprojects) based on the monetization of nutrient reductions (which still remain an important part of project revenue streams). Bion has worked on development of its 3G Tech which is designed to: a) generate significantly greater value from the nutrients and renewable energy recovered from the waste stream, b) treat dry (poultry) waste streams as well as wet waste streams (dairy/beef cattle/swine) while c) maintaining or improving environmental performance. This research and development effort also involves ongoing review of potential “add-ons” and applications to our technology platform for use in different regulatory and/or climate environments. These research and development activities have targeted completion of development of the next generation of Bion’s technology and technology platform. We believe such activities will continue at least through the 2022 fiscal year (and likely longer), subject to availability of adequate financing for the Company’s operations, of which there is no assurance. Such activities will likely include design and construction of an initial, commercial-scale system utilizing our 3G Tech to assist in optimization efforts before construction of Midwest beef JV Projects, the full Kreider 2 project (see below), and/or other Projects. Consistent with this intent, on April 27, 2021 the Company executed a letter of intent (‘LOI’) with Lamb Farms, Inc., Oakfield, New York regarding development and construction of a 3G Tech Bion System to treat the waste from its approximately 2,000 dairy cows and from up to 250 head of beef cattle to be housed in barns constructed by the Company. If the transaction set forth in the LOI proceeds to a definitive agreement and is followed by construction of the intended facilities (commencing during the upcoming fiscal year), this will likely be Bion’s initial 3G Tech System and will serve to demonstrate at commercial scale theaugmented capabilities of our 3G Tech, while (iv) continuing to pursue development opportunities related to large retrofit projects (such as the Kreider poultry project JV described below) and technology platform and provide proof of concept with regard to the potential ‘beef opportunity’ created by our technology and business model.ongoing R&D activities.

The $200$175 billion U.S. livestock industry is under intense scrutiny for its environmental and public health impacts – its ‘environmental sustainability’-- at the same time it is struggling with declining revenues and margins (derived in part from clinging to its historic practices and resulting limitations and impacts) which threaten its ‘economic sustainability’. Its failure to adequately respond to consumer concerns ranging fromincluding food safety, to its ‘socialized’ environmental impacts, and humane treatment of animals have provided impetus for plant-based alternatives such as Beyond Meat and Impossible Burger initially (and numerous other companies at present) providingmany others) being marketed as “sustainable” alternatives tofor this growing consumer segment of the market.

The Company believes that its 3G Tech, in addition to providing superior environmental remediation, creates opportunities for large scale production of i) verifiably sustainable-branded livestock products and ii) verifiably sustainable organic-branded livestock products that will command premium pricing (in part due to ongoing monitoring and third-party verification of environmental performance which will provide meaningful assurances to both consumers and regulatory agencies). Each of these two distinct market segments (which the Company intends to pursue in parallel) presents a large production/marketing opportunity for Bion. Our 3G Tech will also produce (as co-products) biogas and valuable organic fertilizer products, which can be utilized in the production of organic grains for use as feed for raising organic livestock (some of which may be utilized in the Company’s JV projects) and/or marketed to the growing organic fertilizer market.

During late September 2021, Bion entered into a lease for the development site of its initial commercial scale 3G Tech project in September 2021(“Initial Project”), which Initial Project will be located on approximately four (4) acres of leased land near Fair Oaks, Indiana, and a related agreement regarding disposal of certain manure effluent with the Curtis Creek Dairy unit of Fair Oaks Farms (“FOF”). Design and pre-development work commenced during August 2021 and preliminary surveying, site engineering and other work is now underway along with site-specific engineering and design work. The Initial Project will be an environmentally sustainable beef cattle feeding facility, equipped with state-of-the-art housing and Bion’s 3G-Tech platform to provide waste treatment and resource recovery. Bion has designed the project to house and feed approximately 300 head of beef cattle. The facility will include Bion’s 3G Tech platform including: i) covered barns with solar photovoltaic generation, ii) anaerobic digestion for renewable energy recovery, iii) livestock waste treatment and resource recovery technology, iv) Bion’s ammonium bicarbonate recovery and crystallization technology and iv) data collection software to document system efficiencies and environmental benefits (with the Bion 3G Tech facilities capable of treating the waste from approximately 1,500 head). The facility will be large enough to demonstrate engineering capabilities of Bion’s 3G Tech at commercial scale, but small enough that it can be constructed and commissioned quickly, with operations targeted to commence sometime during the spring of 2022.

The Initial Project is not being developed at economic commercial scale or with an expectation of profitability due to its limited scale. However, successful installation, commissioning, and operations will demonstrate scalability, determine operating parameters at scale, and provide ongoing production and engineering capabilities, all being critical steps that must be accomplished before developing large projects with JV partners.

Specifically, the Initial Project is being developed to provide and/or accomplish the following:

Upon achieving optimized and steady-state operations at the Initial Project during 2022, coupled with obtaining an OMRI listing for its AD Nitrogen product, Bion expects to be ready to move forward with its plans for development of much larger facilities. The Company anticipates that discussions and negotiations regarding potential JVs with strategic partners in the financial and livestock industries to develop large scale projects will commence during the construction of the Initial Project with the goal of establishing JV’s for large scale projects that will produce both sustainable and sustainable-organic corn-fed beef. These products will be supported by a USDA PVP-certified sustainable brand that will, initially, highlight reductions in carbon and nutrient footprint, as well as pathogen reductions associated with foodborne illness and antibiotic resistance, along with the organic designation where appropriate. Bion has successfully navigated the USDA PVP application process previously, having received conditional approval of its 2G Tech platform, pending resubmission and final site audits, and is confident it will be successful in qualifying its 3G Tech platform.

.

Additionally, the Company believes there will also be opportunities to proceed with selected ‘retrofit projects’ of existing facilities (see ‘3G Tech Kreider 2 Poultry Project’ below as an example).

Bion believes that substantial unmet demand currently exists– potentially very large – for ‘real’ meat/ dairy/ egg products that offer the verifiable/believable sustainability consumers seek, but with the taste and texture they have come to expect from American beef and pork, dairy and poultry. Numerous studies demonstrate the U.S. consumers’ preferences for sustainability. For example, 2019 NYU Stern’s Center for Sustainable Business study found that ‘products marketed as sustainable grew 5.6 times faster than those that were not…’ and that ‘…in more than 90 percent of consumer-packaged-goods (CPG) categories, sustainability-marketed products grew faster than their conventional counterparts.’ Sales growth of plant-based alternatives, including both dairy and more recently ground meat (Beyond Meat, Impossible Foods, etc.) have shown that a certain segment of consumers are choosing seemingly sustainable offering, and are also willing to pay a premium for it. Numerous studies also support the consumers’ ‘willingness-to-pay’ (WTP) for sustainable choices, including a recent meta-analysis of 80 worldwide studies with results that calculate the overall WTP premium for sustainability is 29.5 percent on average.

As one of the largest contributors to some of the greatest air and water quality problems in America, it is clear that livestock waste cleanup, at scale, represents one of the greatest opportunities we have to reduce negative environmental impacts of the food supply chain on air and water quality. Bion’s 3G Tech platform, along with its business model, enables the cleanup of the ‘dirtiest’ part of the food supply chain: animal protein production and creates the opportunity to produce and market verifiably sustainable organic and conventional ‘real meat’ products that can participate in the growth and premium pricing that appears to be readily available for the ‘right’ products.

Bion believes that at least a premium segment of the U.S. beef industry (and potentially other livestock industry groups) is at the doorstep of a transformative opportunity to address the growing demand for sustainable food product offerings, while pushing back against today’s anti-meat messaging. At $66 billion/year (2021 retail value), the beef industry is a fragmented, commodity industry whose practices date back decades. In 1935 inflation-adjusted terms, beef is 63% more expensive today, while pork and chicken, which are now primarily raised in covered barns, at CAFOs with highly integrated supply chains, are 12% and 62% cheaper, respectively. In recent years, the beef industry has come under increasing fire from advocacy groups, regulatory agencies, institutional investors, and ultimately, their own consumers, over concerns that include climate change, water pollution, food safety, and the treatment of animals and workers.

Advocacy groups targeting livestock and the beef industry have recently been joined by competitors that produce animal protein alternatives in seeking to exploit the industry’s environmental and economic weaknesses. Their global anti-meat messaging has had a substantial chilling effect on the relationships the beef industry has with its institutional investors; retail distributors, such as fast-food restaurants; and mostly, its consumers. Led by the United Nations Food and Agriculture Organization, a coordinated anti-meat messaging campaign has targeted consumers worldwide, primarily focused on the industry’s impacts on climate change. Meat alternatives, especially plant-based protein producers like Beyond Meat and Impossible Foods, are being heavily promoted by themselves and the media, and have enjoyed steady sales growth. A 2018 NielsenIQ Homescan survey last year found that 39% of Americans are actively trying to eat more plant-based foods. Some of the recent growth in plant-based proteins results from increasing lactose intolerance and other health concerns; however, most of that growth is attributed to consumers’ growing concerns for the environmental impacts of real meat and dairy. Several large US companies that have traditionally focused on livestock production, including Cargill, ADM, Perdue Foods, and Tyson, have recently entered the plant protein space. In terms of changing customer preferences, ‘saving the planet’ has proven to be a more compelling argument than the traditional animal activism/ welfare pitch. To date, the only ‘industry response’ to this has been grass-fed beef, which is regarded as a generally more sustainable offering than grain-fed. However grass-fed beef has had only limited acceptance in U.S. markets, because it is less flavorful and tougher than the traditional corn-fed beef consumers have grown to enjoy.

It should be noted that these plant-based protein producers are primarily expected to be able to serve the ground/ processed meat market, which represents only about 10 percent of the overall animal protein market. Further, there has recently been pushback to these plant-based products, focusing on their highly processed nature and unproven health benefits, scalability/ pricing, and their uncertain carbon footprint. There have also been several companies recently enter the cellular and 3D-printed meat arena. While facing myriad challenges and further out on the development timeline, some people believe cellular agriculture (aka cultured, clean, lab-grown, cultivated) meat may have the potential to service a much larger percentage of the market than plant-based protein, including cuts like steaks, chops and roasts, but the likely cost remains very uncertain at this point.

Each of these items supports Bion’s belief that there is a potentially very large opportunity to supply premium sustainable beef products that satisfy these concerns. We believe that the real meat/beef products that can be cost-effectively produced today using our 3G Tech platform, both sustainable and/or organic, can provide an affordable product that satisfies the consumer’s desire for sustainability, but with the superior taste and texture those consumers have grown to prefer.

Sustainable Beef

Bion’s goal is to be first to market with meaningfully sustainable, and verified, beef products that can be produced at sufficient scale to service national market demand. The cattle produced at a Bion facility will enjoy a substantially lower carbon footprint, dramatically reduced nutrient impacts to water, and an almost total pathogen kill in the waste stream. A Bion sustainable beef facility will be comprised of covered barns with slotted floors, which allow the waste to pass through and be collected quickly and frequently to reduce ammonia volatilization and loss, as well as odors. Covered barns will reduce weather impacts on the livestock and have been demonstrated to promote improved general health and weight gain in the cattle housed in them. The barns represent a very large roof surface area, which will be utilized in appropriate geographical locations for the installation of photovoltaic solar generation systems to produce electricity for the facility, as well as export to the grid. Waste treatment and resource recovery will be provided by Bion’s advanced 3G Tech platform, which Bion believes offers the most comprehensive solution for livestock waste available today. In addition to direct environmental benefits every pound of nitrogen that is captured, upcycled, and returned to the agricultural nitrogen cycle as high-quality fertilizer (vs lost to contaminate downstream waters), is also a pound of nitrogen that will not have to be produced as synthetic urea or anhydrous ammonia, with their tremendous carbon cost. System performance and environmental benefits will be monitored and verified through third parties, with USDA PVP certification of the sustainable brand that Bion also believes will be the most comprehensive available in the market.

Sustainable Organic Beef

Bion believes it has a unique opportunity to produce, at scale, affordable corn-fed organic beef that is certified as sustainable. In addition to the sustainable practices described above, organic-sourced beef cows would be finished on organic corn, which would be produced using the ammonium bicarbonate fertilizer captured by the 3G Tech platform. Bion believes its meat products will meet consumer demands with respect to sustainability and safety (organic) and provide the tenderness and taste American consumers have come to expect from premium conventional American beef. Such products are largely unavailable in the market today. We believe Bion’s unique ability to produce the fertilizer needed to grow a supply of low-cost organic corn, and the resulting opportunity to produce organic beef, will dramatically differentiate us from potential competitors. This organic opportunity is dependent on successfully establishing Bion’s fertilizer products as acceptable for use in organic grain production.

Today, organic beef demand is limited and mostly supplied with grass-fed cattle. While organic ground/ chopped meat has enjoyed success in U.S. markets, grass-fed steaks have seen limited acceptance, mostly resulting from consumer issues with taste and texture. In other words, it’s tough. Regardless, such steaks sell for a significant premium over conventional beef. A grain-finished organic beef product is largely unavailable in the marketplace today due to the higher costs of producing organic corn and grain. The exception is offerings that are very expensive from small ‘boutique’ beef producers. Like all plants, corn requires nitrogen to grow. Corn is especially sensitive to a late-season application of readily available nitrogen – the key to maximizing yields. With non-organic field corn, this nitrogen is supplied by an application of a low-cost synthetic fertilizer, such as urea or anhydrous ammonia. However, the cost for suitable nitrogen fertilizer that can be applied late-season in organic corn production is so high that the late-season application becomes uneconomical, resulting in substantially lower yields – a widely recognized phenomena known as the ‘yield gap’ in organic production. The yield gap results in higher costs for organic corn that, in turn, make it uneconomical to feed that corn to livestock. As is the case for sustainable but not organic beef, Bion believes there is a potentially large unmet demand for affordable beef products that are both sustainable AND organic, but with the taste and texture consumers have come to expect from American beef. Bion’s ability to produce the low-cost nitrogen fertilizer that can close the organic yield (and affordability) gap puts the company in a unique, if not exclusive at this time, position to participate in JV’s that will benefit from this opportunity starting next year.

The demonstrated willingness of consumers to purchase sustainable products (along with numerous research and marketing studies confirming consumers are seeking, and are willing to pay a premium for, sustainable products)---in combination with the threat to the livestock industry market (primarily beef and pork) posed by plant-based alternatives (heightened by pandemic conditions)--- has succeeded in focusing the large-scalelarge scale livestock production facilities (also known as “Concentrated Animal Feeding Operations” or “CAFOs")industry on how to meet the plant-based market challenge by addressing the consumer sustainability issues. The adoptionconsumer demand for sustainability appears to be a real and lasting trend, but consumers remain skeptical of generalized claims of ‘sustainability’. To date, a large portion of the industry responses have been at a superficial level or consist of ‘green washing’, a deceptive marketing practice where companies promote non-substantive initiatives. Real sustainability for the livestock industry will require implementation of advanced waste treatment technology by industry segmentsat or near the CAFOs – where most of the negative environmental impacts take place.

3 Tech Kreider 2 Poultry Project

Bion has done extensive pre-development work related to a waste treatment/renewable energy production facility to treat the waste from KF’s approximately 6+ million chickens (planned to expand to approximately 9-10 million) (and potentially other poultry operations and/or other waste streams) ('Kreider Renewable Energy Facility' or ‘Kreider 2 Project’). On May 5, 2016, the Company executed a stand-alone joint venture agreement with Kreider Farms covering all matters related to development and operation of Kreider 2 system to treat the waste streams from Kreider’s poultry facilities in Bion PA2 LLC (“PA2”). During May 2011 the PADEP certified a smaller version of the Kreider 2 Project (utilizing our 3G Tech) for 559,457 nutrient credits under the old EPA’s Chesapeake Bay model. The Company has been in ongoing discussions with the PADEP regarding the appropriate credit calculation methodology for large-scale technology-based nutrient reduction installations such as the KF2 Project utilizing our 3G Tech platform. Based on these discussions and the size of the Kreider 2 Project, we anticipate that when designs are finalized, the Kreider 2 Project will be re-certified for a far larger number of credits (management’s current estimates are between 2-4 million (or more) nutrient reduction credits for treatment of the waste stream from Kreider’s poultry pursuant to the Company’s subsequent amended application during the current fiscal year pursuant to the amended EPA Chesapeake Bay model and agreements between the EPA and PA. Note that this Project may be expanded in the future to treat wastes from other local and regional CAFOs (poultry and/or dairy---including the Kreider Dairy) and/or additional Kreider poultry expansion (some of which may not qualify for nutrient reduction credits). A review process to clarify certain issues related to credit calculation and verification commenced during 2014 based on Bion’s 2G Tech but was been placed on hold. The Company anticipates if and when PA2 re-commences work on the Kreider 2 Project, it will submit an amended or new application based on our 3G Tech. Site specific design and engineering work for this facility have not commenced, and the Company does not yet have financing in place for the Kreider 2 Project. This opportunity is being pursued through PA2. If there are positive developments related to the market for nutrient reductions in Pennsylvania, of which there is no assurance, the Company intends to pursue development, design and construction of the Kreider 2 Project with a goal of achieving operational status for its initial modules during then following calendar year. The economics (potential revenues and profitability) of the Kreider 2 Project, despite its proposed use of Bion’s 3G Tech for increased recovery of marketable by-products, are based in material part the long-term sale of nutrient (nitrogen and/or phosphorus) reduction credits to meet the requirements of the Chesapeake Bay environmental clean-up. However, liquidity in the Pennsylvania nutrient credit market has not yet developed significant breadth and depth, which lack of liquidity has negatively impacted Bion’s business plans and will most likely delay PA2’s Kreider 2 Project and other proposed projects in Pennsylvania.

Note that while Bion believes that the Kreider 2 Project and/or subsequent Bion Projects in PA and the Chesapeake Bay Watershed will eventually generate revenue from the sale of: a) nutrient reductions (credits or in other form), b) renewable energy (and related credits), c) sales of fertilizer products, and/or d) potentially, in time, credits for the reduction of greenhouse gas emissions, plus e) license fees related to a ‘sustainable brand’, the Covid-19 pandemic has delayed legislative efforts needed to commence its development. We believe that the potential market is very large, but it is not possible to predict the exact timing and/or magnitude of these potential markets at this time.

Technology Deployment: Bion 3G Tech

Widespread deployment of waste treatment technology, and the sustainability it enables, is largely dependent upon adoption generating sufficient additional revenues to offset the capital and operating costs associated with technology adoption.

We believe that Bion’s 3G Tech has been developed to create opportunities for such augmented revenue streams, while providing third party verification of sustainability claims. The 3G Tech platform coupledhas been designed to maximize the value of co-products produced during the waste treatment/recovery processes, including pipeline-quality renewable natural gas (biogas) and commercial fertilizer products approved for organic production. All processes will be verifiable by third parties (including regulatory authorities and certifying boards) to comply with common-sense policy changes to U.S. clean water strategy that are already underway, will combine to provide a pathway to true economicenvironmental regulations and environmental sustainability with ‘win-win’ benefits for at least a premium sectortrading programs and meet the requirements for: a) renewable energy and carbon credits, b) organic certification of the livestock industry,fertilizer coproducts and c) USDA PVP certification of an ‘Environmentally Sustainable’ brand (see discussion below), and d) payment for verified ecosystem services. The Company’s first patent on its 3G Tech was issued during 2018. In August 2020, the environment,Company received a Notice of Allowance on its third patent which significantly expands the breadth and depth of the Company’s 3G Tech coverage, and the consumer.Company has additional applications pending and/or planned.

Bion’s business model and technology platform can open upcreate the opportunity for JVs (in various contractual forms) between the Company and large livestock/food/fertilizer industry participants, based upon the supplemental cash flow generated by implementation of our 3G Tech business model, (described and discussed below) which will support the costs of technology implementation (including related debt). We anticipate this will result in long term value for Bion. Long term, Bion anticipatesIn the context of such JVs, we believe that the verifiable sustainable branding opportunityopportunities (conventional and organic) may expand to represent the single largest enhanced revenue contributor provided by Bion to the economic opportunity provided by Bion.

During 2018 the Company had its first patent issued on its 3G Tech and has continued its work to expand its patent coverage for our 3G Tech. During October 2020 the Company third 3G patent issued, which patent significantly expands the breadth and depth of the Company’s 3G Tech coverage.JVs (and Bion licensees). The Company anticipates filing additional patent applications related to its technology developments duringbelieves that the next 12 months. The 3G Tech platform has been designed to maximize the value of co-products produced during the waste treatment/recovery processes, including pipeline-quality renewable natural gas and organic commercial fertilizer products. All processes will be verifiable by third-parties (including regulatory authorities, certifying boards and consumers) to comply with environmental regulations and reduction purchase/trading programs and meet the requirements for: a) renewable energy credits, b) organic certification of the fertilizer coproducts and c) the USDA PVP ‘Environmentally Sustainable’ branding program. Bion anticipates moving forward with the development processlargest portion of its initial commercial installations of its 3G technology during the 2021 (current)business with be conducted through such JVs, but a material portion may involve licensing and 2022 calendar years.or other approaches.

In parallel with technology development, Bion has worked (which work continues) to advance public policy initiativesimplement market-driven strategies designed to stimulate private-sector participation in the overall U.S. nutrient and carbon reduction strategy. These market-driven strategies can generate “payment for ecosystem services”, in which farmers or landowners are rewarded for managing their land and operations to provide environmental benefits, that will generate additional revenues. Existing renewable energy credits for the production and use of biogas are an example of payment for ecosystem services. Another such strategy is nutrient trading (or water quality trading), which will potentially create markets (in Pennsylvania and other states) that will utilize taxpayer funding for the purchase of verified pollution reductions from agriculture (“nutrient credits”) by the state (or others) through competitively-bid procurement programs. Such credits can then be used as a ‘qualified offset’ by an individual state (or municipality) to meet its federal clean water mandates at significantly lower cost to the taxpayer. CompetitiveMarket-driven strategies, including competitive procurement of verified credits, is now supported by USU.S. EPA, the Chesapeake Bay Commission, national livestock interests, and other key stakeholders. Legislation in Pennsylvania to establish the first such state competitive procurement program passed the Pennsylvania Senate by a bi-partisan majority during March 2019. However, the Covid-19 pandemic and related financial/budgetary crises have subsequently slowed progress for this and other policy initiatives and, as a result, it is not currently possible to project the timeline for completion (or meaningful progress) of this and other similar initiatives.initiatives (see discussion below).

The livestock industry and its markets are already changing; with a commercial-ready technology and business model, Bion believes it has a ‘first-mover advantage’ over others that will seek to exploit the opportunities that will arise from the industry’s inevitable transformation. Bion anticipates moving forward with the development process of its initial commercial installations utilizing its 3G Tech, during the current 2022 fiscal year. We believe that Bion’s 3G Tech platform and business model can provide a pathway to true economic and environmental sustainability with ‘win-win’ benefits for at least a premium sector of the livestock industry, the environment, and the consumer, an opportunity which the Company intends to pursue.

The Livestock Problem

The livestock industry is under tremendous pressure (fromfrom regulatory agencies, a wide range of advocacy groups, institutional investors and the industry’s own consumers)consumers, to adopt sustainable practices. Environmental cleanup is inevitable and has already begun - and policies arehave already changing.begun to change, as well. Bion’s 3G technologyTech was developed for implementation on large scale livestock production facilities, where scale drives both lower treatment costs and efficient co-products production, of co-products.as well as dramatic environmental improvements. We believe that scale, coupled with Bion’s verifiable treatment technology platform, will create a transformational opportunity to integrate clean production practices at (or close to) the point of production—the primary source from which most of the industry’s environmental impacts are initiated.impacts. Bion intends to assist the forward-looking segment of the livestock industry in actually bringingto bring animal protein production in line with Twenty-first21st Century consumer demands for sustainability.

The 3G Tech platform is the basis for the Company’s JV business model with four distinct revenue streams: 1) pipeline quality renewable natural gas and related carbon credits, 2) premium organic fertilizer products, 3) nutrient credits, and 4) premium pricing from USDA-certified ‘Environmentally Sustainable’ branding at the retail level. Carbon and nutrient credit revenues will be generated by third-party verification of the waste treatment processes that produce renewable energy and fertilizer products - with relatively limited incremental cost to Bion. The same verified data will provide the backbone for the USDA-certified sustainable brand, again with limited incremental cost.

Bion’s 3G Tech platform utilizes customized anaerobic digestion (“AD”) to recover methane from the waste stream. At sufficient scale, methane produced from AD can be cost-effectively conditioned, compressed and injected into a pipeline. The US Renewable Fuel Standard (“RFS”) program and state programs in California and elsewhere provide ongoing renewable energy credits for the production and use of renewable transportation fuels.

��

The 3G Tech platform has been designed to produce multiple fertilizer products including: i) ammonia bicarbonate liquid, ii) ammonium bicarbonate in solid crystal form and iii) a soil amendment products that will contain the remaining nitrogen, phosphorus and other micronutrients captured from the livestock waste stream. Bion believes each product will qualify for organic certification and intends to file multiple applications for varying concentrations of crystal product going forward.

Ammonium bicarbonate manufactured using chemical processes has a long history of use as a fertilizer. Bion’s intends to develop non-synthetic, concentrated ammonium bicarbonate crystal products which will contain 14-30 percent nitrogen in a crystalline form that will be easily transported, water soluble and provide readily-available nitrogen for use as part of certified organic production. Our products will contain virtually none of the other salt, iron and mineral constituents of the livestock waste stream that often accompany other organic fertilizers. This product is being developed to fertilizer industry standards so that it that can be precision-applied to produce organic crops using existing equipment. Bion believes that this product will potentially have broad applications in the production of a variety of organic products including grains for livestock feed, row crops, horticulture, greenhouse and hydroponic production, and potentially retail lawn and garden products.

The Company’s initial ammonium bicarbonate liquid product completed its Organic Materials Review Institute (“OMRI”) application and review process with approval during May 2020 (and certain restrictions were removed effective April 28, 2021). The Company filed an additional OMRI application on May 3, 2021 for the initial crystallized ammonium bicarbonate co-products produced by our 3G Tech.

The Company believes that organic approvals for its products: a) will provide access to substantially higher value markets compared to synthetic nitrogen products, and/or b) allow its products to be utilized in growing of organic feed grains to be consumed by livestock raised in JVs which will thereafter receive organic approvals. Based on preliminary market surveys to date: a) we believe that existing competing organic fertilizer products in both liquid and granular form are being sold presently at price points significantly greater than Bion’s projected cost and projected pricing, and b) that livestock products (beef and pork) raised with feed grains grown using Bion organic ammonium carbonate fertilizer products (during the ‘finishing’ stage) will qualify for organic approvals. It is anticipated that the Company will seek approvals for such products during the balance of the 2021 fiscal year and will commence JVs that undertake initial production and marketing of such products during the 2021 calendar year.

Bion had believed that passage in Pennsylvania of legislation in 2019 would establish a competitively-bid market for nutrient reduction Credits in Pennsylvania but the Covid-19 pandemic intervened. The bill will most likely need to be re-introduced in the Senate 2021-2022 session. Bion anticipates that passage of SB575 (or re-introduced bill) in Pennsylvania will establish a competitively-bid market for nutrient reduction credits in Pennsylvania within twelve months after passage and being signed into law by the Governor.

Note, however, that the current Covid-19 pandemic and resultant economic crises and budgetary constraints have delayed policy initiatives related to these matters at both the state and federal levels. As a result, it is not currently possible to reasonably project a timetable for adoption of the policy changes discussed herein.

Bion’s Kreider Farms poultry project (“Kreider 2”) is projected to generate between 1.5-3M lbs. of Chesapeake Bay (“CB” or “Bay”) verified nitrogen reduction Credits (the range depends on the specific calculation methodology agreed to between the EPA and the Pennsylvania DEP). Bion anticipates the market value for these verified credits will be in the range of $8 to $12 per pound annually. The focus of the latest PA regulatory watershed improvement plan (“WIP”) has shifted the reduction mandates to individual counties. Lancaster County, PA is being asked to reduce 21% of the mandate (approximately 11M lbs. of nitrogen) to the Bay. As a result, the Kreider 2 project in Lancaster County may expand to include a regional processing opportunity in addition to the Kreider 2 base project. Bion believes that initial funding of such competitive bidding program will allow Bion and others to demonstrate the technological effectiveness and cost savings of manure control technologies, which should result in the re-allocation of a portion of the existing approximately $110B in taxpayer clean water funding to be re-directed to nutrient procurement programs nationwide.

Consumers have demonstrated a willingness to pay a premium for their safe and sustainable food choices. Beginning in 2015, Bion has worked with the USDA’s Process Verified Program (“PVP”) – the gold standard in food verification and branding – to establish a USDA-certified sustainable brand.Bion received conditional approval from the PVP related to its Kreider 1 project (utilizing 2G Tech). It is our intention to amend and resubmit its application for the 3G Tech platform when the initial 3G Tech Project is operational and seek an approval for certification based on third-party-verified reductions in nutrient impacts, greenhouse gases and pathogens in the waste stream based on our 3G Tech. PVP certification incorporated as part of a recognizable brand will provide consumers with products and brands that can be trusted. Bion projects that such a brand and livestock product line will command a pricing premium for Bion livestock JVs and their customers.

Food safety and sustainability are issues of growing importance in the U.S. and worldwide. Bion’s branding initiative reflects trends already underway in the livestock industry. Over the last few years, most large meat and dairy product retailers have announced ‘sustainability’ initiatives, although the definition of sustainability is unclear. Bion believes that as these initiatives move forward, true sustainability on the production side will look a lot like what Bion can provide today with its 3G Tech. We believe our 3G Tech platform can deliver verifiable metrics that demonstrate meaningful improvements in sustainability for livestock production including: a) reduced carbon and nutrient footprint; b) lower negative impacts to water, soil and air; c) increased pathogen destruction and other environmental and public health impacts that are unmatched in the industry today.

The Covid-19 pandemic has further heightened consumer awareness and concerns related to: a) environmental sustainability, b) food safety, c) sourcing and traceability and d) humane treatment of both animals and workers. The more the livestock industry’s supply chain practices are transparent and known by consumers, the more consumers are seeking alternatives.

Bion’s ‘Environmental/Sustainable’ branding program is designed to address a wide array of consumer concerns ranging from: a) ‘where does your food come from?’, b) animal heritage information; c) anti-biotic use standards; d) humane animal treatment; d) its labor/human conditions (including hours, wages and working condition standards). It will include block chain traceability thereby enabling any quality issues to be quickly identified by lot and location thereby minimizing risk to its consumers.sustainability.

In essence, Bion’s comprehensive technology platform will enable its livestock producer adoptersthe U.S. (according to not only be the providerUSDA’s 2017 agricultural census) there are over 9 million dairy cows, 90 million beef cattle, 60 million swine and more than 2 billion poultry which provides an indication of both the scope of the ‘productproblem addressed by Bion’s technology, as well as the consumer wants’ but also the company that ‘shares the consumer’s values’.

Kreider Dairy Project

During 2008 the Company commenced actively pursuing the opportunity presented by environmental retrofitsize of Bion’s opportunity. Environmental impacts from livestock production include surface and remediation of the waste streams of existing CAFOs which effort has met with very limited success to date. The Company’s first commercial activity in the retrofit segment was represented by our agreement with Kreider Farms (“KF”), pursuant to which the Kreider 1 system (based on an early version of our 2^nd generation technology (“2G Tech”)) to treat KF's dairy waste streams to reduce nutrient releases to the environment while generating marketable nutrient credits was designed, constructedgroundwater pollution, greenhouse gas emissions, ammonia, and entered full-scale operation during 2011. On January 26, 2009 the Board of the Pennsylvania Infrastructure Investment Authority (“Pennvest”) approved a $7.75 million loan to Bion PA 1, LLC (“PA1”), a wholly-owned subsidiary of the Company, for the initial Kreider Farms project (“Kreider 1 System”). PA1 has had sporadic discussions/negotiations with Pennvestother air pollution, excess water use, and pathogens related to forbearance and/or re-structuring its obligations pursuant tofoodborne illnesses and antibiotic resistance. While the Pennvest Loan for more than seven years. In the context of such discussions/negotiations, PA1 elected not to make interest payments to Pennvest on the Pennvest Loan since January 2013. Additionally, PA1 has not made any principal payments, which were to begin in fiscal 2013,most visible and therefore, the Company has classified the Pennvest Loan as a current liability as March 31, 2021. Due to the failure of the Pennsylvania nutrient reduction credit market to develop, the Company determined (on three separate occasions) that the carrying amount of the property and equipmentimmediate problems are related to nutrient runoff and its effects on water quality, the Kreider 1 System exceededindustry has recently been targeted by various stakeholder groups for its estimated future undiscounted cash flows basedimpacts on certain assumptions regarding timing, level and probability of revenues from sales of nutrient reduction credits. Therefore, PA1 and the Company recorded impairments related to the value of the Kreider 1 assets totaling $3,750,000 through June 30, 2015. During the 2016 fiscal year, PA1 and the Company recorded an additional impairment of $1,684,562 to the value of the Kreider 1 assets which reduced the value on the Company’s books to zero. This impairment reflects management’s judgment that the salvage value of the Kreider 1 assets roughly equals PA1’s contractual obligations related to the Kreider 1 System, including expenses related to decommissioning of the Kreider 1 System, costs associated with needed capital upgrade expenses, and re-certification/ permitting amendments.climate change.

Estimates of total annual U.S. livestock manure waste vary widely, but start around a billion tons, between 100 and 130 times greater than human waste. However, while human waste is generally treated by septic or municipal wastewater plants, livestock waste – raw manure – is spread on our nation’s croplands for its fertilizer value. Large portions of U.S. feed crop production (and most organic crop production) are fertilized, in part, in this manner. Under current manure management practices, 80% or more of total nitrogen from manure, much of it in the form of ammonia, escapes during storage, transportation, and during and after soil application, representing both substantial lost value and environmental costs.

On September 25, 2014, Pennvest exercised its right

More than half of the nitrogen impacts from livestock waste come from airborne ammonia emissions, which are extremely volatile, reactive and mobile. Airborne ammonia nitrogen eventually settles back to declare the Pennvest Loanground through atmospheric deposition - it ‘rains’ everywhere. While some of this nitrogen is captured and used by plants, most of it runs off and enters surface waters or percolates down to groundwater. It is now well-established that most of the voluntary conservation practices, such as vegetated buffers that ‘filter’ runoff (often referred to as “BMPs” or “Best Management Practices” that have traditionally been implemented to attempt to mitigate nutrient runoff), are considerably less effective than was previously believed to be the case. This is especially true with regard to addressing the volatile and mobile nitrogen from ammonia emissions, because BMPs are primarily focused on surface water runoff, directly from farm fields in defaultcurrent production, versus the re-deposition that takes place everywhere or groundwater flow.

Runoff from livestock waste has been identified in most of our major watersheds as a primary source of excess nutrients that fuel algae blooms in both fresh 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 oversaltwater. Over the last 7 years. PA1 provides Pennvestseveral years, algae blooms have become increasingly toxic to both humans and animals, such as the Red Tides on the Florida and California coasts, and the Lake Erie algae bloom that cut off the water supply to Toledo, Ohio, residents in 2014. When the nutrient runoff subsides, it leaves the algae blooms with no more ‘food’ and the blooms die. The algae’s decomposition takes oxygen from the water, leading to ‘dead zones’ in local ponds, lakes, and ultimately, the Great Lakes, as well as the Chesapeake Bay, Gulf of Mexico, and other estuary waters. Both the toxic algae blooms and the low/no-oxygen dead zones devastate marine life, from shrimp and fish to higher mammals, including dolphins and manatees. U.S. EPA already considers excess nutrients “one of America’s most widespread, costly and challenging environmental problems”. Nutrient runoff is expected to worsen dramatically in the coming decades due to rising temperatures and increasing rainstorm intensity as a result of climate change.

Nitrate-contaminated groundwater is of growing concern in agricultural regions nationwide, where it has been directly correlated with nutrient runoff from upstream agricultural operations using raw manure as fertilizer. Pennsylvania, Wisconsin, California and Washington, and others, now have regions where groundwater nitrate levels exceed EPA standards for safe drinking water. High levels of nitrate can cause blue baby syndrome (methemoglobinemia) in infants and affect women who are or may become pregnant, and it has been linked to thyroid disease and colon cancer. EPA has set an enforceable standard called a maximum contaminant level (MCL) in water for nitrates at 10 parts per million (ppm) (10 mg/L) and for nitrites at 1 ppm (1 mg/L). Federal regulations require expensive pretreatment for community water sources that exceed the MCL; however, private drinking water wells are not regulated, and it is the owners’ responsibility to test and treat their wells. Additionally, groundwater flows also transport this volatile nitrogen downstream where, along its financial statements (which include a description of system status) annually. Duringway, it intermixes with surface water, further exacerbating the runoff problem. Like atmospheric deposition, the current fiscal year, Pennvest’s auditors requestedconservation practices we rely on to reduce agricultural runoff are largely bypassed by this subsurface flow.

Additionally, in arid climates, such as California, airborne ammonia emissions from livestock manure contribute to air pollution as a ‘corrective action plan’precursor to PM2.5 formation, small inhalable particulate matter that is a regulated air pollutant with significant public health risks. Whether airborne or dissolved in water, ammonia can only be cost-effectively controlled 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 operationstreated at the Kreider 1 dairy) maysource-- before it has a chance to escape into the environment where it becomes extremely expensive to ‘chase’, capture and treat.

High phosphorus concentrations in soils fertilized with raw manure are another growing problem. The ratio of nitrogen to phosphorus in livestock waste is fixed, and because manure application rates are calculated based on nitrogen requirements, often phosphorus is overapplied as an unintended consequence. Phosphorus accumulation in agricultural soils reduces its productivity, increases the risk of phosphorus runoff, and represents a waste of a finite resource. Decoupling the nitrogen from the phosphorus would allow them to be reached in the future in the contextprecision-applied, independently of the development of the Kreider 2 poultry Project if/each other, 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.and where needed.

The Kreider 1 Systemlivestock industry has been inactiverecently come under heavy fire for several years with some equipment maintenance work being undertaken. PA1 and Bion will continue to evaluate various options with regard to Kreider 1 over the next six to 12 months.

During August 2012, the Company provided Pennvest (and the PADEP) with data demonstrating that the Kreider 1 System met the ‘technology guaranty’ standardsits impacts on climate change, which were incorporated in the Pennvest financing documents and, ashas become a result, the Pennvest Loan has been (and is now) solely an obligation of PA1 since that date.

Kreider Farms (Poultry) – 3G Tech Project

Bion is completing an envelope of policy change and technology pilots that will allow it to move forward with a commercial large scale 3G Tech project at Kreider Farms. Having recently received two 3G Tech patents and a Notice of Allowancerallying cry for the third 3G Tech patent (filings and approvals of related additional patent applications/continuations remaining pending), Bion is undertaking two key tasks that will ‘complete the envelope’ and allow Bion to launch active developmentanti-meat campaign discussed above. Estimates of the Kreider 2 poultry project and/or other Projects) duringmagnitude of those impacts vary widely, but the 2021 fiscal year (and thereafter):

1. Supportgeneral consensus is that globally, livestock account for adoption14.5 percent of PA SB 575 (or a successor bill): This will create a competitively-bid market for nutrient reductions/Creditsgreenhouse emissions. In the U.S. however, that we believe will provide support for project financing for Kreider 2 priornumber drops to development4.2 percent, due to the increased efficiencies of markets forAmerican beef production. The greatest impacts come from direct emissions of methane from enteric fermentation (belches), methane and nitrous oxide emissions from the co-products from Kreider 2 are established.

2. Installationmanure, with arguably the largest being the massive carbon footprint of a 3G Tech ammonia recovery system to produce ammonium bicarbonate to bethe synthetic nitrogen fertilizers used to make applicationgrow the grains to OMRI for organic certification (and possibly for grower trials).feed the livestock.

The 3G Tech Kreider 2 Project is planned for two (or more) locations. It is intended to treat the waste from Kreider’s 1,800 dairy cows and approximately six million egg layer chickens (with capacity for an additional three million layers). The Kreider 2 Project will be designed with modules with and initial capacity of 450 tons (or more) per day of waste and will remove nitrogen and phosphorus from the waste stream that will be converted into high-value coproducts instead of polluting local and downstream waters. The Kreider 2 Project is planned to be built in three phases and may be expanded to include a ‘central processing facility’ with modules that will accept transported waste from the region on fee basis.

Bion has a long-standing relationship with Kreider Farms including a 2016 joint venture agreement related to this facility. Kreider has already made a significant investment in upgrading its poultry facilities to maximize the treatment and recovery efficiencies that can be achieved with Bion’s technology. We are cautiously optimistic that once PA SB575 (or a successor bill) is passed, a market will be put in place for long-term commercial sale of the nutrient reduction credits produced at Kreider 2. Bion anticipates that it may require up to 6-12 months after such a bill becomes law to develop the rules/regulations related to the competitive bidding program. If the competitive bidding program is implemented, we intend to seek to arrange project financing for the Kreider 2 Project during 2021-2022 calendar years.

Sustainable/ Organic Grain-Finished Beef JV Opportunity

Bion believes there is a potentially large opportunity for JVs to produce sustainable/organic grain-finished beef and is actively involved in early pre-development work and discussions regarding pursuit of this opportunity.

Beef production is the most challenged sector ofFor decades the livestock industry duehas overlooked and/or socialized its environmental problems and costs. Today, the impacts of livestock production on public health and the environment can no longer be ignored and are coming under increasing scrutiny from environmental groups and health organizations, regulatory agencies and the courts, the media, consumers, and activist institutional investors. The result has been a significant and alarming loss of market share to its size and inability, as currently structured, to respond to growing consumer concerns related to sustainability and food safety. The industry is structured to produce multiple levels of a commodity products (without any significant pricing premiums) graded based upon taste and tenderness. Today, however, consumer demand is shifting to products that are more sustainable, regarding carbon footprint, impacts to air and waterplant-based protein and other metrics. The Company doesn’t thinkalternative products. Bion’s 3G Tech platform was designed to resolve these environmental issues and bring the consumer wants to ‘blow up’ the beef industry which is responsible for the best and safest beef available in the world today (as well as the livelihoods of almost 800,000 farming, ranching and other families supported by the beef industry in the U.S). Rather, consumers want it to be more sustainable---and still taste good. Bion believes that strong demand exists for a verified sustainable beef product,line with the taste and texture of traditional corn-fed beef which addresses the consumers’ concerns. Bion’s technology platform is designed to enable livestock producers to produce an environmentally sustainable beef product.

We are moving forward with preliminary pre-development work on a JV to build a state-of-the-art beef cattle operation in the Midwest U.S. The project would produce corn-fed USDA-certified organic- and/or sustainable-branded beef. Organic beef would be finished on organic corn (vs grass fed), produced using the ammonium bicarbonate fertilizer captured from the cattle’s waste. We believe Bion’s unique ability to produce fertilizer for growing of a supply of low-cost organic corn, and the resulting opportunity to produce organic beef, will dramatically differentiate us from potential competitors. This organic opportunity is dependent on successfully establishing Bion’s fertilizer products as acceptable for use in organic grain production.

In addition, as described above, we intend to develop JVs which use Bion’s organic ammonium bicarbonate fertilizers to support organic grain production. This grain can be fed (in the finishing stage) to livestock and raise organic beef (and beef products) that will meettwenty-first century consumer demand with respect to sustainability and safety and provide the tenderness and taste American consumers have come to expect from premium American beef. Such a product is largely unavailable in the market today.

Bion’s current long-term goal is to acquire or develop, or have in a development pipeline, 2-5 Projects over the next 24 to 48 months.

A significant portion of Bion’s activities concern efforts with private and public stakeholders (at local and state level) in Pennsylvania (and other Chesapeake Bay and Midwest and Great Lakes states) and at the federal level EPA and the Department of Agriculture (“USDA”) (and other executive departments) and Congress) to establish appropriate public policies which will create regulations and funding mechanisms that foster installation of the low cost environmental solutions that Bion (and others) can provide through clean-up of agricultural waste streams. The Company anticipates that such efforts will continue in Pennsylvania and other Chesapeake Bay watershed states throughout the next 12 months and in various additional states thereafter.expectations.

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 not generated significant revenues and has incurred net losses (including significant non-cash expenses) of approximately $4,553,000 $3,451,000 and $2,659,000$4,553,000 during the years ended June 30, 20202021 and 2019,2020, respectively, and a net loss of approximately $2,799,000 $664,000 during the ninethree months ended March 31,September 30, 2021. At March 31,September 30, 2021, the Company has a working capital deficit and a stockholders’ deficit of approximately $9,718,000$7,131,000 and $14,505,000, $12,000,000,(12,000,200) 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.

The Company continues to explore sources of additional financing (including potential agreements with strategic partners – both financial and ag-industry) to satisfy its current and future operating and capital expenditure requirements as it is not currently generating any significant revenues.

During the years ended June 30, 20202021 and 2019,2020, the Company received totalgross proceeds of approximately $1,584,000$5,209,000 and $897,000,$1,584,000, respectively, from the sale of its debt and equity securities. Proceeds during the 2020 and 2019 fiscal years have been lower than in earlier years which reduction has negatively impacted the Company’s business development efforts.

During the ninethree months ended March 31,September 30, 2021, the Company received total proceeds of approximately $2,150,000$105,000 from the sale of its equity securities and paid approximately $160,000$1,000 in commissions.

During fiscal years 20202021 and 2019 and the nine months ended March 31, 2021,2020, the Company has faced progressively less difficulty in raising equity funding (but substantial equity dilution has gone along with the larger amounts of equity financing during the periods). As a result, than was experienced in the prior 3 years. However, the Company has faced,anticipates substantial increases in demands for capital and continuesoperating expenditures as it moves toward commercial implementation of its 3G Tech and development of JVs and, therefore, is likely to continue to face, significant cash flow management challenges due to limited capital resources and working capital constraints which have only recently begun to be alleviated. To partially mitigate these working capital constraints, the Company’s core senior management and several key employees and consultants have been deferring (and continue to defer) all or part of their cash compensation and/or are accepting compensation in the form of securities of the Company (Notes 4 and 6) and members of the Company’s senior management have made loans to the Company from time to time. During the year ended June 30, 2018, senior management and certain core employees and consultants agreed to a one-time extinguishment of liabilities owed by the Company which in aggregate totaled $2,404,000.$2,404,000. Additionally, the Company made reductions in its personnel during the years ended June 30, 2014 and 2015 and again during the year ended June 30, 2018. The constraint on available resources has had, and continues to have, negative effects on the pace and scope of the Company’s efforts to develop its business. The Company has had to delay payment of trade obligations and has had to economize in many ways that have potentially negative consequences. If the Company is able to continue its recent increased success in its efforts to raise needed funds during the remainder of the current fiscal year (and subsequent periods), of which there is no assurance, management will not need to consider deeper cuts (including additional personnel cuts) and curtailment of ongoing activities including research and development activities.

The Company will need to obtain additional capital to fund its operations and technology development, to satisfy existing creditors, to develop Projects (including the Initial Project, JV Projects, Integrated Projects andand/or the Kreider 2 facility) and CAFO Retrofit waste remediation systems. The Company anticipates that it will seek to raise from $2,500,000$10,000,000 to $50,000,000$50,000,000 or more debt and/or equity through joint ventures, strategic partnerships and/or sale of its equity securities (common, preferred and/or hybrid) and/or debt (including convertible) securities, and/or through use of ‘rights’ and/or warrants (new and/or existing) and or through other means during the next twelve months. However, as discussed above, there is no assurance, especially in light of the difficulties the Company has experienced in many recent periodsyears and the extremely unsettled capital markets that presently exist (especially for small companies like us), that 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 and Projects.

There is no realistic likelihood that funds required during the next twelve months (or in the periods immediately thereafter) for the Company’s basic operations, the Initial Project and/or proposed JVs and/or Projects will be generated from operations. Therefore, the Company will need to raise sufficient funds from external sources such as debt or equity financings or other potential sources. The lack of sufficient additional capital resulting from the inability to generate cash flow from operations and/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. All of these factors have been exacerbated by the extremely limited and unsettled credit and capital markets presently existing for small companies like Bion.

Covid-19 pandemic related matters:

The Company faces risks and uncertainties and factors beyond our control that are magnified during the current Covid-19 pandemic and the unique economic, financial, governmental and health-related conditions in which the Company, the country and the entire world now reside. To date the Company has experienced direct impacts in various areas including but without limitation: i) government ordered shutdowns which have slowed the Company’s research and development projects and other initiatives, ii) shifted focus of state and federal governments which is likely to negatively impact the Company’s legislative initiatives in Pennsylvania and Washington D. C., iii) strains and uncertainties in both the equity and debt markets which have made discussion and planning of funding of the Company and its initiatives and projects with investment bankers, banks and potential strategic partners more tenuous, iv) strains and uncertainties in the agricultural sector and markets have made discussion and planning more difficult as future industry conditions are now more difficult to assess and predict, v) constraints due to problems experienced in the global industrial supply chain which have delayed certain research and development testing and may delay construction of the initial 3G Tech installation if equipment remains difficult to acquire in a timely manner, vi) due to the age and health of our core management team, all of whom are age 70 or older and have had one or more existing health issues, the Covid-19 pandemic places the Company at greater risk than was previously the case (to a higher degree than would be the case if the Company had a larger, deeper and/or younger core management team), and vii) there almost certainly will be other unanticipated consequences for the Company as a result of the current pandemic emergency and its aftermath.

2.       SIGNIFICANT ACCOUNTING POLICIES

2.       SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Bion Integrated Projects Group, Inc. (“Projects Group”), Bion Technologies, Inc., BionSoil, Inc., Bion Services, Bion PA1 LLC, Bion PA2 LLC and PA2;Bion 3G-1 LLC; and its 58.9%58.9% owned subsidiary, Centerpoint Corporation (“Centerpoint”). All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 March 31,September 30, 2021, and the results of operations of the Company for the three and nine months ended March 31, 2021 and 2020 and the cash flows of the Company for the ninethree months ended March 31,September 30, 2021 and 2020. Operating results for the three and nine months ended March 31,September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending June 30, 2021.2022.

Cash and cash equivalents:

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash and cash equivalents.

Property and equipment:

Property and equipment are stated at cost and are depreciated, when placed into service, using the straight-line method over the estimated useful lives of the related assets, generally three to twenty years. The Company capitalizes all direct costs and all indirect incrementally identifiable costs related to the design and construction of its Integrated Projects. The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized based on the amount by which the carrying value of the assets or asset group exceeds its estimated fair value, and is recognized as a loss from operations.

Patents:

The Company has elected to expense all costs and filing fees related to obtaining patents (resulting in no related asset being recognized in the Company’s consolidated balance sheets) because the Company believes such costs and fees are immaterial (in the context of the Company’s total costs/expenses) and have no direct relationship to the value of the Company’s patents.

Stock-based compensation:

The Company follows the provisions of Accounting Standards Codification (“ASC”) 718, which generally requires that share-based compensation transactions be accounted and recognized in the statement of operations based upon their grant date fair values.

Derivative Financial Instruments:

Pursuant to ASC Topic 815 “Derivatives and Hedging” (“Topic 815”), the Company reviews all financial instruments for the existence of features which may require fair value accounting and a related mark-to-market adjustment at each reporting period end. Once determined, the Company assesses these instruments as derivative liabilities. The fair value of these instruments is adjusted to reflect the fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.

Warrants:

The Company has issued warrants to purchase common shares of the Company. Warrants are valued using a fair value based method, whereby the fair value of the warrant is determined at the warrant issue date using a market-based option valuation model based on factors including an evaluation of the Company’s value as of the date of the issuance, consideration of the Company’s limited liquid resources and business prospects, the market price of the Company’s stock in its mostly inactive public market and the historical valuations and purchases of the Company’s warrants. When warrants are issued in combination with debt or equity securities, the warrants are valued and accounted for based on the relative fair value of the warrants in relation to the total value assigned to the debt or equity securities and warrants combined.

Concentrations of credit risk:

The Company's financial instruments that are exposed to concentrations of credit risk consist of cash. The Company's cash is in demand deposit accounts placed with federally insured financial institutions and selected brokerage accounts. Such deposit accounts at times may exceed federally insured limits. The Company has not experienced any losses on such accounts.

Noncontrolling interests:

In accordance with ASC 810, “Consolidation”, the Company separately classifies noncontrolling interests within the equity section of the consolidated balance sheets and separately reports the amounts attributable to controlling and noncontrolling interests in the consolidated statements of operations. In addition, the noncontrolling interest continues to be attributed its share of losses even if that attribution results in a deficit noncontrolling interest balance.

Fair value measurements:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The Company uses a fair value hierarchy that has three levels of inputs, both observable and unobservable, with use of the lowest possible level of input to determine fair value.

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 – observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 – assets and liabilities whose significant value drivers are unobservable.

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment.

The fair value of cash and accounts payable approximates their carrying amounts due to their short-term maturities. The fair value of the loan payable is indeterminable at this time due to the nature of the arrangement with a state agency and the fact that it is in default. The fair value of the redeemable preferred stock approximates its carrying value due to the dividends accrued on the preferred stock which are reflected as part of the redemption value. The fair value of the deferred compensation and convertible notes payable - affiliates are not practicable to estimate due to the related party nature of the underlying transactions.

Lease Accounting:

The Company will account for any future leases under ASC 842, Leases (“ASC 842”). Accordingly, the Company will determine whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such lease is assessed based on the date on which the underlying asset is made available for the Company’s use by the lessor. The Company’s assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of exercising. The Company will also determine lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the lease term.

For leases with a term exceeding 12 months, a lease liability will be recorded on the Company’s consolidated balance sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term. A corresponding right-of-use (“ROU”) asset equal to the initial lease liability will also be recorded, adjusted for any prepaid rent and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received. For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company will use its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable. The Company's incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment of the associated lease.

For the Company’s operating leases, fixed lease payments will be recognized as lease expense on a straight-line basis over the lease term. For leases with a term of 12 months or less, any fixed lease payments will be recognized on a straight-line basis over the lease term and will not be recognized on the Company's consolidated balance sheet as an accounting policy election.

Revenue Recognition:

The Company currently does not generate revenue and if and when the Company begins to generate revenue the Company will comply with the provisions of Accounting Standards Codification (“ASC”)ASC 606 “Revenue from Contracts with Customers”.

Loss per share:

Basic loss per share amounts are calculated using the weighted average number of shares of common stock outstanding during the period. Diluted 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 per share or increase the earnings per share. During the three and nine months ended March 31,September 30, 2021 and 2020, the basic and diluted loss per share was the same, as the impact of potential dilutive common shares was anti-dilutive.

The following table represents the warrants, options and convertible securities excluded from the calculation of basic loss per share:

The following is a reconciliation of the denominators of the basic and diluted loss per share computations for the three and nine months ended March 31,September 30, 2021 and 2020:

Use of estimates:

In preparing the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements:

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financial statements properly reflect the change.

In June 2018, the FASB issued ASU No. 2018-07 “Compensation – Stock Compensation – Improvements to Nonemployee Share-Based Payment Accounting” to simplify the accounting for share based payments granted to nonemployees and was adopted by the Company effective July 1, 2019. Under this guidance, payments to nonemployees are aligned with the requirements for share based payments granted to employees. The adoption of this guidance did not have a material impact on the Company’s financial statements as previously issued share-based payments to nonemployees had already reached a measurement date.

3.       PROPERTY AND EQUIPMENT:EQUIPMENT:

Property and equipment consist of the following:

As of March 31,September 30, 2021, the net book value of Kreider 1 was0 zero. Management has reviewed the remaining property and equipment for impairment as of March 31,September 30, 2021 and believes that no impairment exists.

Depreciation expense was $206$248 and $347$207 for the three months ended March 31, 2021 and 2020, respectively and $620 and $1,041 for the nine months ended March 31,September 30, 2021 and 2020, respectively.

4.       DEFERRED COMPENSATION:COMPENSATION:

The Company owes deferred compensation to various employees, former employees and consultants totaling $1,012,159$528,640 and $652,367$849,941 as of March 31,September 30, 2021 and 2020, respectively. Included in the deferred compensation balances as of March 31,September 30, 2021, are $358,367$436,920 and $3800 nil owed Dominic Bassani (“Bassani”), the Company’s Chief Executive Officer, and Mark A. Smith (“Smith”), the Company’s President, respectively, pursuant to extension agreements effective January 1, 2015, whereby unpaid compensation earned after January 1, 2015, accrues interest at 4%4% per annum and can be converted into shares of the Company’s common stock at the election of the employee during the first five 5calendar days of any month. The conversion price shall be the average closing price of the Company’s common stock for the last 10 trading days of the immediately preceding month. The deferred compensation owed Bassani and Smith as of March 31,September 30, 2020 was $97,946$211,871 and $36,180,$53,138, respectively. The Company also owes various consultants and an employee, pursuant to various agreements, for deferred compensation of $580,912$19,220 and $445,741$512,432 as of March 31,September 30, 2021 and 2020, respectively, with similar conversion terms as those described above for Bassani and Smith, with the exception that the interest accrues at 3%3% per annum. The Company also owes a former employee $72,500,$72,500, which is not convertible and is non-interest bearing.

Bassani and Smith have each been granted the right to convert up to $300,000$300,000 of deferred compensation balances at a price of $0.75$0.75 per share until December 31, 2022 (to be issued pursuant to the 2006 Plan). Smith also has the right to convert all or part of his deferred compensation balance into the Company’s securities (to be issued pursuant to the 2006 Plan) “at market” and/or on the same terms as the Company is selling or has sold its securities in its then current (or most recent if there is no current) private placement.

During Smith also received the nine months ended March 31, 2021, Smith electedright to convert $127,660 oftransfer future deferred compensation into units of the Companyto his 2020 Convertible Obligation at its $0.50 per unit offering price (Note 7).his election.

The Company recorded interest expense of $19,897$4,032 ($8,6453,949 with related parties) and $18,498$5,784 ($10,3012,208 with related parties) for the ninethree months ended March 31,September 30, 2021 and 2020, respectively.

5.       LOANS PAYABLE:PAYABLE:

Pennvest

PA1, the Company’s wholly-owned subsidiary, owes $9,797,842$9,939,148 as of March 31,September 30, 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$2,185,148 as of March 31,September 30, 2021. The terms of the Pennvest Loan provided for funding of up to $7,754,000$7,754,000 which was to be repaid by interest-only payments for 3 three years, followed by an additional 10 ten-year amortization of principal. The Pennvest Loan accrues interest at 2.547%2.547% per annum for years 1 through 5 and 3.184%3.184% per annum for years 6 through maturity. The Pennvest Loan required minimum annual principal payments of approximately $5,067,000$5,886,000 in fiscal years 2013 through 2020,2021, and $819,000 in fiscal year 2021, $846,000$846,000 in fiscal year 2022, $873,000$873,000 in fiscal year 2023 and $149,000$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 $61,722and $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,September 30, 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,September 30, 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$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 communicationPA1 made a new proposal to Pennvest during September 2021 which proposal has taken place regarding the matters involved over the last 7 years. PA1been rejected by PennvestPA1 provides Pennvest with its financial statements (which include a description of system status) annually. During the current2021 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)1) 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 haveanticipates additional communication with Pennvest on this matter during the current quarter.year. 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 nextthe 2022 fiscal year. However, the resolution of these matters including 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 calendarthe current fiscal 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.

6.       CONVERTIBLE NOTES PAYABLE - AFFILIATES:AFFILIATES:

2020 Convertible Obligations (formerly January 2015 Convertible Notes and 2019 Convertible Note)

The 2020 Convertible Obligations, (formerly named January 2015 Convertible Notes and 2019 Convertible Notes) which accrue interest at either 4%4% per annum or 4%4% compounded quarterly and effective January 1, 2020 are due and payable on July 1, 2024. The 2020 Convertible Obligations (including accrued interest, plus all future deferred compensation added subsequently), are convertible, at the sole election of the holder, into Units consisting of one share of the Company’s common stock and one half to one 1 warrant to purchase a share of the Company’s common stock, at a price of $0.50$0.50 per Unit until July 1, 2024. The warrant contained in the Unit was originally exercisable at $1.00$1.00 per unit but was modified to $0.75$0.75 during the year ended June 30, 2020 and is exercisable until a date three years after the date of the conversion. During the nine monthsyear ended March 31,June 30, 2021, the Company approved the increase of warrants by one-third to be received by the noteholder if a conversion takes place. The original conversion price of $0.50 per Unit approximated the fair value of the Units at the date of the agreements; therefore, no beneficial conversion feature exists. Management evaluated the terms and conditions of the embedded conversion features based on the guidance of ASC 815-15 “Embedded Derivatives” to determine if there was an embedded derivative requiring bifurcation. An embedded derivative instrument (such as a conversion option embedded in the deferred compensation) must be bifurcated from its host instruments and accounted for separately as a derivative instrument only if the “risks and rewards” of the embedded derivative instrument are not “clearly and closely related” to the risks and rewards of the host instrument in which it is embedded. Management concluded that the embedded conversion feature of the deferred compensation was not required to be bifurcated because the conversion feature is clearly and closely related to the host instrument, and because of the Company’s limited trading volume that indicates the feature is not readily convertible to cash in accordance with ASC 815-10, “Derivatives and Hedging”.

As of March 31,September 30, 2021, the 2020 Convertible Obligation balances, including accrued interest, owed Bassani (and his donees), Smith and Edward Schafer (“Schafer”), the Company’s Vice Chairman, were $2,479,268, $1,175,174$2,526,492, $1,253,335 and $476,580,$485,658, respectively. As of March 31,September 30, 2020, the 2020 Convertible Obligation balances, including accrued interest, owed Bassani, Smith and Schafer were $2,384,820, $1,120,932$2,432,044, $1,126,545 and $458,424,$467,503, respectively.

During the three months ended September 30, 2021, Smith elected to add his salary of $54,000 to his 2020 Convertible Obligations.

The Company recorded interest expense of $39,463$40,560 and $30,944$30,960 for the three months ended March 31, 2021 and 2020, respectively. The Company recorded interest expense of $135,892 and $102,814 for the nine months ended March 31,September 30, 2021 and 2020, respectively.

September 2015 Convertible Notes

During the year ended June 30, 2016, the Company entered into September 2015 Convertible Notes with Bassani, Schafer and a Shareholder which replaced previously issued promissory notes. The September 2015 Convertible Notes bear interest at 4%4% per annum, originally hadhave maturity dates of December 31, 2017 but during the year ended June 30, 2019 the maturity dates were extended to July 1, 2021,2024, and may be converted at the sole election of the noteholders into restricted common shares of the Company at a conversion price of $0.60$0.60 per share. During the year ended June 30, 2020, the maturity dates of the September 2015 Convertible Notes were further extended until July 1, 2024. As the conversion price of $0.60 approximated the fair value of the common shares at the date of the September 2015 Convertible Notes, no beneficial conversion feature exists. During the year ended June 30, 2018, Bassani and the Company agreed to split his original September 2015 Convertible Note into two replacement notes with all the terms remaining the same. One of the replacement notes’ original principal is $130,000, which is being held by the Company as collateral for a subscription receivable promissory note from Bassani. During the year ended June 30, 2019, with the Company’s approval, Bassani sold $300,000 of his second replacement note to a Shareholder with all the terms remaining the same.

The balances of the September 2015 Convertible Notes as of March 31,September 30, 2021, including accrued interest owed Bassani, Schafer and Shareholder, are $169,921, $20,026$172,765, $20,354 and $426,860,$434,419, respectively. The balances of the September 2015 Convertible Notes as of March 31,September 30, 2020, including accrued interest, were $164,230, $19,371$167,075, $19,698 and $411,743,$419,302, respectively.

The Company recorded interest expense of $5,366$5,366 for both the three months ended March 31, 2021 and 2020, respectively. The Company recorded interest expense of $16,097 for both the nine months ended March 31,September 30, 2021 and 2020, respectively.

7.       STOCKHOLDERS' EQUITY:EQUITY:

Series B Preferred stock:

Since July 1, 2014, the Company has 200 shares of Series B redeemable convertible Preferred stock outstanding with a par value of $0.01$0.01 per share, convertible at the option of the holder at $2.00$2.00 per share, with dividends accrued and payable at 2.5%2.5% per quarter. The Series B Preferred stock is mandatorily redeemable at $100$100 per share by the Company 3 three years after issuance and accordingly was classified as a liability. The 200 shares have reached their maturity date, but due to the cash constraints of the Company have not been redeemed.redeemed but the Company may do so in the future.

During the years ended June 30, 20202021 and 2019,2020, the Company declared dividends of $2,000$2,000 and $2,000,$2,000 respectively. At March 31,September 30, 2021, accrued dividends payable are $19,500.$20,500. The dividends are classified as a component of operations as the Series B Preferred stock is presented as a liability in these financial statements.