| COMMITMENTS AND CONTINGENCIES: | 9. COMMITMENTS
AND CONTINGENCIES: A: Employment/Consulting (and related) agreements: William O’Neill (“O’Neill”)
was hired as the Company’s Chief Executive Officer (“CEO”) effective May 1, 2022. O’Neill had previously
been working with the Company as a consultant and had been employed by the Company as its CEO during 2010-2011. (Upon the hiring
of O’Neill, Bassani, CEO of the Company since 2011, assumed the position of COO while retaining existing operational management
responsibilities and working with O’Neill on ‘commercialization’ of the Company’s technology and work related
to JVs (and other transactions) based on the Company’s Gen3 Technology and related matters until his recent death. Bassani’s
compensation arrangements with the Company were not altered in the context of the change of positions.) The Company and O’Neill
entered into a thirty-seven (37) month employment agreement with compensation of $ 25,000 10,000 12,500 0
75,000 132,500 225,000 110,000 Smith has held the positions
of Director, Executive Chairman, President and General Counsel of Company and its subsidiaries under various agreements (and extensions)
and terms since March 2003. On October 10, 2016, the Company approved a month-to-month contract extension with Smith which included provisions
for i) a monthly salary of $ 18,000 300,000 0.75 25,000 40,000 20,000 140,000 80,000 From no later than March 31, 2005, the Company has
had various agreements with Dominic Bassani (and/or Brightcap which provided his services during some of the years) (NOTE: Dominic
Bassani passed away on November 11, 2023. 31,000 125,000 0.75 300,000 0.75 31,000 2,000 300,000 3,000,000 364,490 75,000 Effective April 1, 2024 the Company entered into two
material definitive agreements regarding voluntary surrender for cancellation of securities of the Company (and related matters) by: a)
members of the family of Dominic Bassani, recently deceased former Chief Executive Officer and (with his family) the Company’s largest
shareholder (collectively “Bassani Family”)(see Exhibit 10.1)(“Bassani Family Agreement”), and b) Mark A. Smith,
President of the Company and a director (“MAS”)(see Exhibit 10.2)(“MAS Agreement”). The Bassani Family and MAS
entered into these agreements with the intention of mitigating dilution to shareholders as new, successor management is added to the Company’s
management team. The Bassani Family has agreed to surrender not less
than approximately 20% of its Company holdings (as of December 2023), which surrender will increase to approximately 30% based on certain
financing performances set forth in Exhibit 10.1. The Bassani Family will elect exactly which Company securities it will surrender for
cancellation on or before June 30, 2024, the Company’s fiscal year end. The Bassani Family Agreement also sets forth requirements
regarding conversion of convertible notes held by members of the Bassani Family after the security surrender. See Exhibit 10.1 for the
material terms of the contemplated transactions. MAS has agreed to surrender approximately 30% of his
Company holdings (as of December 2023). Immediately upon the effectiveness of the MAS Agreement, he cancelled all Company options held
by him ( 2,425,000 56,250 75,000 B: Exercise Price Adjustments/Extension Rights: As part of agreements the Company entered into with
Bassani and Smith effective May 15, 2013, they were each granted the following: a) a 50% execution/exercise price adjustment provision
(exercise bonus in the context of options) which shall be applied upon the effective date of the notice of intent to exercise (for options
and warrants) or issuance event, as applicable, of any currently outstanding and/or subsequently acquired options, warrants and/or contingent
stock bonuses owned by each (and/or their donees) as follows: i) in the case of exercise by payment of cash, the bonus shall take the
form of reduction of the exercise price; ii) in the case of cashless exercise, the adjustment shall be applied to reduce the exercise
price prior to the cashless exercise calculations; and iii) with regard to contingent stock adjustments, issuance shall be triggered upon
the Company’s common stock reaching a closing price equal to 50% of currently specified price; and b) the right to extend the exercise
period of all or part of the applicable options and warrants for up to five years (one year at a time) by annual payments of $.05 per
option or warrant to the Company on or before a date during the three months prior to expiration of the exercise period at least three
business days before the end of the expiration period. Effective January 1, 2016 such annual payments to extend warrant exercise periods
were reduced to $.01 per option or warrant. These exercise adjustments were subsequently increased to 75%. During the year ended June 30, 2021, the Company added
a 75 3,000,000 As of March 31, 2024, exercise price adjustment provisions
ranging from 50 90 14,640,181 Effective May 1, 2022, an entity affiliated with O’Neill
was issued 1,000,000 1.00 700,000 75 C: Initial Project: On
January 28, 2022 Bion Environmental Technologies, Inc. (‘Bion’), on behalf of Bion 3G1 LLC (‘3G1’), a wholly-owned
subsidiary, entered into a Purchase Order Agreement with Buflovak and Hebeler Process Solutions (collectively ‘Buflovak’)
in the amount of $ 2,665,500 25 666,375 25 533,100 83,275 2,615,500 50,000 6,675,112 7,191,021 1,756,285 Buflovak
has worked with the Company on design and testing of its 3G Tech over several years. The basic design for the Initial Project’s
Bion System is complete, fabrication and delivery of equipment from Buflovak from the Purchase Order Agreement has been largely completed
and assembly/construction is in process. 3G1 is working in concert with Integrated Engineering Services, the primary site engineering
firm for the facility, on the integration of all project components/modules at the Initial Project site. Additional agreements have been
entered into various professional services providers (engineers, surveyors, utilities, etc.) for work related to the Initial Project.
The Company has incurred costs 8,346,895 he Initial Project, not including capitalized
labor and interest. Management previously believed that the Initial Project
had reached the point where it could be appropriately deemed ‘placed in service’ at January 1, 2024. However, discussions
with the key technical and engineering personnel involved at the Initial Project during the recently concluded quarter convinced management
that such a characterization was premature as some key modules had not yet been completed and/or fully tested. Additionally, due to some
recent equipment break-downs, the Initial Project is currently in maintenance mode rather than conducting operations while the Company
awaits required replacement parts and subsequent repairs. This process has been slowed by the Company’s ongoing difficulties in
raising needed funds for its activities. It is management’s current intention to re-evaluate the classification/status of the Initial
Project at/after the June 30, 2024 fiscal year end as part of the Company’s annual review process. D: Lease: The Company entered into an agreement on September
23, 2021, to lease approximately four acres of land near Fair Oaks, Indiana, for the development site of its Initial Project. The future minimum lease payment under noncancelable
operating lease with terms greater than one year as of March 31, 2024:
Schedule of future minimum lease payment
From April 2024 to December 2024 56,250
Undiscounted cash flow 56,250
Less imputed interest (2,274 )
Total 53,976 The weighted average remaining lease term and discounted
rate related to the Company’s lease liability as of March 31, 2024 were 0.75 years and 10%, respectively. The Company’s lease
discount rate is generally based on the estimates of its incremental borrowing rate as the discount rates implicit in the Company’s
lease cannot be readily determined. E: Litigation (and related matters): 1) Convertible Bridge Loan/Default On September 28, 2023 the Company entered into an
agreement for a $ 1,500,000 1,500,000 250,000 8 1.00 250,000 This situation has contributed to the substantial increase in the Company’s
‘Current Liabilities’ including ‘accounts payable’ over recent periods. See Consolidated Financial Statements.
The Company has engaged in discussion/negotiation with its larger creditors (including its largest creditor--- the primary contractor
on the Initial Project) but has been unable to reach agreements regarding payments due to the uncertainty as to if, when and how much
funding the Company will be able to raise in future periods. As a result, the Company’s largest creditor---the general contractor
for the Initial Project --- has filed a mechanics in Indiana (and its largest sub-contractor has sent notices related to its intention
to file a mechanics lien) and other creditors are threatening to commence litigation and/or repossess/remove leased equipment. 2) Creditor Matters As is described in the Company’s Financial
Statements included herein and discussed in the Notes to the Financial Statements, the Company has had on-going difficulties raising
needed funds for its operations/activities over the past 2 years which has rendered the Company unable to meet its current creditor obligations
on a timely basis. This situation includes a substantial increase in the Company’s ‘Current Liabilities’ including
‘accounts payable’ over recent periods. The Company has engaged in discussion/negotiation with its larger creditors (including
its largest creditor--- the primary contractor on the Initial Project) but has been unable to reach agreements regarding payments due
to the uncertainty as to if, when and how much funding the Company will be able to raise in future periods. As a result, the Company’s
largest creditor---the general contractor for the Initial Project --- has filed a mechanics in Indiana (and its largest sub-contractor
has sent notices related to its intention to file a mechanics lien) and other creditors are threatening to commence litigation and/or
repossess/remove leased equipment. 3) Website: Domain Sale/Resolved Litigation/Hacking/Theft On March 23, 2022 the Company entered into an agreement
to sell domain name <biontech.com> and other related assets to BioNTech SE (“BNTX”) for the sum of $950,000 (before
expenses related to the transaction) which sale was closed/completed on April 2, 2022 with a one-time gain of $902,490. As previously reported, on Saturday morning, July
17, 2021, our historical website domain – biontech.com – and email services were compromised and disabled. Research
indicated that an unknown party had ‘hijacked’ the domain in a theft attempt. On September 10, 2021, the Company filed a federal
lawsuit ‘in rem’ to recover the <biontech.com> domain and the unknown ‘John Doe’ who hacked and attempted
to steal the website. The litigation was filed in the United States District Court for the Eastern District of Virginia, Alexandria Division
under the heading ‘Bion Environmental Technologies, Inc., Plaintiff, vs John Doe and <biontech.com>, Defendants’ (Case
No. 1:21-cv-01034), seeking recovery of the domain name and other relief as set forth therein. On November 19, 2021, the United States District Court
for the Eastern District of Virginia, Alexandria Division issued an order stating that “… ORDERED, ADJUDGED and Decreed that
plaintiff Bion Environmental Technologies, Inc. (‘plaintiff) Is the lawful owner of domain name <biontech.com> ….”
under the heading ‘Bion Environmental Technologies, Inc., Plaintiff, vs John Doe and <biontech.com>, Defendants’ (Case
No. 1:21-cv-01034). The Company has moved the domain name <biontech.com> to a new registrar and reactivated it for the Company’s
use (paired currently with its current bionenviro.com website). No shareholder, sensitive or confidential information
was available to be breached which has limited damages from the hack/theft to date. However, the Company’s email operations were
subjected to disruption and expenses were incurred related to the matter including legal fees. The Company created ‘work-arounds’ as
a result. These issues have been resolved and the Company has moved our website (and email) to a new domain: bionenviro.com. Website
access is now www.bionenviro.com. To send emails to Bion personnel, one uses the same name identifier previously used, but in the
address, substitute ‘bionenviro.com’ for “biontech.com’: For example cscott biontech.com (no longer functional)
is cscott bionenviro.com and mas biontech.com (no longer functional) is now mas bionenviro.com. 4) Pennvest Loan and Dissolution of Bion PA1, LLC (“PA1”) PA1, the Company’s wholly-owned subsidiary,
was dissolved on December 29, 2021 on which date it owed approximately $ 10,010,000 2,255,802 297 10,154,334 9,939,148 214,235 950 10,234,501 10,009,802 212,263 12,436 10,234,501 As background, the terms of the Pennvest Loan provided
for funding of up to $ 7,754,000 2.547 3.184 5,886,000 846,000 873,000 149,000 123,444 246,887 During August 2012, the Company provided Pennvest
(and the PADEP) with data demonstrating that the Kreider 1 system met the ‘technology guaranty’ standards which were incorporated
in the Pennvest financing documents and, as a result, the Pennvest Loan has been solely an obligation of PA1 since that date. Note, however,
the Company’s consolidated balance sheet as of June 30, 2021 reflects the Pennvest Loan as a liability of $ 9,868,495 . On September 25, 2014, the Pennsylvania Infrastructure
Investment Authority (“Pennvest”) exercised its right to declare the PA1’s Pennvest Loan in default, accelerated the
Pennvest Loan and demanded that PA1 pay $ 8,137,117 On December 29, 2021, the Company approved and executed
a ‘Consent of the Sole Member of Bion PA 1’ (the “Consent to Dissolution”) that authorized the complete liquidation
and dissolution of PA1. A Statement of Dissolution was filed by PA1 with the Colorado Secretary of State on December 29, 2021.The liquidation
value of Bion PA 1’s property is substantially below the current amount outstanding under the Funding Agreement dated October 27,
2010 by and between PA1 and Pennvest, the only known secured creditor of PA1. Post-dissolution, PA1’s activities will be limited
entirely to activities required to properly distribute its net assets to creditors and wind down its business. PA1 and Pennvest agreed to have the equipment sold
by a third party auctioneer who arranged for the sale of its property and delivery of all proceeds (net of commissions and customary
costs of sale) to Pennvest. The auction took place during the period of May 13-18, 2022. The Company’s personnel assisted PA1 with
this process as needed at no cost to PA1. The net sum of $104,725 was realized from the asset sale, which sum was delivered to Pennvest
on June 15, 2022. Pursuant to agreement with Pennvest and Kreider Farms, the remaining unsold assets have been transferred to Kreider
Farms in order to complete the winding up of the Kreider 1 project. Upon the complete distribution of all assets of PA1,
whether by transfer or sale and distribution of net proceeds as provided above, PA1 will use commercially reasonable efforts to cause
the cessation of all activities. No distributions of PA1’s assets will be made to the Company or its affiliates. The Consent to
Dissolution authorized Mark A. Smith, the Company’s President and the sole manager of PA1, to cause to be delivered for filing the
Statement of Dissolution, to give notice of the dissolution, and to take any other act necessary to wind up and liquidate the business. PA1 has made no payments to vendors or other
creditors in connection with the dissolution other than the payment to Pennvest set forth above. No distributions or payments of any kind
have ever been made to the Company, the sole member of PA1 since inception, and no payment will be made to the Company or any affiliate
in connection with the dissolution. For more information regarding the history and background
of the Pennvest Loan and PA1, please review our Form’s 10-K for the years from 2008 through 2021 including the Notes to the Financial
Statements included therein. 5) Bank Account Hacking On June 23, 2023, an officer of the Company with personal
accounts with Signature Bank was hacked and $ 75,000 The Company currently is not involved in any other material litigation
or similar events. |
