SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASES

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

NOTE 9. SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASES

On February 11, 2015, the Company entered into a Settlement Agreement and Mutual General Releases (the "Settlement Agreement") with Carpenter Technology Corporation related to the agreement discussed in Note 8, pursuant to which the parties settled and released each other from any and all liabilities and claims related to the Carpenter Agreements.

Under the terms of the Settlement Agreement and as consideration for the full and final settlement and satisfaction of all claims that the Company has or could assert against Carpenter in connection with the Carpenter Agreements, Carpenter will: (1) pay the Company $8,000,000 within 10 days from the date of the Settlement Agreement; (2) transfer and/or assign to the Company all physical and intellectual property which was the subject matter of the Carpenter Agreements free and clear of all liens and encumbrances; (3) provide the Company with follow on technical assistance; and (4) provide the Company with a complete list of all customers and contacts for same related to the technology which was the subject matter of the Carpenter Agreements. In addition, under the terms of the Settlement Agreement, neither party may disparage the other and the Carpenter Agreements were terminated and rendered null and void. As of the date this filing, the Company has received the $8,000,000 portion of the Settlement Agreement, including the physical and intellectual property. The Company has obtained an independent valuation on the physical property, estimated at $6,938,000, as follows:

	Appraised
	Fair Value
Operating & spare dies for 2A	$	24,000
Gen 2B die set		35,000
Operating & spare dies for 2B		65,000
Lube and colling skid for 2C		40,000
Furnace 2C Cell		97,000
ECAP 2 Machine		675,000
ECAP 2A Machine		675,000
ECAP 2B Machine		1,825,000
EcAP 2C Machine		3,502,000
Total appraised asset fair value	$	6,938,000
Less accumulated depreciation		(520,000	)
Appraised fair value, net	$	6,418,000

The Company has recorded income on the appraised value of the physical property totaling $6,938,000 and $8,000,000 cash consideration received as a Gain on Settlement Agreement totaling $14,938,000. The Company has not obtained a valuation report with respect to the value of the intellectual property transferred in this transaction.

During the year ended December 31, 2015, the Company changed the accounting treatment of the depreciable life of the transferred assets from a 5-year to a 10-year useful life. Its reason for doing so was that the appraiser of the assets estimated the useful life of the assets to be at least 10 years. The change in useful life is reflected on a retroactive basis, the cumulative effect of which resulted in a decrease in depreciation expense and accumulated depreciation of $520,000 during the year ended December 31, 2015. This also resulted in an increase in earnings per share (basic) of $0.01 during the year ended December 31, 2015.