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License Agreement, Disclosure
12 Months Ended
Dec. 31, 2014
Notes  
License Agreement, Disclosure

4. License Agreement

 

On November 15, 2012, Sustainable LLC entered into a renewable 20-year engine technology License Agreement with a third party licensor (the “Licensor”) that developed engines capable of converting low grade heat into other forms of energy.  Under the terms of the License Agreement, Sustainable LLC obtained certain exclusive license rights in the engines developed by the Licensor which would permit Sustainable LLC to develop, manufacture and integrate such engines into its projects.

 

The exclusive market rights of the License Agreement provide that Sustainable LLC make a cash payment of $200,000 and issue common stock representing a small minority ownership position in the Company, along with periodic quarterly payments of $25,000 commencing six months after the initial $200,000 payment.  These payments reset to $50,000 per quarter after three payments, and are subject to further resets to up to $100,000 depending on engine sales volume.  Under certain circumstances, engine royalty fees and referral fees can increase the quarterly payment from time to time.  In the event of non-payment, Sustainable retains a non-exclusive license subject to royalty fees.

 

On May 15, 2013, in connection with the Merger (see Note 1), the Company, after acquiring 100% ownership interest in Sustainable, issued 2,435,430 shares to the Licensor which represents the small minority position in the Company as required under the terms of the License Agreement.  At the time of issuance, these shares were valued at $48,709 representing the fair value of the RAMCO shares.

 

In addition, during the year ended December 31, 2013, the Company made payments of $13,000 that were applied against the initial $200,000 due under the terms of the License Agreement.

 

In connection with a November 5, 2013, proceeding commenced by the Securities Division of the Arizona Corporation Commission (the “ACC”) the Company learned that the Licensor had been classified as dissolved by the Delaware Division of Corporations after March 1, 2010 for failure to pay franchise taxes to the State of Delaware, and similarly classified by the ACC as of approximately the same time.  Neither the Company nor any of its officers or directors was named in the complaint brought by the ACC.

 

In performing due diligence in regard to the status of the Licensor, the Company subsequently learned also that two United States patents that were licensed to the Company under the License Agreement have been classified as expired due to the Licensor’s failure to pay maintenance fees thereon.  The Company been informed by Deluge and Hydrotherm management that steps are being taken to have the corporate charters of each, as well as the patents, reinstated, but may not be successful in such reinstatements, and is in discussions with the Licensor regarding these matters. 

 

Since the Company learned about the ACC proceeding and the classification as expired of certain patents in connection with the License Agreement, it has suspended payments under the License Agreement pending the resolution of this matter. 

 

To the best of the Company’s knowledge at present, none of these issues presents a near-term hindrance to the Company’s continued focus on establishing and growing its engine technology business.

 

Pursuant to the License Agreement, the Company has obtained previously described rights to all forms of intellectual property covering certain engine technology that is the subject of the License Agreement and is not relying on the two U.S. patents to be reinstated in order to maintain the ability and know-how to use such technology.  To the Company’s best knowledge at the current time, international patent rights remain intact.  However, at this time, there can be no assurance that the foregoing matters will not have a material adverse effect on the Company’s operations.

 

The accompanying December 31, 2014 balance sheet presents the carrying value of the license fee at $230,109, consisting of the $200,000 required payments due under the License Agreement and $48,709, representing the fair value of shares issued to the Licensor, net of $18,600 in accumulated amortization. In addition, the accompanying balance reflects $187,000 due to the Licensor, representing the remaining liability from the initial $200,000 required payment.  After careful assessment, the Company has concluded that no adjustment to the value of the License Agreement or amounts due thereunder should be made as a consequence of the ACC complaint at the current time, but continues to monitor these proceedings.

 

The Company periodically performs an analysis of its contractual rights and arrangements and establishes asset value based on that analysis.