Note 6 INVESTMENT IN ZEROPOINT CLEANTECH, INC.

9 Months Ended

Sep. 30, 2013

Notes

Note 6 INVESTMENT IN ZEROPOINT CLEANTECH, INC.

NOTE 6 INVESTMENT IN ZEROPOINT CLEAN TECH

The Company holds a minority investment in ZeroPoint Clean Tech, Inc. ("ZeroPoint"), a renewable energy technology and project development company. ZeroPoint believes that it has developed a highly efficient biomass gasification process capable of converting biomass into renewable synthesis gas to create carbon-neutral energy. Effective April 4, 2013, the Company and ZeroPoint entered into a series of agreements pursuant to which the Company restructured its investment in ZeroPoint. The Company agreed to exchange 113,800 shares of ZeroPoint Series A preferred stock for 113,800 shares of ZeroPoint common stock, plus a 3% promissory note with a principal balance of $2,501,324 (the "ZeroPoint Note"). The ZeroPoint Note is due and payable upon the completion by the Company of one or more transactions which leads to a successful financing for a project utilizing ZeroPoint technology (a “Material Contribution”), in which case the ZeroPoint Note shall be payable at a rate equal to 20% of the gross profit produced by any such projects (the “Contribution Payments”). The ZeroPoint Note may alternatively become due and payable upon the completion of an acquisition, merger or other sale involving ZeroPoint stock in which the valuation ascribed to ZeroPoint stock is in excess of $75,000,000. In any such event, the ZeroPoint Note shall be payable to the extent that the value of any such transaction exceeds $75,000,000. ZeroPoint shall have no obligation to repay the ZeroPoint Note in the event that none of the foregoing transactions have been completed within three years of the issuance date of the ZeroPoint Note.

The Company accounts for its investment in ZeroPoint under the cost method. Application of this method requires the Company to periodically review these investments in order to determine whether to maintain the current carrying value or to write off some or all of the investment. While the Company uses some objective measurements in its review, the review process involves a number of judgments on the part of the Company’s management. These judgments include assessments of the likelihood of ZeroPoint to obtain additional financing, to achieve future milestones, make sales and to compete effectively in its markets. In making these judgments the Company must also attempt to anticipate trends in ZeroPoint’s industry as well as in the general economy.

During the nine months ended September 30, 2013, the Company engaged a third party firm to review its investment in ZeroPoint  in order to determine whether there was any decline in the fair value of the investment below cost that was other than temporary. On April 4, 2013, after the restructuring of the investment, the Company now holds an investment in 113,800 shares of common stock of ZeroPoint and the ZeroPoint Note. The third party firm performed valuation procedures to determine the fair value of both the common stock and ZeroPoint Note. The valuation of the ZeroPoint Note was based on management’s projections related to expected Material Contributions to ZeroPoint within the three year term of the note. Management has projected that the Company will provide Material Contributions within the three year period that will result in Contribution Payments based on gross profits that will result in principal repayments to fully recover the principal of the ZeroPoint Note. A discounted cash flow analysis based on the expected Contribution Payments was performed to determine the present value of the ZeroPoint Note. To determine the fair value of the Company’s investment in common stock, the third party firm first estimated the enterprise value of ZeroPoint by utilization of both an income approach (under a discounted cash flow method), and a market approach (by comparison to comparable public companies and acquisition transactions in similar industries). The determined equity value of ZeroPoint was then allocated to the different security classes utilizing a Black-Scholes model based on the following assumptions: security price – estimated equity value of ZeroPoint as determined; exercise price – liquidity preferences of each class; life – three years; volatility – 72%; dividend rate – none; risk-free rate – 0.33%.

The third party firm concluded that the fair value of the Company’s investment in ZeroPoint exceeds the carrying value of the investment and the Company has determined that no impairment in the investment has occurred as of September 30, 2013.  The Company will continue to periodically review these investments on a non-recurring basis based on any impairment indicators in order to determine whether to maintain the current carrying value or to record impairment of some or all of the investment.