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License Agreement Disclosure
12 Months Ended
Dec. 31, 2016
Notes  
License Agreement Disclosure

4. License Agreement

 

From late 2010 through November 15, 2012, Sustainable LLC entered into a series of agreements including a renewable 20-year engine technology License Agreement (the Contracts) 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 for this exclusivity 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), Sustainable LLC assigned the Contracts to Sustainable.  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 the event the Company elects not to pay for exclusivity under the Technology Agreement, no cash payment or periodic increasing payments are due. During 2016, management has considered the nature of the $187,000 exclusive payment and determined that a more accurate presentation on the balance sheet is to net the contingent liability with the license agreement asset. Thus the contingent amount due, $187,000, has been netted against the amortized value of the License Agreement. The comparative 2015 presentation continues to reflect the asset and contingent liability on a gross basis.

 

In connection with the November 5, 2013, proceeding described above (see Item 3) commenced by the Securities Division of the Arizona Corporation Commission (“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.

 

In performing due diligence in regard to the status of the Licensor, the Company subsequently also learned that two United States patents that were licensed to the Company under the License Agreement had been classified as expired due to the Licensor’s failure to pay maintenance fees.  In conjunction with the Licensor, in April 2015, the Company arranged for the principal United States patent to be reinstated, and it is now again in effect.  In addition, the Company had been informed by Deluge and Hydrotherm management that steps were being taken to have the corporate charters of each corporation reinstated, but may not be successful.

 

Since the Company learned about the Delaware actions and ACC proceedings, 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 and the international patent rights remain intact.  However, even though the Company has obtained previously described rights to all forms of intellectual property covering the engine technology that is the subject of the Contracts, 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, 2016 balance sheet presents the carrying value of the license fee at $21,094, consisting of the $13,000 in licensing payments made under the License Agreement and $48,709, representing the fair value of shares issued to the Licensor, net of $40,615 in accumulated amortization.  The carrying value of the License Agreement at December 31, 2015 includes the $187,000 contingent payment and is reflected net of accumulated amortization of $31,000.  After careful assessment, the Company has concluded that no adjustment to the value of the Contracts should be made as a consequence of the Delaware actions and 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.