Note 14 - Commitments and Contingencies

Operating leases

During the year ended December 31, 2013, we entered into an assignment of the original lease for our Zanesville, OH facility, effective November 15, 2013 at a monthly lease payment of $25,750. The original term of the lease expires at the end of April 2018, but provides two additional five-year extensions and includes an annual rent escalation clause based on the greater of the change in a certain Consumer Price Index or 3%. We record rent expense based on the straight-line amortization of the full 15-year term of the initial lease plus all extensions. Our rent expense, for the years ended December 30, 2014 and 2013 was approximately $383,100 and $38,600, respectively and our deferred rent at December 31, 2014 was approximately $77,000. This facility also serves as our corporate headquarters.

Effective September 1, 2013, we signed a ten year lease for our production facility in Waco, Texas which provides five additional five-year extensions. Monthly rent expense for the first year of the lease is $21,875. The lease includes an annual rent escalation clause based on the greater of the change in a certain Consumer Price Index or 3%. We record rent expense based on the straight-line amortization of the full 35-year term of the initial lease plus all extensions. Our rent expense for the years ended December 31, 2014 and 2013 was approximately $453,500 and $265,700 (including the month-to-month arrangement prior to the signed lease), respectively and our deferred rent at December 31, 2014 was approximately $257,900.

We leased office space in New Providence, New Jersey which previously served as our corporate headquarters, pursuant to a one-year extension of our prior three-year lease agreement for monthly lease payments of approximately $3,800. The lease expired on October 31, 2014. Facility rent expense totaled approximately $38,400 for the year ended December 31, 2014, respectively.

Royalty Agreements

In February 2007, we acquired an exclusive, royalty-bearing license in specific but broad global territories to make, have made, use, sell, offer for sale, modify, develop, import, and export products made using patent applications owned by Rutgers University (Rutgers”). We are using these patented technologies in the production of our composite rail ties and structural building products. The term of the License Agreement runs until the expiration of the last-to-expire issued patent within the Rutgers’ technologies licensed under the License Agreement, unless terminated earlier.

We are obligated to pay Rutgers royalties ranging from 1.5% to 3.0% on various product sales, subject to certain minimum payments each year and to reimburse Rutgers for certain patent defense costs in the case of patent infringement claims made against the Rutgers patents. For the years ended December 31, 2014 and 2013, we accrued royalties payable to Rutgers on product sales of approximately $125,400 and $93,400, respectively. In addition, for the years ended December 31, 2014 and 2013, since we did not meet the minimum royalty due pursuant to the license, we accrued approximately $74,600 and $106,600, respectively which was charged to operating expenses in our statement of operations.

Previously, we paid a royalty for the use of certain production practices for our rail tie products. For the years ended December 31, 2014 and 2013, we paid approximately $46,800 and $83,000, respectively under this arrangement.

Litigation

From time to time we may be subject to various routine legal matters incidental to our business, but we do not believe that they would have a material adverse effect on our financial condition or results of operations.