Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

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Commitments and Contingencies
12 Months Ended
Dec. 31, 2014
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 18 – COMMITMENTS AND CONTINGENCIES

 

Legal

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as disclosed below, we are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial conditions or operating results.

 

In 2013, we filed a lawsuit in the United States District Court for the Southern District of Indiana against a prior vendor asserting causes of action for trademark infringement, false designation of origin, breach of contract, and interference with contract. We contracted with certain of the defendants to provide component parts and to act as our authorized dealer in specified territories. Those defendants have breached the various agreements. Other defendants, in violation of the Lanham Act, have misappropriated our creations, are passing off our products as their own, and are infringing our trademarks and trade dress. By the action, we seek damages (including treble damages, punitive damages, and attorney’s fees) and injunctive relief under the Lanham Act and related statutory and common law of the State of Indiana. At this point in the litigation, we have not yet quantified the precise amount of damages it seeks, but we believe the damages to be in excess of $100,000.

 

The defendant has asserted counter-claims against us. In the counter-claims, the defendant seeks against damages from us of at least $29,246, plus interest, in connection with our handling of certain warranty claims, and an award of an unspecified number of TurboMill windmills (or the monetary value of the windmills) in connection with an alleged loan made to us..

 

The deposition of persons most knowledgeable for the defendants and other related parties was taken on May 19, 2014. The current status of the case is that defendants have answered our amended complaint and we have answered their counterclaims, and the parties have begun the discovery process. The case has a final Status Conference Hearing scheduled for May 8, 2015 with a trial date set for October 13, 2015. While the parties have made significant progress in settling the case, our counsel is unable to provide a meaningful evaluation of the likelihood of a favorable outcome or an estimate of the realistic range of damages should we prevail. If the parties are unable to settle the matter, we intend to take the case to trial and seek damages and injunctive relief.

 

While incapable of estimation, in the opinion of management, the individual regulatory and legal matters in which it might involve in the future are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

 

Leases

 

The Company leased various facilities under a non-cancelable operating lease which expired on September 30, 2013. That lease required minimum monthly rental payments of $4,750 plus various expenses incidental to use of the property. The Company had an option to extend the lease for one twelve month period.

 

Effective on October 1, 2014, the Company entered into a new lease agreement for this facility with a term of twenty-four months with an option for another twelve months. Rent in the first twenty-four months is $7,800 per month plus various expenses incidental to use of the property. If the Company exercises its option for another twelve months, the rent during that period will be $8,500 per month plus various expenses incidental to use of the property.

 

In 2014, the Company’s India subsidiary leased office, approximately 9,500 square feet and manufacturing space, approximately 50,000 square feet, in India in connection with expanding its operations. The office space lease is a month to month lease with annual rent of approximately $24,000. The manufacturing facility lease is a six year lease with annual rent of approximately $120,000. The lease commenced on April 1, 2015 when the Company’s subsidiary occupied the space.

 

The Company also leased a research facility in New Albany, Indiana under a sixty-five month lease that was to expire on March 30, 2015. The Company evaluated the lease under FASB ASC Topic 840-20, Operating Leases, and noted that the lease qualifies as an escalating lease. Therefore, rent expense was calculated on a straight-line basis, and was determined to be $3,124 per month. In May 2013, the landlord terminated the lease and the Company moved out of the related space. All past and future rent unpaid obligations under the lease were forgiven.

 

Rent expense was for the twelve months ended December 31, 2014 and 2013 was $82,045 and $45,229, respectively, after the write off of the deferred rent liability of $48,426 during the twelve months ended December 31, 2013.

 

Sales

 

During the second quarter of 2014, the Company received two signed purchase orders from one customer, Jamaica’s national utility company, Jamaica Public Service Co., for the delivery of the Company’s clean energy products as well as related energy storage, back-up emergency power equipment and custom energy monitoring, data collection and system analysis over the next eighteen to twenty four months. The purchase orders contain the Company’s customary terms regarding payment terms, return of products and return of products and are consistent with the Company’s terms with other customers.

 

Sales and Distribution Agreements

 

In the ordinary course of business, the Company enters into sales and distribution agreements with various parties in defined geographic areas around the world. The agreements are usually non-exclusive and contain general commercial terms, but no specific financial terms. It is the Company’s practice that such agreements do not contain performance related terms or favorable payment terms. These agreements are usually cancellable with written notice by either party and do not have terms greater than one year.

 

Investment Advisory Services

 

Burnham Securities, Inc.

 

On April 1, 2014, the Company entered into an agreement with an investment banking firm, which will provide advisory services in the area of corporate development, corporate finance and/or capital placement transactions. The agreement expires twenty-four months from the date the agreement was signed or the mutual written agreement of the Company and the investment banker. The Agreement specifies that all fees be on a “success” basis. If no debt or equity transaction is completed, the Company has no obligation under the terms of this agreement.

 

In the event of a successful transaction, the investment banking firm will earn fees based on a percentage of the aggregate consideration for an equity transaction on a sliding scale starting at 5% for aggregate consideration of less than $10,000,000 to 1% for aggregate consideration above $75,000,001.

 

In 2014 and subsequent periods, no debt or equity transaction has been completed by this investment banking firm.

 

WestPark Capital Inc.

 

During 2014, the Company entered into multiple agreements with the same investment banking firm, as follows:

 

  Side letter agreement, dated May 1, 2014, which among other terms, for the first $2 million raised, required fees of 1.25% of fully diluted equity of the Company and for each $1.5 million raised thereafter, 500,000 shares of the Company’s common stock. No funds were raised under this side letter agreement;
     
  Engagement as non-Exclusive Placement Agent agreement, dated July 18, 2014, which among other terms, for a term of six months, required the completion of a private placement offering of $500,000 to $800,000, and if successful, the Company was to pay a fee in cash of 10% of the qualifying placements at closing as well as warrants equal to 10% of the stock and warrants sold in the private placement. The investment banker was successful and was paid fees of approximately $79,000 as a reduction of the proceeds from investors in 2014. The amount of warrants due the investment banker has not been agreed to by the two parties;
     
  Institutional Financing Engagement agreement, dated July 30, 2014, which among other terms, for a term of six months, required the completion of an institutional financing offering, and if successful, the Company was to pay a fee in cash of 10% of the qualifying investments at closing as well as issue warrants to the investment banking firm with a five year term equal to 10% amount raised in the institutional offering. No funds have been raised under the terms of this agreement; and
     
 

Investment Banking Engagement agreement, dated September 11, 2014, which among other terms, for a term of one year, with an option to terminate the agreement after six months, the investment banking firm will provide advisory services in the area of corporate development, corporate finance and/or capital placement transactions. The Agreement specifies that all fees be on a “success” basis. If no debt or equity transaction is completed, the Company has no obligation under the terms of this agreement other than a monthly fee of $10,000 per month. The value of the services and the amount due the investment banker under this agreement have not been agreed to by the two parties.

 

 

Carter Terry

 

On August 18, 2014, the Company entered into a private placement offering agreement with an investment banking firm, which will provide advisory services in the area of corporate development, corporate finance and/or capital placement transactions. The agreement, was on an exclusive basis for sixty days from the date of the agreement and then reverted to a non-exclusive basis, expires one year from the date the agreement was signed, with an option to extend the agreement after six months, or either party can terminate in writing to the other party. The agreement specifies that all fees be on a “success” basis. If no debt or equity transaction is completed, the Company has no obligation under the terms of this agreement.

 

In the event of a successful transaction, the investment banking firm will earn fees, 8% of the amount of any equity or hybrid equity raised up to $5 million and 6% over $5 million, payable when the Company receives proceeds from the transaction.

 

In addition, the Company agreed to grant the investment banking firm warrants to purchase that number of shares of the Company’s common stock equal to 6% of the value of value of successful common stock equity raised at 100% of the price at closing of a transaction for a period of two years and/or grant investment banking firm warrants to purchase that number of shares of the Company’s common stock equal to 6% of the value of a successful preferred stock, debt, hybrid debt of any kind (convertibles, warrants, etc.) or debt and equity combination common stock equity raised at 100% of the price at closing of a transaction for a period of two years. These stocks shall be delivered in cashless exercise and issuable from the investment closing date up to no more than five years from the date and upon exercise shall be fully paid and non-assessable. The Company’s common stock obtainable upon exercise of such warrants shall carry unlimited “piggyback” registration rights of the Company.

 

The investment firm was successful in completing a debt transaction with the Company and will be paid a combination of cash and receive warrants as the proceeds from the debt transaction are received by the Company. In connection with their successful completion of a number of investment transactions, the investment banker was paid $15,000 in 2014. No warrants were issued during the twelve months ended December 31, 2014 as the calculation of the amounts due had not yet been finalized between the parties.

 

Employment Contracts

 

During 2014, the Company entered into employment contracts with three key executives with initial terms of between two and five years and automatic renewals for successive one year terms. The contracts cover such items as compensation, salary deferrals, termination for cause and change in control features. In addition, these contracts included the granting of 13,500,000 in options for the three individuals to acquire the Company’s common stock which vested immediately upon the signing of the employment contracts. See Note 15 for related options.