Quarterly report pursuant to Section 13 or 15(d)

11. Commitments and Contingencies

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11. Commitments and Contingencies
 6 Months Ended
Jun. 30, 2013
Notes to Financial Statements  
Note 11. Commitments and Contingencies

As discussed in Note 5, the Company has entered in an “Exclusive Patent and Know-How License Agreement Including Transfer of Ownership” that requires minimum license maintenance costs.  The Company is planning on using the intellectual property granted by the patents for the foreseeable future.  The license agreement is considered expired on the October 14, 2025, the date the patent expires.  Future minimum maintenance fee payments are as follows:

 

As of June 30,      
2013   $ 50,000  
2014     200,000  
2015     200,000  
2016     200,000  
2017     200,000  
2018     200,000  
Thereafter     1,400,000  
    $ 2,450,000  


Property Leases

 

On June 1, 2011, the Company entered into a 36 month lease for warehouse space in Centralia, Washington, commencing August 1, 2011.  The lease provides for the option to extend the lease on a month to month basis. Rent is $1,900 monthly throughout the term of the lease.

 

On October 18, 2011, the Company entered into a 39-month lease for office space in Worthington, Ohio, commencing November 15, 2011.  The lease provides for the option to extend the lease under its current terms for three additional years.  Rent is abated for the first three months of the lease.  Rent is $1,933 per month for months four through fifteen, $1,968 for months 16 through twenty-seven and $2,002 for months twenty-eight through thirty-nine.

 

Future minimum lease payments under these non-cancelable leases are approximately as follows:

 

Twelve months ended June 30,      
2014   $ 46,550  
2015     17,918  
    $ 64,468  

 

The Company also leases office space in Grand Forks, ND, which has a renewable annual term and requires quarterly rental payments of $1,259.

 

Rent expense was approximately $37,000 and $32,000 for the six months ended June 30, 2013 and 2012, respectively.

 

Fixed Price Contract

 

The Company’s contract with its customer contains a fixed price for product over three years beginning January 1, 2012.  This contract exposes the Company to the potential risks associated with rising material costs during that same period.  No losses have been recognized on this contract through June 30, 2013.