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Hercules paid ERG the $483,098 agreed to in the MOA in
increments included in the amounts it paid to ERG for each baffle
set purchase order during the period 1990 through 1997. However,
neither NPI nor ERG purchased the equipment listed on schedule 1
of the MOA.
On its original 1989 Form 1120S, U.S. Income Tax Return for
an S Corporation, NPI did not report any portion of the $483,098
payment from ERG. On its 1989 Form 1120, U.S. Corporation Income
Tax Return, ERG deducted $248,097 of the $483,098 payment to NPI
as a royalty. On its amended 1989 Form 1120S, NPI reported
income of $248,097 with respect to the $483,098 payment from ERG.
On its original 1990 Form 1120S, NPI reflected the $483,098
payment from ERG as an increase in liabilities; i.e., a security
deposit. On its 1990 Form 1120, ERG deducted $193,508 of the
$483,098 payment to NPI as a royalty.
(d) Exclusive Royalty Agreement Between ERG and NPI
ERG owned and/or was assigned certain patent technologies.
Additionally, Glendon assigned to NPI numerous patents which were
issued for technologies he invented. On or about March 10, 1990,
Burton executed as president of both NPI and ERG, a document
entitled “Agreement of Sale and Exclusive License” (exclusive
license agreement).18 The document had a retroactive effective
18The agreement also bears the signatures of Elizabeth and
Esther.
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