5. Research and development
|3 Months Ended|
Mar. 31, 2014
|Research and Development [Abstract]|
|Research and development||
AOT Testing and Development
Total expenses incurred during the three months ended March 31, 2014 and 2013 on AOT testing and development amounted to $14,670 and $291,680, respectively, and has been reflected as part of Research and Development expenses on the accompanying consolidated statement of operations.
On August 1, 2013, the Company entered into an Equipment Lease/Option to Purchase Agreement ("Agreement" or "Lease") with TransCanada Keystone Pipeline, L.P. by its agent TC Oil Pipeline Operations, Inc. ("TransCanada"), whereby, TransCanada has agreed to lease, install, maintain, operate and test the effectiveness of the Company's AOT technology and equipment (the "Equipment") on one of TransCanada's operating pipelines by the second quarter of 2014. The initial term of the lease is six (6) months at a rate of $60,000/month, with an option to extend the lease for an additional eighty-four (84) months. TransCanada has an option to purchase equipment during the term of the lease for approximately $4.3 million. The Company will account for this lease as an operating lease if accepted by TransCanada.
The Company began manufacturing equipment for delivery to TransCanada in the third quarter of 2013. The equipment was delivered to the installation site in March 2014 and installation was completed and accepted by TransCanada in April 2014. Total expenses incurred during three months ended March 31, 2014 amounted to $358,079 and has been reflected as part of Research and Development expenses on the accompanying consolidated statement of operations.
Temple University Licensing Agreement
On August 1, 2011, the Company and Temple University (Temple) entered into two (2) Exclusive License Agreements (collectively, the License Agreements) relating to Temples patent applications, patents and technical information pertaining to technology associated with an electric and/or magnetic field assisted fuel injector system (the First Temple License), and to technology to reduce crude oil viscosity (the Second Temple License). The License Agreements are exclusive and the territory licensed to the Company is worldwide and replace previously issued License Agreements.
Pursuant to the two licensing agreements, the Company agreed to pay Temple the following: (i) non-refundable license maintenance fee of $300,000; (ii) annual maintenance fees of $187,500; (iii) royalty fee ranging from 4% up to 7% from revenues generated from the licensing agreements; and (iv) 25% of all revenues generated from sub-licensees to secure or maintain the sub-license or option thereon. Temple also agreed to cancel $37,500 of the amount due if the Company agrees to fund at least $250,000 in research or development of Temples patent rights licensed to the Company. The term of the licenses commenced in August 2011 and will expire upon the expiration of the patents. The agreement can also be terminated by either party upon notification under terms of the licensing agreements or if the Company ceases the development of the patent or failure to commercialize the patent rights.
Total expenses recognized during the three months ended March 31, 2014 and 2013 pursuant to these two agreements amounted to $46,875 in each period, and has been reflected in Research and Development expenses on the accompanying consolidated statement of operations.
As of March 31, 2014 and December 31, 2013, total unpaid fees due to Temple pursuant to these agreements amounted to $200,000 and $153,125, respectively, which are included as part of Accounts Payable licensing agreement in the accompanying consolidated balance sheets.
As of and during the period ended March 31, 2014 and December 31, 2013, there were no revenues generated from these two licenses.
Temple University Sponsored Research Agreement
On March 19, 2012, the Company entered into a Sponsored Research Agreement (Research Agreement) with Temple University (Temple), whereby Temple, under the direction of Dr. Rongjia Tao, will perform ongoing research related to the Companys AOT device (the Project), for the period April 1, 2012, through April 1, 2014. All rights and title to intellectual property resulting from Temples work related to the Project shall be subject to the Exclusive License Agreements between Temple and the Company, dated August 1, 2011. In exchange for Temples research efforts on the Project, the Company has agreed to pay Temple $500,000, payable in quarterly installments of $62,500.
In August 2013, the Company and Temple amended the Research Agreement. Under the amended agreement, parties agreed that total cost for Phase 1 of the agreement expenses incurred in prior periods was $241,408, of which, $187,500 was already recognized in prior year and total cost for Phase 2 of the agreement was $258,592 payable beginning September 1, 2013 in eight quarterly installments of $32,324.
During the three months ended March 31, 2014 and 2013, the Company recognized a total of $32,363 and $62,500, respectively, pursuant to this agreement and has been reflected in Research and Development expenses on the accompanying consolidated statement of operations.
As of March 31, 2014 and December 31, 2013, total unpaid fees due to Temple pursuant to this agreement amounted to $64,688 and $32,325, respectively, which are included as part of Accounts Payable licensing agreement in the accompanying consolidated balance sheets.
The entire disclosure for research, development, and computer software activities, including contracts and arrangements to be performed for others and with federal government. Includes costs incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or the entity's use, during the reporting period charged to research and development projects, including the costs of developing computer software up to the point in time of achieving technological feasibility and in-process research and development acquired in a business combination consummated during the period.
Reference 1: http://www.xbrl.org/2003/role/presentationRef