The Company constructs, develops and tests the AOT and Joule Heat technologies with internal resources and through the assistance of various third party entities. Costs incurred and expensed include fees such as patent fees, U.S. Department of Energy testing fees, purchase of test equipment, pipeline pumping equipment, crude oil tank batteries, viscometers, SCADA systems, computer equipment, payroll and other related equipment and various logistical expenses for the purposes of evaluating and testing the Company’s AOT and Joule Heat prototypes.

Total expenses incurred during the three-month periods ended March 31, 2015 and 2014 on Research and Development were $272,777 and $451,987, respectively.

AOT and Joule Heat Product Development and Testing

Total expenses incurred during the three-month periods ended March 31, 2015 and 2014 on AOT and Joule Heat product development and testing amounted to $15,500, and $14,670, respectively, and have been reflected as part of Research and Development expenses on the accompanying consolidated statement of operations.

AOT Prototypes

During the three-month periods ended March 31, 2015 and 2014, the Company incurred total expenses of $13,392 and $358,079, respectively, in the manufacture and delivery of AOT prototype equipment. These expenses have been reflected as part of Research and Development expenses on the accompanying consolidated statement of operations.

Joule Heat Prototypes

On October 15, 2014, the Company entered into a Joint Development Agreement with Newfield Pipeline Exploration Company (“Newfield”) to test the effectiveness of the Company’s Joule Heat technology under operating conditions on Newfield’s oil pipeline. The Company’s first Joule Heat prototype unit is scheduled for delivery to Newfield in May 2015, with installation and testing scheduled for the second and third quarters of 2015. During the three-month period ended March 31, 2015, the Company incurred total expenses of $164,666 in the manufacture and delivery of Joule Heat prototype equipment. These expenses have been reflected as part of Research and Development expenses on the accompanying consolidated statement of operations. No such expenses were incurred in the three-month period ended March 31, 2014.

Temple University Licensing Agreement

On August 1, 2011, the Company and Temple University (“Temple”) entered into two Exclusive License Agreements (collectively, the “License Agreements”) relating to Temple’s 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.

Total expenses recognized during the three-month periods ended March 31, 2015 and 2014 pursuant to these two agreements amounted to $46,875 in each period and have been reflected in Research and Development expenses on the accompanying consolidated statement of operations.

As of March 31, 2015 and December 31, 2014, total unpaid fees due to Temple pursuant to these agreements amounted to $320,000 and $340,625, respectively, which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets.

There were no revenues generated from these two licenses during the three-month periods ended March 31, 2015 and 2014. 

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 Company’s AOT device (the “Project”), for the period April 1, 2012, through April 1, 2014.  All rights and title to intellectual property resulting from Temple’s 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 Temple’s 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 was $241,408 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-month periods ended March 31, 2015 and 2014, the Company recognized a total expense of $32,344 and $32,363, 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, 2015 and December 31, 2014, total unpaid fees due to Temple pursuant to this agreement amounted to $97,032 and $64,688, respectively, which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets.