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, 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 and six month periods ending June 30, 2015 on Research and Development were $147,658 and $420,435, respectively.

Total expenses incurred during the three and six month periods ending June 30, 2014 on Research and Development were $142,964 and $594,951, respectively.

AOT and Joule Heat Product Development and Testing

Total expenses incurred during the three and six month periods ended June 30, 2015 on AOT and Joule Heat product development and testing amounted to $10,075, and $25,575, respectively, and have been reflected as part of Research and Development expenses on the accompanying consolidated statement of operations.

Total expenses incurred during the three and six month periods ended June 30, 2014 on AOT and Joule Heat product development and testing amounted to $17,826, and $32,496, respectively, and have been reflected as part of Research and Development expenses on the accompanying consolidated statement of operations.

AOT Prototypes

During the three and six month periods ended June 30, 2015, the Company incurred total expenses of $39,629 and $53,021, respectively, in the manufacture and delivery of AOT prototype equipment.

During the three and six month periods ended June 30, 2014, the Company incurred total expenses of $45,919 and $403,998, respectively, in the manufacture and delivery of AOT prototype equipment.

These prototype equipment expenses have been reflected as part of Research and Development expenses on the accompanying consolidated statement of operations.

Joule Heat Prototypes

During the three and six month periods ended June 30, 2015, the Company incurred total expenses of $18,735 and $183,401, respectively, 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 and six month period ended June 30, 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. A license maintenance fee of $187,500 is due annually through the life of the underlying patents or until otherwise terminated by either party.

Total expenses recognized during the three-month period ended June 30, 2015 and 2014 pursuant to these two agreements amounted to $46,875 in each period. Total expenses recognized during the six-month period ended June 30, 2015 and 2014 pursuant to these two agreements amounted to $93,750 in each period. These expenses are reflected in Research and Development expenses on the accompanying consolidated statement of operations.

As of June 30, 2015 and December 31, 2014, total unpaid fees due to Temple pursuant to these agreements amounted to $366,875 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 and six month periods ended June 30, 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 through December 2013.

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 through September 2015.

During the three and six month periods ended June 30, 2015 the Company recognized a total expense of $32,344 and $64,688, respectively, pursuant to this agreement. During the three and six month periods ended June 30, 2014 the Company recognized a total expense of $32,344 and $64,707, respectively, pursuant to this agreement. These expenses are reflected in Research and Development expenses on the accompanying consolidated statement of operations.

As of June 30, 2015 and December 31, 2014, total unpaid fees due to Temple pursuant to this agreement amounted to $129,376 and $64,688, respectively, which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets.