6. Research and Development
|6 Months Ended|
Jun. 30, 2017
|Research and Development [Abstract]|
|Research and Development||
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 license 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 prototypes and Joule Heat prototypes.
For the six-month periods ended June 30, 2017 and 2016, our research and development expenses were $120,000 and $148,000 respectively. For the three-month periods ended June 30, 2017 and 2016, our research and development expenses were $56,000 and $73,000, respectively.
AOT Product Development and Testing
During the six-month periods ended June 30, 2017 and 2016, the Company incurred total expenses of $26,000 and $54,000, respectively, in the manufacture, delivery and testing of the AOT prototype equipment. During the three-month periods ended June 30, 2017 and 2016, the Company incurred total expenses of $9,000 and $26,000, respectively. These expenses have been reflected as part of Research and Development expenses on the accompanying consolidated statements 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 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.
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 defer $37,500 of the amount due if the Company agreed to fund at least $250,000 in research or development of Temple’s 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 each six-month period ended June 30, 2017 and 2016 pursuant to these two agreements amounted to $94,000. Total expenses recognized during each three-month period ended June 30, 2017 and 2016 pursuant to these two agreements amounted to $47,000 These expenses have been reflected in Research and Development expenses on the accompanying consolidated statements of operations.
As of June 30, 2017 and December 31, 2016, total unpaid fees due to Temple pursuant to these agreements amounted to $840,000 and $727,000, respectively, which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets. As of June 30, 2017, $222,000 of the $840,000 payable has been deferred until the licensing agreements are terminated and $581,000 is deemed past due.
The Company generated $50,000 in revenue from the viscosity reduction license during the six-month period ended June 30, 2017. This amount is not sufficient to be subject to additional license fees under the license agreement. No revenues were earned from the two license agreements during the six-month period ended June 2016.
In July 2017, the Company and Temple amended the license agreement related to the Company’s AOT viscosity reduction technology. Under this amendment, Temple agreed to defer amounts currently due under the viscosity reduction license in the amount of $135,000, bringing the Company current under the viscosity reduction technology license agreement. The Company is currently in negotiations with Temple to settle amounts due under the second license agreement related to a fuel injector technology.
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, performed 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 were subjected 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. The agreement expired in August 2015. As of June 30, 2017 and December 31, 2016, total unpaid fees due to Temple pursuant to this agreement amounted to $78,000, which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets. As of June 30, 2017, the entire $78,000 is deemed past due.
On July 14, 2017, the Company and Temple reached agreement to settle these past due amounts under a payment plan, paying the amount before the end of December 2017.
In addition, Temple University continues to provide laboratory testing and support related to the Company’s commercialization efforts. This continuing work is provided on at a fixed price, on an ad hoc basis depending upon the scope of work. During the six-month period ending June 30, 2017, the Company incurred a total of $3,000 in ad hoc testing with Temple University. No ad hoc testing was performed during the three-month period ending June 30, 2017. Temple ad hoc testing expense is reported as part of Research and development expenses in the accompanying consolidated statements of operations.
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