Annual report pursuant to Section 13 and 15(d)

6. Research and Development

6. Research and Development
12 Months Ended
Dec. 31, 2020
Research and Development [Abstract]  
Research and Development
6. Research and Development


The Company constructs, develops and tests the AOT technology 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, viscometers, SCADA systems, computer equipment, direct costs related to AOT equipment manufacture and installation, payroll and other related equipment and various logistical expenses for the purposes of evaluating and testing the Company’s AOT prototypes.


Costs incurred for research and development are expensed as incurred. Purchased materials that do not have an alternative future use are also expensed. Furthermore, costs incurred in the construction of prototypes with no certainty of any alternative future use and established commercial uses are also expensed.


For the years ended December 31, 2020 and 2019, our research and development expenses were $355,000 and $891,000, respectively.


AOT Prototypes


During the years ended December 31, 2020 and 2019, the Company incurred total expenses of $167,000 and $703,000, respectively, in the manufacture and testing of the AOT prototype equipment. 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 paid Temple a non-refundable license maintenance fee of $300,000, and agreed to pay (i) annual maintenance fees of $187,500; (ii) royalty fee ranging from 4% up to 7% from revenues generated from the licensing agreements; and (iii) 25% of all revenues generated from sub-licensees to secure or maintain the sub-license or option thereon. The term of the licenses commenced in August 2011 and will expire upon expiration of the patents. The agreements 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 fails to commercialize the patent rights.


During fiscal year 2017, the Company and Temple amended the Second Temple License agreement. Pursuant to the amendment, the Company and Temple agreed to defer payment of $135,000 of the amount payable until such time the Company generates revenues totaling $835,000 from the license. In addition, the parties agreed that the unpaid balance of $135,000 will accrue interest of 9% per annum. As of December 31, 2019, the total unpaid fees and interest due to Temple pursuant to these agreements are $1,255,000.


During 2020 the Company incurred an additional $236,000 of costs which includes the $188,000 annual license fee and $48,000 of interest. As of December 31, 2020, total unpaid fees and interest due to Temple pursuant to these agreements are $1,491,000. With regards to the unpaid fees to Temple, a total of $135,000 are deferred until such time the Company achieves a revenue milestone of $835,000 or upon termination of the licensing agreements and the remaining $1,356,000 are deemed past due. The Company is currently in negotiations with Temple to settle or cure the past due balance.