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, 2025 and 2024, our research and development expenses were $1,611,000 and $191,000, respectively.

Temple University Licensing Agreement-amount past due

On August 1, 2011, the Company entered into two Exclusive License Agreements with Temple University (“Temple”). One license agreement covered technology to reduce crude oil viscosity (referred to as the “AOT-1 Agreement”) and the second license agreement covered technology associated with an electric and/or magnetic field assisted fuel injector system (referred to as the “AOT-2 Agreement”, and together the AOT-1 Agreement, the “License Agreements”). The License Agreements provide the Company with exclusive, worldwide rights to Temple’s patents, patent applications, and technical information related to the respective technologies. Pursuant to the original terms of the License 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 fees ranging from 4% to 7% on net sales and extended term net sales, and (iii) 25% of all revenues generated from sublicenses.

Effective as of September 26, 2025, the Company and Temple executed Amendment No. 2 to the AOT-1 Agreement and Amendment No. 1 to the AOT-2 Agreement, under which the Company and Temple agreed that total outstanding fees due to Temple through July 31, 2025, were $2,236,000 and $931,000, respectively, for an aggregate amount of $3,167,000 (collectively, the “Outstanding Amounts”). The Outstanding Amounts were required to be paid by October 11, 2025. As of the date of this filing, the Outstanding Amounts have not been paid to Temple. As of December 31, 2025 and December 31, 2024, total unpaid fees due to Temple under the License Agreements amounted to $3,167,000 and $2,433,000, respectively, which are included in accounts payable – license agreements in the accompanying consolidated balance sheets.

Under the amended agreements, royalty rates are structured as follows: 7% on the first $20 million of applicable net sales, 6% on sales between $20 million and $40 million, 5% on sales between $40 million and $100 million, and 4% on sales in excess of $100 million. These rates apply both during the initial term of the agreements and throughout the “Extended Term,” defined as a period of at least ten (10) years beginning upon the expiration of the last to expire patent (including continuations, extensions, and foreign counterparts), or upon early termination, whichever occurs earlier. During the Extended Term, royalties remain payable on all extended term net sales, regardless of patent expiration or the existence of valid claims.

The amended agreements also clarified that the Company shall retain exclusive rights to any improvements developed solely by the Company during or after the Extended Term, and Temple shall have no ownership interest in such improvements. Notwithstanding this, the Company remains obligated to pay royalties on such sales during the Extended Term.

For the years ended December 31, 2025 and 2024, total expenses recognized under the License Agreements amounted to $698,000 and $188,000, respectively, and are included in research and development expenses. In addition, the Company recognized penalty interest on past due balances of $36,000 and $48,000 for the years ended December 31, 2025 and 2024, respectively, which is included in interest and financing expense. No revenues were recognized from these License Agreements during the year ended December 31, 2025 and 2024. 

AOT Prototypes

During the years ended December 31, 2025 and 2024, the Company incurred total expenses of $913,000 and $3,000, 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.