SOLARWINDOW TECHNOLOGIES, INC.
10-Ks and 10-Qs
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2013
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________
to
___________
Commission file number 333-127953
NEW ENERGY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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59-3509694
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
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10632 Little Patuxent Parkway, Suite 406
Columbia, Maryland
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21044
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(Address of principal executive offices)
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(Zip
Code
)
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(800) 213-0689
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
o
No
x
Indicate by check mark
if
the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act
.
Yes
o
No
x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer (Do not check if a smaller reporting company)
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o
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes
o
No
x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last
business
day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price of the registrant’s common stock on February 28, 2013
,
as reported on the
OTC Markets Group Inc. QB tier (the “
OTCQB
”) was
$17,169,051.
As of November 20, 2013 there were 24,276,612 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
NEW ENERGY TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 2013
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PART I
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PAGE | |
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Item 1.
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Business
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3 |
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Item 2.
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Properties
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16 |
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Item 3.
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Legal Proceedings
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16 |
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PART II
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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17 |
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Item 7.
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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20 |
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Item 8.
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Financial Statements
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25 |
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Item 9.
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Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
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43 |
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Item 9A.
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Controls and Procedures
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43 |
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Item 9B.
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Other Information
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43 |
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PART III
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Item 10.
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Directors, Executive Officers, and Corporate Governance
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44 |
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Item 11.
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Executive Compensation
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47 |
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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52 |
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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53 |
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Item 14.
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Principal Accounting Fees and Services
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54 |
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules
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56 |
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SIGNATURES
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57 | |
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EXHIBIT INDEX
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58 | |
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CERTIFICATIONS
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2
Forward-Looking Statements
This Annual Report on Form 10-K contains forward looking statements.
Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements contained in this Report speak only as of the date of this report, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
Such forward-looking statements include statements regarding, among other things, (a) the potential markets for our technologies, our potential profitability, and cash flows (b) our growth strategies (c) expectations from our ongoing research and development activities (d) anticipated trends in the technology industry (e) our future financing plans and (f) our anticipated needs for working capital. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found at various places throughout this report including, but not limited to the discussions under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and "Business." Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the matters described in this Form 10-K generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.
Although forward-looking statements in this report reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and factors that may cause actual results to be materially different from those discussed in these forward-looking statements.
Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements.
Accordingly, you are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation.
Background
New Energy Technologies, Inc. (together with its wholly owned subsidiaries, “we,” “us” or “our”) was incorporated in the State of Nevada on May 5, 1998, under the name “Octillion Corp.” On December 2, 2008, we amended our Articles of Incorporation to change our name to New Energy Technologies, Inc.
We are a development stage company; we have not generated any revenue since inception and we do not expect to generate any revenue for the foreseeable future. We do not currently have any commercial products and there is no assurance that we will successfully be able to design, develop, manufacture, or sell any commercial products in the future.
We are a renewable and alternative energy company developing two (2) sustainable electricity generating systems. These novel technologies are branded as SolarWindow™ and MotionPower™. Our proprietary, patent-pending technologies are the subject of one hundred and one (101) U.S. and international patent filings.
3
SolarWindow™
Our SolarWindow™ technology provides the ability to harvest light energy from the sun and artificial sources and generate electricity from a see-through, semi-transparent, coating of organic photovoltaic (“
OPV
”) solar cells. Our SolarWindow™ technology is the subject of forty-two (42) patent filings. Initially being developed for application on glass surfaces, SolarWindow™ could potentially be used on any of the more than 85 million commercial and residential buildings in the United States alone.
The development of our SolarWindow™ technology has advanced through our Sponsored Research Agreement with the University of South Florida (together with the University of South Florida Research Foundation, Inc. “
USF
”) and Stevenson-Wydler Cooperative Research and Development Agreement (“
CRADA
”) with the Alliance for Sustainable Energy, LLC, which is the operator of The National Renewable Energy Laboratory (“
NREL
”). For a description of these agreements, see “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
.”
We have achieved numerous important milestones and overcome major technical challenges in the development of our SolarWindow™ technology, including the ability to generate electricity on glass while remaining see-through. We have also successfully scaled-up our technology from a single solar cell – only one-quarter the size of a grain of rice – to a working array of solar cells which form a one-foot by one-foot early working prototype – our largest-ever SolarWindow™. A pane of glass coated with our SolarWindow™ technology is fabricated by applying our see-through, electricity-generating coatings onto glass surfaces at room temperature and pressure, a significant technical achievement which may provide a manufacturing advantage over expensive and cumbersome high temperature and high positive or negative pressure-sensitive manufacturing methods common to conventional solar photovoltaic (“
PV
”) manufacturing.
In order to advance the technical development and subsequent commercialization of our SolarWindow™ products, we are actively seeking technology and product licensing arrangements with research institutions, commercial partners, and organizations with established technical competencies, market reach, and mature distribution networks in the solar PV, building-integrated PV, and alternative and renewable energy market industries.
MotionPower™
Our MotionPower™ technology, harvests “kinetic” or “motion” energy from vehicles when they slow down before coming to a stop and converts this captured energy into electricity. Our MotionPower™ technology is the subject of fifty-nine (59) patent filings.
We are developing three (3) MotionPower™ systems:
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·
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MotionPower™-Heavy ― A fluid-driven, system with limited moving mechanical components for installat
ion at sites where big rigs, such as tractor trailers, buses, and large commercial vehicles are traveling at below 15mph and are in the process of slowing down;
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·
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MotionPower™-Auto ― A fluid-driven, system similar to MotionPower
™-Heavy for installation at sites where cars and light-duty trucks, such as sport utility vehicles and automobiles, are traveling at below 15mph and are in the process of slowing down; and
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MotionPower™-Express ― A mechanical system for installation at sites where all cars, light-duty t
rucks, motor homes, buses, big rigs, and large commercial vehicles are traveling faster than 15mph and are in the process of slowing down.
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MotionPower™-Express can be designed for a range of speeds based on traffic pattern and the amount of energy required for a specific application. Installation sites could potentially include sport and entertainment venues, warehousing and distribution centers, fleet vehicle maintenance facilities, transportation depots, airports (passenger arrival and departure areas), parking lots, border crossings, exit ramps, neighborhoods with traffic calming zones, rest areas, toll booths, and travel plazas.
4
With respect to our MotionPower™ technology, our focus is the development and deployment of all three MotionPower™ systems. Our development efforts have already produced early working prototypes. If successfully developed, our MotionPower™ technology could potentially be used to harvest kinetic energy generated by any of the estimated 250 million vehicles registered in America, which drive approximately 6 billion miles on our nation’s roadways every day.
We have advanced product development of our MotionPower™ technology through agreements with Veryst Engineering LLC and Sigma Design Company. These firms have experience in energy capture technologies and alternative and renewable energy, respectively. For a description of these agreements, see “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
.”
We have achieved numerous important milestones in the development of our MotionPower™ technology. For example, following the development of a first-generation MotionPower™-Express prototype, we conducted early durability and user-experience testing at Burger King
®
, Four Seasons Hotel
®
, the Holiday Inn Express
®
, and the City of Roanoke (VA). Data collected and analyzed from these tests have produced important advancements to MotionPower™-Express, including the ability of the system to capture and convert kinetic energy into electrical energy by improving system treadle design and response to vehicle weight and speed.
We are also working to partner with established commercial companies that specialize in energy conservation, and green building practice and performance where our technologies can be field tested and performance validated. Such commercial partnerships could evolve into potential customer sales pipelines.
Important next steps in the development of MotionPower™ include: performance testing, durability, and design improvements that focus on energy capture and conversion, all of which will involve further research and development efforts and the commitment of significant capital and intellectual resources to support the extensive invention, design, engineering, testing, prototyping, and intellectual property initiatives.
Our Key Milestones
SolarWindow™ Milestones
We have been working to invent, design, test, and prototype our SolarWindow™ technology for application to commercial flat glass in tall towers since November 2006. We have achieved the following important milestones in our development efforts:
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There are currently forty-two (42) patent filings related to SolarWindow™ technology.
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We are negotiating an exclusive worldwide commercial license for patents relating to the electricity-generating coating and SolarWindow™ technology developed at USF.
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Entered into a CRADA with Alliance for Sustainable Energy, LLC, the operator of NREL under its U.S. Department of Energy contract.
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Filed fourteen (14) patent applications for our own electricity-generating coating and SolarWindow™ technology development efforts that are independent of USF sponsored research and NREL CRADA research.
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5
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Announced that we have expanded the use of our SolarWindow™ coatings to include two (2) new product lines for commercial and military aircraft, and the safety and security of military pilots.
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Determined the correct combination of compounds to create a single solar cell smaller than one-quarter the size of a grain of rice, which can successfully generate electricity on glass while remaining stable and see-through.
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Scaled-up from a single solar cell to a one-inch by one-inch “array”. An “array” is an arrangement of multiple solar cells rather than an individual single solar cell.
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Developed a method for spraying our see-through electricity-generating coatings onto glass surfaces at room temperature and pressure, a significant technical achievement which may provide a manufacturing advantage over expensive and cumbersome high temperature-specific and high positive or negative pressure-sensitive manufacturing methods common to conventional solar PV manufacturing.
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Invented and fabricated novel contacts that conduct electricity on SolarWindow™, yet remain see-through. Conventional contacts for conducting electricity use materials which generally block visibility and inhibit transparency.
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Engineered new methods for absorbing light energy once it has been generated in order to help improve the flow of electrons (negatively charged particles), a process fundamental to generating electricity necessary for power appliances and fixtures.
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Discovered new, solution-based compounds that successfully mobilize the electrons necessary for generating electricity on SolarWindow™ and eliminate the use of other materials that could be prone to breakdown. We have been able to produce these compounds without the use of expensive starting materials, and have discovered methods that allow for reproducibility.
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Created methods for increasing power output by maximizing the number of solar-cells present in our SolarWindow™ array for a defined surface area.
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Successfully scaled-up SolarWindow™ prototypes from a one-inch square to a twelve (12)-inch square (144 square inches in surface area).
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Generate electricity on flexible plastic using novel see-through SolarWindow™ coatings.
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Developed new SolarWindow™ coatings with increased transparency and improved color.
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Successfully fabricated its latest working window prototype using a faster, rapid scale-up process for applying solution-based coatings.
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Produced the largest OPV device ever fabricated at NREL in the institute’s history.
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Successfully collected and transported electricity using a virtually ‘invisible’ conductive wiring system developed for SolarWindow™.
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6
MotionPower™ Milestones
We have been working to invent, design, test, and prototype our MotionPower™ technology since July 2008. We have achieved the following important milestones in the development of our MotionPower™ technology and potential products:
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There are currently fifty-nine (59) patent filings related to MotionPower™ technology
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·
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Invented methods for harvesting the kinetic energy from vehicles of varying sizes, ranging from small cars to large trucks.
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Fabricated systems able to adapt to the unique characteristics of different vehicles weight and speed in order to optimize the amount of kinetic energy captured and converted to electricity, including MotionPower™-Express, MotionPower™-Auto and MotionPower™-Heavy.
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Developed systems able to accommodate passage of small vehicles, bicyclists and pedestrians over the device.
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Designed tamper-resistant systems, accompanied by a suite of sensors that allow systems to operate and be tracked for extended periods of time without supervision, essential to conducting meaningful tests at field-installation sites and commercial installation.
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Reduced the number of moving or mechanical parts and arranged moving mechanical components into a single housing unit for ease of manufacturing, greater operating reliability, and lower maintenance and production costs.
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Invented a novel storage system that helps better utilize the power of each vehicle axle to improve the capture and conversion of kinetic energy to electricity.
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Addressed system durability, resistance to damage from vehicles, road debris and weather.
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Engineered MotionPower
TM
mechanical components and height actuation to maintain driver control and minimize disruption; and control rolling resistance and forces to reduce, if not eliminate, potential jerking motion.
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Configured systems for flexibility of installation for both above-grade and in-road (embedded) applications.
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Developed MotionPower
TM
to be “scalable” to accommodate site-specific roadway entry and egress, and electrical power demands.
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Successfully demonstrated our brand new roadway technology at the Roanoke Civic Center in Virginia, a high-traffic volume entertainment, convention, and cultural complex.
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7
Products Derived from our Technologies
SolarWindow
TM
We are developing our SolarWindow™ technology as the world’s first-of-their-kind systems able to generate electricity on glass windows and flexible plastic while remaining see-through.
On September 16, 2010, we publicly unveiled a working four-inch by four-inch prototype of our proprietary SolarWindow™ technology at USF. Scientists at the event powered lights on a scale-model house by exposing our see-through SolarWindow™ to artificial light from fluorescent lamps, mimicking lighting typically installed inside offices. In artificial light, SolarWindow™ technology outperforms today’s commercial solar and thin-films by as much as tenfold under low-intensity irradiance.
Researchers also repeatedly opened and closed window shades, successfully powering LED lights each time SolarWindow™ was exposed to natural light. This demonstration mimicked outdoor exposure such as sunlight on the exterior façade of commercial buildings – our initial target market and, we believe, a promising early application of the technology.
Scientists at the debut event not only demonstrated the ability to generate “voltage” to power lighting, but also revealed SolarWindow
TM
capacity to produce “current” necessary for powering mechanical devices and appliances. Researchers successfully powered the mechanical rotor blades of a small helicopter using only a single, small-scale SolarWindow™ prototype exposed to a solar simulator.
In February 2012, we successfully developed the largest OPV device fabricated at NREL, measuring 170cm
2
, approximately 14 times larger than previous devices produced at NREL. In March 2012, we, together with NREL researchers, successfully collected and transported electricity using a virtually ‘invisible’ conductive wiring system developed for SolarWindow™. The ability to transport electricity on glass windows while remaining see-through is especially important to the eventual deployment of an aesthetically pleasing commercial product.
SolarWindow™ generates electricity by harnessing the energy of the sun in order to create a “photovoltaic” effect. Photovoltaics are best known as a method for generating electric power by using solar cells to convert energy from the sun into a flow of electrons. Typically, conventional PV power is generated by making use of solar modules composed of a number of cells containing PV and electricity-conducting materials. These materials are usually opaque (i.e., not see-through). Our researchers have replaced these materials with compounds that allow our SolarWindow™ technology to remain see-through, while generating electricity.
We are currently developing six (6) products (collectively, the “
SolarWindow™ Products
”) derived from our SolarWindow™ technology:
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SolarWindow™ – Commercial – A flat glass product for installation in new commercial towers under construction and replacement windows;
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SolarWindow
TM
– Structural Glass – Structural glass walls and curtains for tall structures;
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SolarWindow
TM
– Architectural Glass – Textured and decorative interior glass walls, room dividers, etc.;
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SolarWindow™ – Residential – A window glass for installation in new residential homes under construction and replacement windows;
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SolarWindow™ – Flex – Flexible films which may be applied directly onto glass, similar to aftermarket window tint films, for retrofit to existing commercial towers, buildings, and residential homes; and
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SolarWindow™ – BIPV – Components associated with BIPV applications in homes, buildings, and office towers.
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8
Our focus is first on the development and deployment of SolarWindow™-Commercial, Structural, and Architectural products. Our product development efforts have already produced early working prototypes for these applications. Commercialization of the SolarWindow
TM
technology will require significant further research, development and testing, and we must ascertain whether the SolarWindow
TM
technology can actually form the basis for a commercially viable technology or product.
MotionPower™
Our MotionPower™ products in development are systems that generate clean electricity by capturing and making use of the kinetic energy of moving vehicles.
All vehicles in motion possess kinetic energy. Kinetic energy refers to the energy of motion, and is best described as the energy an object possesses due to its motion, such as the energy observed when a ball is thrown or kicked or when a cyclist no longer needs to pedal a bike in order to continue forward motion.
The amount of kinetic energy a vehicle possesses is based upon the vehicle’s speed and weight, and inherent design and operational characteristics. The faster the vehicle is moving and the heavier it is, the more kinetic energy it possesses. When a moving vehicle slows down, it wastes some of its kinetic energy in the process of braking. It is this available kinetic energy which our MotionPower™ technology seeks to capture and convert into electricity.
For our MotionPower™ products to effectively harvest a vehicle’s kinetic energy, they must be installed at sites where vehicles are moving, or are in the process of slowing down before stopping. Our MotionPower™ technology functions as an energy harvester. Because the MotionPower™ technology is designed to be installed in locations where cars and light trucks are moving, or are required to reduce their speed, our systems only make use of vehicle energy that is required to slow down and do not “rob” vehicles of energy they would otherwise use.
We have conducted early durability and user-experience testing of our MotionPower™-Express system for cars and light trucks, such as sport utility vehicles, at Burger King
®
, Four Seasons Hotel
®
, the Holiday Inn Express
®
, and the City of Roanoke (VA).
Our MotionPower™ technologies could potentially be installed at high traffic locations, wherever vehicles are required to slow down or stop, including exit ramps, toll booths, traffic intersections, rest areas, travel plazas, border crossings, neighborhoods with traffic calming zones, parking sites, drive-thrus and other roadway points.
There are three MotionPower™ products in development:
|
·
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MotionPower™-Heavy ― A fluid-driven, system with limited moving mechanical components for installation at sites where big rigs, such as tractor trailers, buses, and large commercial vehicles are traveling at below
15mph and are in the process of slowing down;
|
|
·
|
MotionPower™-Auto ― A fluid-driven, system similar to MotionPower
TM
-Heavy for installation at sites where cars and light-duty trucks, such as sport utility vehicles and automobiles, are traveling at below 15mph and are in the process of slowing down; and
|
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·
|
MotionPower™-Express ― A mechanical system for installation at sites where all cars, light-duty trucks, motor homes, buses, big rigs, and large commercial vehicles are traveling faster than 15mph and are in th
e process of slowing down.
|
Commercialization of the MotionPower
TM
technology will require significant further research, development and testing, and we must ascertain whether the MotionPower
TM
technology can actually form the basis for a commercially viable technology or product.
9
Our Industry and Market Opportunity
Overview
We believe our products uniquely address a growing market opportunity for technologies able to generate sustainable electricity. Rising energy costs, increasing electricity consumption, and the need for a cleaner alternative to today’s non-renewable energy sources, all contribute to the growing demand for clean, renewable alternative energy sources.
Global energy consumption is expected to increase 53% from 2008 to 2035, according to the Energy Information Administration, and domestic electricity prices have been rising as a consequence of the cost of conventional fuels for electricity generation and looser pricing caps in some states.
America is the world’s largest consumer of electricity, according to the U.S. Energy Information Administration, with nearly 70% of the nation’s electricity generated by coal and natural gas. The environmental impact and rising costs of these non-renewable fuels, along with the potential doubling of global electricity consumption in the coming years, illustrate the need for more creative, sustainable methods for generating electrical power.
The Market Opportunity for our SolarWindow™ Technology and Products
There are no commercially marketed OPV see-through glass windows capable of generating electricity available for sale in the United States. We believe our SolarWindow™ technology and products could be uniquely positioned as first-to-market, if commercially launched. The year 2010 saw the completion of more skyscrapers than any previous year in history, according to a January 2011 report from the Council on Tall Buildings and Urban Habitat at the Illinois Institute of Technology, Chicago. Our early target market for SolarWindow™ Products is tall towers and commercial skyscrapers, including increasingly popular “green buildings.”
The U.S. market for new, non-residential “green buildings,” such as offices and factories, is forecast to more than double to as much as $135 billion by 2015, according to a 2010 industry report by McGraw-Hill Construction. The same report states that, a third of all new nonresidential construction today is green. The amount of green building area has been growing at about 50% compounded annually, since 2000. Green building growth is approximately 25 times greater than commercial real estate overall in this country, which averages almost 2% annually, according to the United Nations Environment Programme Finance Initiative.
Unprecedented levels of government initiatives, heightened residential demand for green construction, and improvements in sustainable materials are driving green building. Because buildings account for almost 50% of the energy consumed in developed countries, governments are putting increased focus on legislation and policies to improve their energy efficiency, according to the United States Environmental Protection Agency. In North America, initiatives such as the environmental building rating system (LEED) run by the U.S. Green Building Council are helping to transform the market for added-value glazing, and this trend is expected to continue. We anticipate similar opportunities in Europe, through the development of a European Union-wide energy labeling system for windows.
Our SolarWindow™ Products are under development for application to glass surfaces in such buildings, often referred to as “architectural flat glass.” In the United States, the country’s ten largest cities have more than 444 million square feet of architectural glass, as estimated in a 2010 industry report on flat glass by Pilkington, a major global glass manufacturer. This market is growing in volume, with global growth of around 4-5% annually, with Europe, China and North America accounting for over 70% of global demand, according to the same report.
10
The Market Opportunity for our MotionPower™ Technology and Products
With no commercially marketed vehicle energy harvesting devices available for sale in the United States and no formally recognized vehicle energy harvesting industry, we believe our MotionPower™ technology and products, consisting of MotionPower™-Express, MotionPower™-Auto and MotionPower™-Heavy, could be uniquely positioned as first-to-market if commercially launched.
The U.S. boasts the world’s largest roadway transportation system. In 2006, Americans traveled 5.2 trillion person-miles in vehicles and moved 4.6 trillion ton-miles of freight, according to the Bureau of Transportation Statistics. The U.S. population and economy are expected to grow, increasing both freight and personal travel. For example, the Energy Information Administration’s 2010 Annual Energy Outlook projects population to grow by 85 million persons by 2035 compared to 2008.
There is also a worldwide rise in roadway vehicles. Globally, the world auto fleet has increased from about 50 million vehicles to 1.015 billion vehicles between 1950 and 2010 according to research from Wards Auto and the Pew Center on Global Climate Change.
All three MotionPower™ products could potentially have applications at our nation’s border crossings and ports of entry. In 2009, according to the Bureau of Transportation Statistics, American border crossings reported nearly 195 million personal vehicle passengers traveling in more than 97 million cars. Over 9.3 million trucks entered the United States through our border crossings, with the top 20 sites accounting for approximately 87% of such traffic. An estimated 4.9 million bus passengers in more than 344,000 buses crossed our borders.
High-traffic venues such as theme parks, shopping malls, drive-thrus and sports venues represent potential sites for our MotionPower™ products. These sites remain strong prospects, with theme parks growing to 341 million attendees and $12 billion in revenue in 2007, according to the International Association of Amusement Parks and Attractions. Nearly 90 million attendees visited America’s top ten theme parks in 2009, estimates a report by the Themed Entertainment Association. Among sports venues, the National Football League alone accounts for roughly 2.47 million vehicles per year and approximately 330,000 parking spaces.
Our Competitive Strengths
We believe that the following strengths enable us to compete successfully in the alternative energy industry:
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Our products are first-of-their-kind solutions for generating sustainable electricity.
There are no commercially-available products for sale in competition to our technologies and products, and therefore, our SolarWindow™ and MotionPower™ products may be positioned as ‘first-to-market.’
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Our products have unique characteristics, not readily-achievable by other technologies.
Our SolarWindow™ products generate electricity while remaining see-through, and are able to produce electricity from both natural and artificial light. These traits are unique to our products and technologies, and have not been replicated by any commercially-available technology. Our MotionPower™ systems can be engineered as either discreet or disruptive products, depending upon customer specifications.
These systems are also designed to function independently of daily management, and do not require the presence of wind, sunlight, or other natural environmental influences in order to function.
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·
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Our SolarWindow™ products are designed for application on the vast glass facades of commercial skyscrapers and are not confined to installation on limited rooftop space
. The installation of typical roof-rack PV modules is often constrained by limited roof-top areas on commercial skyscrapers. In contrast, our SolarWindow
TM
Products may be applied to the entire vertical glass façades of skyscrapers.
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·
|
The electricity generated by our technologies is compatible for use with existing energy infrastructure.
Our SolarWindow™ and MotionPower™ products are under development for seamless applications in order to avoid burdening potential customers with special utility management systems.
|
11
Our Business Strategy
Our goal is to complete the product development phase for our SolarWindow™ and MotionPower™ technologies and then, to the extent warranted, work towards commercial launch of the SolarWindow™ and MotionPower™ products. Key elements of our business strategy include:
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·
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Partner with research institutions, product development firms, and others with proven technology expertise.
We are currently working with scientists at NREL for the ongoing development of our SolarWindow™ Products. We will seek to engage additional firms and institutions with important technical and product development competencies as needed.
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·
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Identify partnerships for technology out-licensing and in-licensing opportunities.
We are actively engaged in identifying potential industry or commercial partnerships for the out-licensing of our technologies, or, if warranted, the in-licensing of certain enabling technologies that could help accelerate our product development programs by reducing our need for internal research and development.
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Foster commercial partnerships with industry partners.
Work to develop commercial partnerships with third-parties, which we believe could help us accelerate the development of our sales and distribution pipeline for any products we are able to develop.
|
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·
|
Develop pricing
models that capitalize on available energy subsidies in order to make our products affordable
and
attractive to end-users.
In developing pricing strategies for any products we are able to develop, we would seek to provide our potential customers with access to various subsidies, government incentives, tax credits, and other related financial mechanisms.
|
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·
|
Develop cost-effective and efficient supply-chain management and manufacturing processes.
Both our SolarWindow™ and MotionPower™ technologies and products would require manufacturing systems and supply-chain management expertise. We have begun to strategize and work towards addressing these needs in a cost-effective and efficient manner.
|
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·
|
Identify and potentially acquire strategic and/or complementary technologies
. We are actively engaged in identifying technologies which may be strategic and/or complementary to our SolarWindow™ and/or MotionPower™ technologies for potential acquisition.
|
Competition for SolarWindow™ Technology and Products
Competition in the solar PV industry is growing. Although we are not aware of other products utilizing technology substantially similar to our SolarWindow™ technology, numerous solar cell technologies have been developed, or are being developed, by a number of companies.
Such technologies include, but are not necessarily limited to, the use of organic materials, advanced crystalline silicon thin film concepts, amorphous silicon, cadmium telluride, copper-indium-gallium-selenide, titanium dioxide, and copper indium diselenide, and others to generate electricity from the sun’s light. Given the time, investment and advances in manufacturing technologies, any of these competing technologies may achieve lower manufacturing costs, superior performance, or greater market acceptance than our SolarWindow™ technology product, currently under development.
12
We face competition from many companies, major universities and research institutions in the United States and abroad. Many of our competitors have substantially greater resources, experience in conducting research, experience in obtaining regulatory approvals for their products, operating experience, research and development and marketing capabilities name recognition and production capabilities. We will face competition from companies marketing existing products or developing new products which may render our technologies (and products) obsolete. The descriptions of the products and technologies being developed or marketed by our competitors listed below have been taken from publicly available documents or reports filed by these companies:
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·
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BELECTRIC Solarkraftwerke GmbH (through the acquisition of Konarka Technologies, Inc. and its assets) - is focused on the development and advancement of nano-enabled polymer PV materials that are lightweight, flexible and more versatile than traditional solar materials. Following Belectric’s takeover of Konarka Technologies, the company plans to set up OPV production facilities in Germany in the coming months (Ref: October 24, 2012). Belectric has subsidiaries in seventeen (17) countries.
|
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·
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Pythagoras Solar – the company’s Photovoltaic Glass Unit (“
PVGU
”) uses patented optical technology, high-efficiency silicon, and advanced materials to provide the industry’s first highest-transparency and highest-density PV power generation in a standard double-pane window form factor, known in the industry as an insulating glass unit (“
IGU
”). The PVGU leverages the modularity and ease of installation of the IGU while controlling direct solar radiation and providing greater transparency to further increase the energy efficiency gains through reduced heating/cooling and lighting costs.
|
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·
|
XsunX, Inc. - develops and markets proprietary Thin Film Photovoltaic (“
TFPV
”) solar cell designs and core solar cell manufacturing systems, enabling licensees to manufacture TFPV solar devices on various substrates.
|
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·
|
Sharp Corporation - has developed mass-production technology for stacked triple-junction thin-film solar cells by turning a conventional two-active-layer structure (amorphous silicon plus microcrystalline silicon) into a triple-junction structure with amorphous silicon (two active layers) and microcrystalline silicon (single active layer).
|
These companies may have numerous competitive advantages, including:
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·
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significantly greater name recognition;
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·
|
established distribution networks;
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·
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more advanced technologies and product development;
|
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·
|
additional lines of products, and the ability to offer rebates, higher discounts or incentives to gain a competitive advantage;
|
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·
|
greater experience in conducting research and development, manufacturing, obtaining regulatory approval for products, and marketing approved products; and
|
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·
|
greater financial and human resources for product development, sales and marketing, and patent litigation.
|
13
Our commercial success will depend on our ability and the ability of our sublicensees, if any, to compete effectively in product development areas such as, but not limited to, safety, price, marketing and distribution.
There can be no assurance that competitors will not succeed in developing products that are more effective than our SolarWindow™ technology, therefore rendering our products obsolete and non-competitive. Accordingly, in addition to our research and development efforts, we have undertaken a public relations/advertising program designed to establish our “brand” name recognition early on in our corporate development; we intend to continue to develop and market our brand name pending commercialization of products, if any, we may derive from our research and development efforts. We believe our strategy ultimately will facilitate the marketing, distribution and public acceptance of any products we may derive from our research and development efforts if and when regulatory approval is received.
Competition with respect to our technologies is and will be based, among other things, on safety, reliability, availability, price, marketing, distribution and patent position. Another important factor will be the timing of market introduction of any SolarWindow
TM
products we develop. Accordingly, the speed with which we can develop our SolarWindow™ products, complete safety approvals processes and ultimately supply commercial quantities of any products we develop to the market is expected to be an important competitive factor. Our competitive position will also depend upon our ability to attract and retain qualified personnel, to obtain patent protection or otherwise develop proprietary products or processes, and to secure sufficient capital resources for the often substantial period between technological conception and commercial sales.
Competition for MotionPower™ Technology and Products
Currently, there are no commercially marketed vehicle energy harvesting devices available for sale in the U.S. and there is no formally recognized vehicle energy harvesting industry. Therefore, to the best of our knowledge, our MotionPower™ technology does not currently face any substantive, direct competition from any commercially available vehicle energy harvester.
Other than our efforts, to our knowledge there are only three small, privately-held companies developing vehicle energy harvesters. Unlike our MotionPower™ technology for cars, light trucks, and heavy long-haul vehicles, these other technologies appear primarily directed to heavy trucks only.
|
·
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AEST Incorporated – is purportedly developing its “Dragon Power Station” technology for installation where heavy trucks drive over a series of plates embedded in the roadway. The motion of the plates creates a pumping action of hydraulic fluids which subsequently turn a generator, ultimately producing electricity. To date, there is only one publicly-disclosed Dragon Power Station installation of which we are aware.
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·
|
KinergyPowerUSA – is purportedly developing its “Energy Carpet” technology for installation where heavy trucks drive over a series of slats. A number of underlying, interconnected micro- sized pistons pump hydraulic fluids to turn a generator, ultimately producing electricity. To date, there are no publicly-disclosed Energy Carpet installations of which we are aware.
|
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·
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Highway Energy Systems Ltd. – a UK based company is purportedly developing an energy-harvesting device.
|
The foregoing information regarding each of AEST Incorporated and KinergyPower USA was obtained from their respective web sites. The foregoing information regarding Highway Energy Systems Ltd. was obtained from an article published in The Wall Street Journal dated February 28, 2011.
These companies’ systems rely on vehicle weight to depress elaborate piston configurations situated beneath slats or plates which hydraulically pump fluids to electrical generators. We believe these methods are substantially different from our MotionPower™ technology which makes use of otherwise wasted kinetic energy when cars and trucks slow down. Unlike these other systems, our MotionPower technology does not require many moving mechanical parts, which we believe make it less vulnerable to mechanical failure.
14
We also anticipate that competition could grow if first-generation energy harvesting technologies designed to capture human kinetic energy and other such small-scale devices begin to gain commercial acceptance. Such devices could potentially be re-engineered to capture the kinetic energy of moving vehicles.
There can be no assurance new competitors will not succeed in developing products that are more effective than our MotionPower™ technology, therefore rendering our products, if any, obsolete and non-competitive. In addition to our research and development efforts, we have undertaken a public relations/advertising program designed to establish our “brand” name recognition early on in our corporate development, as described under “
—Competition for Solar Window™ Technology and Products.
” We intend to continue to develop and market our brand name pending commercialization of our MotionPower™ technology products, if ever successfully developed. We believe our strategy ultimately will assist the marketing, distribution and public acceptance of any MotionPower™ Technology products we develop.
Competition with respect to our technologies is and will be based, among other things, on safety, reliability, availability, price, marketing, distribution and patent position. Our competitive position will also depend upon our ability to attract and retain qualified personnel, to obtain patent protection or otherwise develop proprietary products or processes, and to secure sufficient capital resources for the often substantial period between technology development and commercial sales.
Proprietary Assets
SolarWindow
TM
Our SolarWindow™ technology is the subject of forty-two (42) patent filings.
MotionPower
TM
Our MotionPower™ technology is the subject of fifty-nine (59) patent filings
.
Government Regulation
SolarWindow™
Our SolarWindow™ technology may be subject to certain government regulations. Our ability to remain viable will depend on favorable government decisions at various stages of the technology’s development by various agencies. From time to time, legislation is introduced that could significantly change the statutory provisions governing our research and development processes, as well as approval of the manufacturing and marketing of any products derived from such research and development activities.
The production and marketing of SolarWindow™ technology derived products would be subject to existing safety regulations and may be subject to yet unknown regulations.
Current safety requirements for electrical products can include, but may not be limited to, Occupational Safety and Health Administration regulations, National Electrical Code as approved as an American National Standard by the American National Standards Institute or ANSI/NFPA-70, certification by Underwriters Laboratories and the Society of Automotive Engineers, and compliance with local building codes. These regulations are subject to change, and our ability to remain viable is contingent upon successfully satisfying regulatory requirements as stipulated by these agencies and/or others as the development of our SolarWindow™ technology evolves.
15
MotionPower™
Our MotionPower™ technology may be subject to certain government regulations. Our ability to remain viable will depend on favorable government decisions at various stages of the technology’s development by various agencies. From time to time, legislation is introduced that could significantly change the statutory provisions governing our research and development processes, as well as approval, manufacture and marketing of any products derived from such research and development activities.
The production, marketing, and installation of our MotionPower™ technology products may be construed by regulatory agencies as a new technology for roadway implementation, which could be subject to existing safety regulations and may be subject to yet unknown regulations.
Current safety requirements for electrical products can include, but may not be limited to, Occupational Safety and Health Administration regulations, National Electrical Code as approved as an American National Standard by the American National Standards Institute or ANSI/NFPA-70, certification by Underwriters Laboratories and the Society of Automotive Engineers, and compliance with local roadway safety legislation. These regulations are subject to change, and our ability to remain viable is contingent upon successfully satisfying regulatory requirements as stipulated by these agencies and/or others as the development of our MotionPower™ technology evolves.
Employees
As of August 31, 2013, we have three full time employees, Mr. John A. Conklin, President and Chief Executive Officer and Chief Financial Officer; Dr. Scott Hammond, Principal Scientist and Briana Erickson, Manager of Business Operations & Communications.
Our corporate office is located at 10632 Little Patuxent Parkway, Suite 406, Columbia, Maryland 21044. On December 1, 2010, we renewed our sublease agreement on a month-to-month basis with MVP Law Group, P.A., of which our former Chief Executive Officer and President is a founder and former managing attorney. Rent for this office space is $1,100 per month.
We also maintain an office at 8875 Hidden River Parkway, Suite 300, Tampa, Florida 33637. We have a one year lease, which began on February 16, 2009 and automatically renews on the anniversary date for another year unless terminated by us. We may terminate this lease agreement by giving written notice to the landlord not less than sixty (60) days prior to the expiration of the term of the lease. The rent for the office in Tampa, Florida is $225 per month plus tax and variable charges.
We are not party to nor are we aware of any material pending lawsuit, litigation or proceeding.
16
Market Information
Our common stock is quoted on the OTCQB under the symbol “
NENE
”. Our warrants to purchase common stock are not currently traded on any market.
The following table sets forth the high and low bid quotations of our common stock for each quarter during the past two fiscal years as reported by the OTCQB:
| High | Low | |||||||
|
Fiscal Year Ended August 31, 2013
|
||||||||
|
First Quarter 2013 (September 1 – November 30, 2012)
|
$ | 1.30 | $ | 0.80 | ||||
|
Second Quarter 2013 (December 1, 2012 – February 28, 2013)
|
$ | 1.68 | $ | 0.76 | ||||
|
Third Quarter 2013 (March 1 – May 31, 2013)
|
$ | 2.57 | $ | 1.22 | ||||
|
Fourth Quarter 2013 (June 1 – August 31, 2013)
|
$ | 2.17 | $ | 1.67 | ||||
|
Fiscal Year Ended August 31, 2012
|
||||||||
|
First Quarter 2012 (September 1 – November 30, 2011)
|
$ | 2.30 | $ | 1.41 | ||||
|
Second Quarter 2012 (December 1, 2011 – February 29, 2012)
|
$ | 2.39 | $ | 1.08 | ||||
|
Third Quarter 2012 (March 1 – May 31, 2012)
|
$ | 4.42 | $ | 1.81 | ||||
|
Fourth Quarter 2012 (June 1 – August 31, 2012)
|
$ | 2.03 | $ | 1.25 | ||||
As of November 19, 2013, there were approximately 38 stockholders of record of our common stock. A portion of our common stock is held in “street name” or by beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions.
Dividend Policy
We have not paid any dividends on our common stock and our Board of Directors (the “
Board
”) presently intends to continue a policy of retaining earnings, if any, for use in our operations. The declaration and payment of dividends in the future, of which there can be no assurance, will be determined by the Board in light of conditions then existing, including earnings, financial condition, capital requirements and other factors. The Nevada Revised Statutes prohibit us from declaring dividends where, if after giving effect to the distribution of the dividend:
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·
|
We would not be able to pay our debts as they become due in the usual course of business; or
|
|
·
|
Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
|
Except as set forth above, there are no restrictions that currently materially limit our ability to pay dividends or which we reasonably believe are likely to limit materially the future payment of dividends on common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
The following sets forth certain information regarding the common stock that may be issued upon the exercise of options, warrants and other rights that have been or may be granted to employees, directors or consultants under all of our existing equity compensation plans. The 2006 Incentive Stock Option Plan (see below) is our only equity based compensation plan as of August 31, 2013.
17
2006 Incentive Stock Option Plan (
Equity Compensation Plan Approved by Security Holders)
On October 10, 2006, our Board adopted and approved and on February 7, 2011, a majority of our shareholders approved the 2006 Incentive Stock Option Plan (the “
2006 Plan
”) that provides for the grant of stock options to employees, directors, officers and consultants. The 2006 Plan provides for the granting of options to purchase a maximum of 5,000,000 shares of our common stock. Stock options granted to employees under the 2006 Plan generally vest over two to five years or as otherwise determined by the plan administrator. Stock options to purchase shares of our common stock expire no later than ten years after the date of grant.
The per share exercise price for each stock option is determined by the Board and may not be below the closing price of our common stock on the date of grant,
or, if our common stock is not traded on the date of grant, the first day of active trading following the date of grant.
We measure all stock-based compensation awards using a fair value method on the date of grant and recognize such expense in our consolidated financial statements over the requisite service period. We use the Black-Scholes option pricing model to calculate the fair value of stock option grants. The Black-Scholes option pricing model requires management to make assumptions regarding the option lives, expected volatility, and risk-free interest rates, all of which impact the fair value of the option and, ultimately, the expense that will be recognized over the life of the option.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a bond with a similar term. We do not anticipate declaring dividends in the foreseeable future. Volatility is calculated based on the historical weekly closing stock prices for the same period as the expected life of the option. We use the “simplified” method for determining the expected term of our “plain vanilla” stock options. We recognize compensation expense for only the portion of stock options that are expected to vest. Therefore, we apply an estimated forfeiture rate that is derived from historical employee termination data and adjusted for expected future employee turnover rates. If the actual number of forfeitures differs from those estimated by us, additional adjustments to compensation expense may be required in future periods.
|
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
|
Weighted-average exercise price of outstanding options, warrants and rights
(b)
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
|
|||||||||
|
Equity compensation plans approved by security holders
(1)
|
970,838 | (2) | $ | 2.03 | 3,892,495 | |||||||
|
Equity compensation plans not approved by security holders
|
-- | -- | -- | |||||||||
|
Total
|
970,838 | $ | 2.03 | 3,892,495 | ||||||||
(1)
Consists of grants under the 2006 Plan.
(2)
Please refer to
ITEM 8, Financial Statements
“NOTE 5. STOCK OPTIONS,” “ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE,” and “ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.”
18
Recent Sales of Unregistered Securities
All funds received from the sale of our shares were used for working capital purposes. All shares bear a legend restricting their disposition. The foregoing securities may not be offered or sold in the United States unless registered under the Act, or pursuant to an exemption from registration.
The shares were issued in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “
Securities Act
”). Each investor took his securities for investment purposes without a view to distribution and had access to information concerning us and our business prospects, as required by the Securities Act. In addition, there was no general solicitation or advertising for the purchase of our shares. Our securities were sold only to an accredited investor and a limited number of sophisticated investors, as defined in the Securities Act with whom we had a direct personal preexisting relationship, and after a thorough discussion. Finally, our stock transfer agent has been instructed not to transfer any of such shares, unless such shares are registered for resale or there is an exemption with respect to their transfer.
Each purchaser was provided with access to our filings with the United States Securities and Exchange Commission (the “
SEC
”), including the following:
|
·
|
Our annual report to stockholders for the most recent fiscal year, the definitive proxy statement filed in connection with that annual report, and, if requested by the purchaser in writing, a copy of our most recent Form 10-K under the Exchange Act of 1934, as amended (the “
Exchange Act
”).
|
|
·
|
The information contained in an annual report on Form 10-K under the Exchange Act.
|
|
·
|
The information contained in any reports or documents required to be filed by New Energy Technologies, Inc. under sections 13(a), 14(a), 14(c), and 15(d) of the Exchange Act since the distribution or filing of the reports specified above.
|
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·
|
A brief description of the securities being offered, the use of the proceeds from the offering, and any material changes in our affairs that are not disclosed in the documents furnished.
|
During the year ended August 31, 2013, we entered into the following securities related transactions:
|
1.
|
We
completed a self-directed registered offering of 1,875,000 units at a price of $0.64 per unit for $1,200,000 in aggregate proceeds. Each unit consisted of one share of our common stock and one-half Series H Stock Purchase Warrant (the “
Series H Warrants
”) to purchase one-half of a share of common stock at the initial exercise price of $0.83 per share for a period of three years from the date of issuance. The Company issued Series H Warrants to purchase up to 937,503 shares of common stock as part of the registered offering.
(1)
|
|
2.
|
Investors in our registered offering received 7,812 shares of common stock upon the exercise of 7,812 Series H Warrants for
aggregate gross proceeds of $6,484.
(1)
|
|
3.
|
We issued 1,650,869 shares of restricted common stock upon the conversion of
$1,000,000 of principal and $56,556 of accrued interest related to the April 17, 2012, Bridge Loan (the “
2012 Bridge Loan
”).
(2)
|
|
4.
|
We issued a Series H Warrant to purchase up to 825,435 shares of our common stock to
1420524 Alberta Ltd. as part of the conversion of the 2012 Bridge Loan.
(2)
|
|
5.
|
Mr. Conklin, Chief Executive Officer received 22,672 shares of common stock upon the cashless exercise of 63,333 vested options.
|
During the year ended August 31, 2012, in connection with the 2012 Bridge Loan Agreement, we issued a Series G Stock Purchase Warrant (the “
Series G Warrant
”) to purchase up to 625,000 shares of our common stock, which is exercisable through April 17, 2015.
(2)
(1)
See “Note 4 – Stockholder’s Equity (Deficit)” under ITEM 8, Financial Statements, for additional information.
(2)
See “Note 3 - Convertible Promissory Note” under ITEM 8, Financial Statements, for additional information.
19
Additional Information
Copies of our annual reports, quarterly reports, current reports, and any amendments to those reports, are available free of charge on the internet at www.sec.gov. All statements made in any of our filings, including all forward-looking statements, are made as of the date of the document(s) in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the consolidated results of operations and financial condition of New Energy Technologies, Inc. and its subsidiaries. The MD&A is provided as a supplement to, and should be read in conjunction with financial statements and the accompanying notes to the financial statements included in this Form 10-K.
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Overview
New Energy Technologies, Inc. was incorporated in the State of Nevada on May 5, 1998, under the name “Octillion Corp.” On December 2, 2008, we amended our Articles of Incorporation to change our name to New Energy Technologies, Inc. Our wholly owned subsidiaries include: Sungen Energy, Inc. (“
Sungen
”), which
was incorporated on July 11, 2006, in the State of Nevada and is currently inactive;
Kinetic Energy Corporation (“
KEC
”), which
was incorporated on June 19, 2008, in the State of Nevada and holds the patents related to our MotionPower™ technology; and
New Energy Solar Corporation (“
New Energy Solar
”), which
was incorporated on February 9, 2009, in the State of Florida and has entered into agreements with USF
to sponsor research related to our SolarWindow™ technology.
We are a development stage renewable and alternative energy company developing two (2) sustainable electricity generating systems. These novel technologies are branded as SolarWindow™ and MotionPower™. Our proprietary, patent-pending technologies are collectively the subject of one hundred and one (101) patent filings. Our SolarWindow™ technology provides the ability to harvest light energy from the sun and artificial sources and generate electricity from a see-through, semi-transparent, coating of OPV solar cells applied to glass and plastics. Our SolarWindow™ technology is the subject of forty-two (42) patent filings. Our MotionPower™ technology harvests “kinetic” or “motion” energy from vehicles when they slow down before coming to a stop and converts this captured energy into electricity. Our MotionPower™ technology is the subject of fifty-nine (59) patent filings.
We do not currently have any commercial products and there is no assurance that we will successfully be able to design, develop, manufacture, or sell any commercial products in the future.
Our product development programs involve ongoing research and development efforts, and the commitment of significant resources to support the extensive invention, design, engineering, testing, prototyping, and intellectual property initiatives carried-out by our contract engineers, scientists, and consultants.
Ultimately, we plan to market any SolarWindow™ technology and/or MotionPower™ technology products through co-marketing, co-promotion, licensing and distribution arrangements with third party collaborators. We believe that this approach could provide immediate access to pre-existing distribution channels, therefore potentially increasing market penetration and commercial acceptance of our products and enabling us to avoid expending significant funds for development of a large sales and marketing organization.
20
We cannot accurately predict the amount of funding or the time required to successfully commercialize either the SolarWindow™ technology or the MotionPower™ technology. The actual cost and time required to commercialize these technologies may vary significantly depending on, among other things, the results of our research and development efforts, the cost of developing, acquiring, or licensing various enabling technologies, changes in the focus and direction of our research and development programs, competitive and technological advances, the cost of filing, prosecuting, defending and enforcing claims with respect to patents, the regulatory approval process and manufacturing, marketing and other costs associated with commercialization of these technologies. Because of this uncertainty, even if financing is available to us, we may secure insufficient funding to effectuate our business plan.
As of August 31, 2013, we had working capital of $397,516. Subsequent to our fiscal year end, o
n October 7, 2013, the Company received proceeds of $3,000,000 in connection with issuing a 7% unsecured convertible note.
Based upon our current level of operations and expenditures, we believe that cash on hand as of the filing of this annual report should be sufficient to enable us to continue operations into our fiscal year ended August 31, 2015.
Research and Related Agreements
We are a party to certain agreements related to the development of our SolarWindow™ technology and our MotionPower™ technology.
SolarWindow™ Technology
Stevenson-Wydler Cooperative Research and Development Agreement with the Alliance for Sustainable Energy
In efforts to advance the commercial development of the SolarWindow™ technology, on March 18, 2011, we entered into a CRADA with Alliance for Sustainable Energy, LLC (“
Alliance
”), the operator of NREL under its U.S. Department of Energy contract. Under terms of the CRADA, NREL researchers will make use of our exclusive intellectual property (“
IP
”), newly developed IP, and NREL’s background IP in order to work towards specific product development goals. Under the terms of the CRADA, we agreed to reimburse Alliance for filing fees associated with all documented, out-of-pocket costs directly related to patent application preparation and filings, and maintenance of the patent applications.
On January 16, 2013, we entered into a modification to the CRADA for the purpose of extending the date pursuant to which NREL’s researchers will make use of our exclusive IP and NREL’s background IP. As part of the extension, we advanced $150,000 to Alliance as a retainer, which will be used once the development goals are met. Until such time, however, Alliance bills us monthly for R&D related costs as they are incurred.
On March 6, 2013, we entered into Phase II of our CRADA with Alliance. Under the terms of the agreement, researchers will additionally work towards:
|
·
|
Further improve SolarWindow™’s efficiency and transparency;
|
|
·
|
Optimize electrical power (current and voltage) output;
|
|
·
|
Optimize the application of the active layer coatings which make it possible for SolarWindow™ to generate electricity on glass surfaces;
|
|
·
|
Develop improved electricity-generating coatings by enhancing performance, processing, reliability, and durability;
|
|
·
|
Optimize SolarWindow™ performance on flexible substrates; and
|
|
·
|
Develop high speed and large area roll-to-roll (R2R) and sheet-to-sheet (S2S) coating methods required for commercial-scale BIPV and windows.
|
University of South Florida Research Foundation, Inc. License Agreement, Option Agreement, Sponsored Research Agreement
Through New Energy Solar, we are a party to a License Agreement, an Addendum to the License Agreement, an Option Agreement and a Sponsored Research Agreement with USF. These agreements provide for our support of a project relating to the development of the SolarWindow™ technology and grant us an exclusive worldwide commercial license under certain patents relating to the SolarWindow™ technology developed at USF.
21
On July 5, 2011, we entered into a letter agreement pursuant to which we agreed to reimburse USF for filing fees associated with USF’s patent applications (the “
Applications
”) for certain identified technologies (the “
Letter Agreement
”). Pursuant to the terms of the Letter Agreement, we committed to reimburse USF for all documented, out-of-pocket costs directly related to the filing and maintenance of the Applications. In return, USF granted us the exclusive right to negotiate a definitive option or license agreement with USF for the technologies underlying the Applications for a period of time after USF files a patent for an identified technology (the “
Negotiation Period
”). Should the Negotiation Period expire without us entering into an agreement with USF, we could extend the Negotiation Period for an additional period of time by paying USF a one-time payment of a specified sum. If after this additional time we fail to enter into an agreement with USF, USF is free to enter into negotiations and license the underlying technologies to a third-party. The USF Research Foundation, Inc. granted the lead USF research scientist authorization to enter into discussions with us to extend the date of the Sponsored Research Agreement. We mutually agreed with USF to terminate the sponsored research on February 23, 2013, as the scope of work of the sponsored research had been substantially completed. We are in the process of negotiating terms to a new world-wide licensing agreement for completed research and related patent filings.
MotionPower™ Technology
Sigma Design Agreement
Through KEC, the Company was party to consulting agreements with Sigma Design Company, LLC (“
Sigma
”) a Middlesex, New Jersey based engineering and design firm, pursuant to which Sigma was contracted to provide engineering, product development and testing services primarily relating to the development of the MotionPower™ technologies. On, or about July 15, 2013, Sigma completed its MotionPower™ development and testing services.
Results of Operations
Year Ended August 31, 2013 Compared with the Year Ended August 31, 2012
Operating Expenses
A summary of our operating expense for the years ended August 31, 2013 and 2012 follows:
|
Year ended
August 31,
|
Increase / | Percentage | ||||||||||||||
|
2013
|
2012
|
(Decrease)
|
Change
|
|||||||||||||
|
Operating expense
|
||||||||||||||||
|
Selling, general and administrative
|
$ | 1,502,581 | $ | 1,442,988 | $ | 59,593 | 4 | % | ||||||||
|
Research and development
|
356,877 | 672,443 | (315,566 | ) | -47 | % | ||||||||||
|
Stock compensation
|
1,383,264 | 205,098 | 1,178,166 | 574 | % | |||||||||||
|
Total operating expense
|
$ | 3,242,722 | $ | 2,320,529 | $ | 922,193 | 40 | % | ||||||||
Selling, General and Administrative
Selling, general and administrative (“
SG&A
”) costs include all expenditures incurred other than research and development related costs, including costs related to personnel, professional fees, travel and entertainment, public company costs, insurance and other office related costs. The $59,593 year-over-year increase is primarily due to higher personnel costs and public company expenses primarily related to fees paid to publicize our SolarWindow™ and MotionPower™ technologies within the industry and investor community offset by decreased in patent costs and professional fees.
22
Stock Compensation
Stock compensation represents the expense associated with the amortization of our stock options and other equity based payments. During the year ended August 31, 2013, stock compensation expense increased $1,178,166 due to $1,059,038 recognized upon the issuance of Series H Warrants granted as an inducement to convert the 2012 Bridge Loan and accrued interest into shares of common stock and the expense associated with our stock option grants, including the 2013 grant of 177,500 stock options and grants made in prior years vesting over time.
Research and Development
Research and development (“
R&D
”) costs represent costs incurred to develop our
SolarWindow™ and MotionPower™ technologies
and are incurred pursuant to our research agreements and agreements with other third party providers and certain internal R&D cost allocations. Payments under these agreements include salaries and benefits for R&D personnel, allocated overhead, contract services and other costs. R&D costs are expensed when incurred, except for nonrefundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed.
See “
Research and Related Agreements
” above for disclosure regarding certain terms of our research agreements.
R&D costs decreased during the year ended August 31, 2013, compared to the year ended August 31, 2012, due to the phase of technology development associated with the CRADA conducted at NREL and a decrease in R&D costs related to services performed by Sigma due to prototype fabrication and an analysis of data and information associated with tested prototypes.
Other Income (Expense)
A summary of our other income (expense) for the years ended August 31, 2013 and 2012 follows:
|
Year Ended
August 31,
|
Increase/
|
|||||||||||
|
2013
|
2012
|
(Decrease)
|
||||||||||
|
Other income (expense)
|
||||||||||||
|
Interest expense-other
|
$ | (30,325 | ) | $ | (26,231 | ) | $ | (4,094 | ) | |||
|
Interest expense - accretion of debt discount
|
(999,485 | ) | (515 | ) | (998,970 | ) | ||||||
|
Foreign exchange loss
|
- | (55 | ) | 55 | ||||||||
|
Payable written off
|
- | 156,109 | (156,109 | ) | ||||||||
|
Total other income (expense)
|
$ | (1,029,810 | ) | $ | 129,308 | $ | (1,159,118 | ) | ||||
Interest Expense
“Interest expense – other” relates to the 7% stated interest of the Bridge Loan. “Interest expense - accretion of debt discount” also relates to the 2012 Bridge Loan and represents the accretion of the discount applied to the loan as a result of the issuance of a detachable Series G Warrant exercisable for 625,000 shares of our common stock and the beneficial conversion feature contained in the 2012 Bridge Loan and is calculated according to the effective interest method. As a result of the conversion of the 2012 Bridge Loan, the entire balance of the debt discount was recorded as interest expense during 2013.
Discontinued Operations
On August 19, 2011, we established Nakoda, a California corporation and wholly owned subsidiary of ours, which began operations in September 2011. In January
, 2012,
we divested ourselves of Nakoda due to the high costs associated with growing operations and difficult financing environment resulting in a loss of $242,210 recorded as discontinued operations.
23
Liquidity and Capital Resources
We have an accumulated deficit of $17,053,889 through August 31, 2013. Included in the deficit are non-cash expenses totaling $4,620,369 relating to the issuance of stock for services, compensatory stock options, warrants granted for value and accretion of debt discount. Due to the “start-up” nature of our business, we expect to incur losses as we continue development of our PV and energy harvesting technologies and expand. Although we believe that we have sufficient capital to fund our operations through at least August 31, 2014, management recognizes that in order for us to meet our capital requirements, and continue to operate, additional financing will be necessary. We expect to raise additional funds through private or public equity investment in order to expand the range and scope of our business operations. We will seek access to private or public equity but there is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, if at all. If we are unable to raise additional capital when needed or generate positive cash flow, it is unlikely that we will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our principal source of liquidity is cash in the bank. At August 31, 2013, we had a cash and cash equivalent balance of $347,493. We have financed our operations primarily pursuant to a securities purchase agreement in which we received net proceeds of $3,395,955 in February 2008, from the exercise of warrants and stock options and $1,000,000 of proceeds from the 2012 Bridge Loan and most recently $1,200,000 from the consummation of a self-directed registered offering of shares and Series H Warrants on February 1, 2013.
Net cash used in operating activities was $1,905,908 for the year ended August 31, 2013, compared to net cash used in operating activities of $2,248,809 for the year ended August 31, 2012. The decrease in cash used in operating activities of $342,901 substantially reflects decreases in amounts paid for research and development.
Net cash used by investing activities was $0 and $24,458 for the years ended August 31, 2013 and
2012, respectively.
Net cash provided by financing activities during 2013 of $1,206,483 was from the self-directed registered offering on February 1, 2013 and the exercise of 7,812 Series H Warrants, whereas cash provided by financing activities in 2012 was from the 2012 Bridge Loan
.
On October 7, 2013, the Company received proceeds of $3,000,000 in connection with issuing a 7% unsecured convertible note. For additional information please refer to "
ITEM 8. FINANCIAL STATEMENTS",
"Note
9 - Subsequent Events".
Other Contractual Obligations
In addition to our contractual obligations under the research agreements, as of August 31
, 2013
, we have lease payments of $1,341 each month under our month-to-month corporate and other office operating leases. In addition, we have future payments totaling $13,000 pursuant to agreements with third party providers that we utilize for investor and public relations and marketing and business development.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any standards that we believe merit further discussion. We believe that none of the new standards will have a significant impact on our consolidated financial statements.
24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||||
|
Report of Independent Registered Public Accounting Firm
|
26 | |||
|
Consolidated Balance Sheets as of August 31, 2013 and 2012
|
27 | |||
|
Consolidated Statements of Operations for the Years Ended August 31, 2013 and 2012
and the Cumulative Period from Inception (May 5, 1998) to August 31, 2013
|
28 | |||
|
Consolidated Statements of Stockholders’ Equity (Deficit)
from May 5, 1998 (Inception) to August 31, 2013
|
29 | |||
|
Consolidated Statements of Cash Flows for the Years Ended August 31, 2013 and 2012
and the Cumulative Period from Inception (May 5, 1998) to August 31, 2013
|
30 | |||
|
Notes to Consolidated Financial Statements
|
31 | |||
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
New Energy Technologies, Inc.
Columbia, Maryland
We have audited the accompanying consolidated balance sheets of New Energy Technologies, Inc. and Subsidiaries ("the Company") (a development stage company) as of August 31, 2013 and 2012, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and for the cumulative period from May 5, 1998 (inception), to August 31, 2013. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Energy Technologies, Inc. and Subsidiaries as of August 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended, and for the cumulative period from May 5, 1998 (inception), to August 31, 2013, in conformity with accounting principles generally accepted in the United States.
/S/ PETERSON SULLIVAN LLP
Seattle, Washington
November 27, 2013
26
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2013 AND 2012
|
August 31,
|
August 31,
|
|||||||
|
2013
|
2012
|
|||||||
|
ASSETS
|
||||||||
|
Current assets
|
||||||||
|
Cash and cash equivalents
|
$ | 347,493 | $ | 1,046,918 | ||||
|
Deferred research and development costs
|
150,000 | 32,595 | ||||||
|
Prepaid expenses and other current assets
|
22,379 | 28,233 | ||||||
|
Total current assets
|
519,872 | 1,107,746 | ||||||
|
Equipment, net of accumulated depreciation of $12,025 and $5,882, respectively
|
13,823 | 19,966 | ||||||
|
Total assets
|
$ | 533,695 | $ | 1,127,712 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current liabilities
|
||||||||
|
Accounts payable
|
$ | 122,356 | $ | 63,403 | ||||
|
Accrued liabilities
|
- | 26,231 | ||||||
|
Convertible promissory note, net of discount of $0 and $999,485, respectively
|
- | 515 | ||||||
|
Total current liabilities
|
122,356 | 90,149 | ||||||
|
Commitments and contingencies
|
||||||||
|
Stockholders' equity
|
||||||||
|
Preferred stock: $0.10 par value; 1,000,000 shares authorized, no shares issued and outstanding at August 31, 2013 and 2012, respectively.
|
- | - | ||||||
|
Common stock: $0.001 par value; 300,000,000 shares authorized, 24,194,713 and 20,638,360 shares issued and outstanding at August 31, 2013 and 2012, respectively
|
24,194 | 20,638 | ||||||
|
Additional paid-in capital
|
17,441,034 | 13,798,282 | ||||||
|
Deficit accumulated during the development stage
|
(17,053,889 | ) | (12,781,357 | ) | ||||
|
Total stockholders' equity
|
411,339 | 1,037,563 | ||||||
|
Total liabilities and stockholders' equity
|
$ | 533,695 | $ | 1,127,712 | ||||
(The accompanying notes are an integral part of these consolidated financial statements)
27
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 2013 AND 2012 AND
FOR THE
PERIOD FROM INCEPTION (MAY 5, 1998) TO AUGUST 31, 2013
|
Cumulative
|
||||||||||||
|
May 5, 1998
|
||||||||||||
|
Year Ended August 31,
|
(Inception) to
|
|||||||||||
|
2013
|
2012
|
August 31, 2013
|
||||||||||
|
|
||||||||||||
|
Revenue
|
$ | - | $ | - | $ | - | ||||||
|
Operating expense
|
||||||||||||
|
Selling, general and administrative
|
2,885,845 | 1,648,086 | 14,271,837 | |||||||||
|
Research and development
|
356,877 | 672,443 | 2,947,016 | |||||||||
|
Total operating expense
|
3,242,722 | 2,320,529 | 17,218,853 | |||||||||
|
Loss from operations
|
(3,242,722 | ) | (2,320,529 | ) | (17,218,853 | ) | ||||||
|
Other income (expense)
|
||||||||||||
|
Interest income
|
- | - | 98,582 | |||||||||
|
Interest expense - other
|
(30,325 | ) | (26,231 | ) | (68,949 | ) | ||||||
|
Interest expense - accretion of debt discount
|
(999,485 | ) | (515 | ) | (1,000,000 | ) | ||||||
|
Loss on disposal of fixed assets
|
- | - | (5,307 | ) | ||||||||
|
Gain on dissolution of foreign subsidiary
|
- | - | 59,704 | |||||||||
|
Foreign exchange loss
|
- | (55 | ) | (86,428 | ) | |||||||
|
Change in fair value of warrant liability
|
- | - | 2,128,331 | |||||||||
|
Payable written off
|
- | 156,109 | 186,109 | |||||||||
|
Total other income (expense)
|
(1,029,810 | ) | 129,308 | 1,312,042 | ||||||||
|
Loss from continuing operations
|
(4,272,532 | ) | (2,191,221 | ) | (15,906,811 | ) | ||||||
|
Loss from discontinued operations
|
- | (242,210 | ) | (404,307 | ) | |||||||
|
Net loss
|
$ | (4,272,532 | ) | $ | (2,433,431 | ) | $ | (16,311,118 | ) | |||
|
Basic and Diluted Loss per Common Share:
|
||||||||||||
|
Continuing operations
|
$ | (0.19 | ) | $ | (0.11 | ) | ||||||
|
Discontinued operations
|
$ | - | $ | (0.01 | ) | |||||||
|
Total
|
$ | (0.19 | ) | $ | (0.12 | ) | ||||||
|
Weighted average number of common shares outstanding - basic and diluted
|
22,686,892 | 20,638,360 | ||||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
28
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM MAY 5, 1998 (INCEPTION) TO AUGUST 31, 2013
|
Common Stock
|
Additional
|
Deficit
Accumulated
Development
|
Total
Stockholders'
|
|||||||||||||||||
|
Shares
|
Amount
|
Paid-in Capital
|
Stage
|
Equity (Deficit)
|
||||||||||||||||
|
Restricted common stock issued to related parties for management services at $0.001 per share
|
3,000,000 | $ | 3,000 | $ | - | $ | - | $ | 3,000 | |||||||||||
|
Unrestricted common stock sales to third parties at $0.40 per share
|
375,000 | 375 | 149,625 | - | 150,000 | |||||||||||||||
|
Net loss for the year ended August 31, 1998
|
(12,326 | ) | (12,326 | ) | ||||||||||||||||
|
Balance, August 31, 1998
|
3,375,000 | 3,375 | 149,625 | (12,326 | ) | 140,674 | ||||||||||||||
|
Net loss for the year ended August 31, 1999
|
(77,946 | ) | (77,946 | ) | ||||||||||||||||
|
Balance, August 31, 1999
|
3,375,000 | 3,375 | 149,625 | (90,272 | ) | 62,728 | ||||||||||||||
|
Net loss for the year ended August 31, 2000
|
(12,446 | ) | (12,446 | ) | ||||||||||||||||
|
Balance, August 31, 2000
|
3,375,000 | 3,375 | 149,625 | (102,718 | ) | 50,282 | ||||||||||||||
|
Net loss for year ended August 31, 2001
|
(12,904 | ) | (12,904 | ) | ||||||||||||||||
|
Balance, August 31, 2001
|
3,375,000 | 3,375 | 149,625 | (115,622 | ) | 37,378 | ||||||||||||||
|
Net loss for the year ended August 31, 2002
|
(54,935 | ) | (54,935 | ) | ||||||||||||||||
|
Balance, August 31, 2002
|
3,375,000 | 3,375 | 149,625 | (170,557 | ) | (17,557 | ) | |||||||||||||
|
Restricted common stock issued at $.001 per share to two related parties to satisfy outstanding management fees.
|
10,333,200 | 10,333 | 92,999 | - | 103,332 | |||||||||||||||
|
Net loss for the year ended August 31, 2003
|
(97,662 | ) | (97,662 | ) | ||||||||||||||||
|
Balance, August 31, 2003
|
13,708,200 | 13,708 | 242,624 | (268,219 | ) | (11,887 | ) | |||||||||||||
|
Net loss for the year ended August 31, 2004
|
(19,787 | ) | (19,787 | ) | ||||||||||||||||
|
Balance, August 31, 2004
|
13,708,200 | 13,708 | 242,624 | (288,006 | ) | (31,674 | ) | |||||||||||||
|
Net loss for the year ended August 31, 2005
|
(103,142 | ) | (103,142 | ) | ||||||||||||||||
|
Balance, August 31, 2005
|
13,708,200 | 13,708 | 242,624 | (391,148 | ) | (134,816 | ) | |||||||||||||
|
Issuance of common stock and warrants at $0.50 per share
|
1,000,000 | 1,000 | 499,000 | - | 500,000 | |||||||||||||||
|
Net loss for the year ended August 31, 2006
|
(157,982 | ) | (157,982 | ) | ||||||||||||||||
|
Balance, August 31, 2006
|
14,708,200 | 14,708 | 741,624 | (549,130 | ) | 207,202 | ||||||||||||||
|
Exercise of Class A Warrants at $0.50 per share
|
1,000,000 | 1,000 | 499,000 | - | 500,000 | |||||||||||||||
|
Exercise of Class B Warrants at $0.55 per share
|
1,000,000 | 1,000 | 549,000 | - | 550,000 | |||||||||||||||
|
Exercise of Class C Warrants at $1.50 per share
|
326,667 | 327 | 489,673 | - | 490,000 | |||||||||||||||
|
Exercise of Class D Warrants at $1.65 per share
|
293,333 | 293 | 483,707 | - | 484,000 | |||||||||||||||
|
Exercise of Class E Warrants at $1.80 per share
|
293,333 | 293 | 527,707 | - | 528,000 | |||||||||||||||
|
Issuance of common stock and warrants at $1.50 per share
|
333,333 | 333 | 499,667 | - | 500,000 | |||||||||||||||
|
Dividend paid - spin off of MircoChannel Technologies Corporation
|
- | - | - | (400,000 | ) | (400,000 | ) | |||||||||||||
|
Net loss for the year ended August 31, 2007
|
(1,442,769 | ) | (1,442,769 | ) | ||||||||||||||||
|
Balance, August 31, 2007
|
17,954,866 | 17,954 | 3,790,378 | (2,391,899 | ) | 1,416,433 | ||||||||||||||
|
Common stock and warrants issued for cash and services at $3.00 per Unit
|
1,225,000 | 1,225 | 3,394,730 | - | 3,395,955 | |||||||||||||||
|
Exercise of Class C Warrants at $1.50 per share
|
6,667 | 7 | 9,993 | - | 10,000 | |||||||||||||||
|
Exercise of Class D Warrants at $1.65 per share
|
6,667 | 7 | 10,993 | - | 11,000 | |||||||||||||||
|
Exercise of Class F Warrants at $3.75 per share
|
58,333 | 58 | 218,692 | - | 218,750 | |||||||||||||||
|
Stock based compensation
|
- | - | 3,600,303 | - | 3,600,303 | |||||||||||||||
|
Net loss for the year ended August 31, 2008
|
(5,721,545 | ) | (5,721,545 | ) | ||||||||||||||||
|
Balance, August 31, 2008
|
19,251,533 | 19,251 | 11,025,089 | (8,113,444 | ) | 2,930,896 | ||||||||||||||
|
Exercise of Class E Warrants at $1.80 per share
|
6,667 | 7 | 11,993 | - | 12,000 | |||||||||||||||
|
Exercise of Class F Warrants at $3.75 per share
|
275,333 | 275 | 1,032,225 | - | 1,032,500 | |||||||||||||||
|
Stock based compensation
|
- | - | 183,312 | - | 183,312 | |||||||||||||||
|
Reversal of stock based compensation due to forfeiture of stock options
|
- | - | (3,591,093 | ) | - | (3,591,093 | ) | |||||||||||||
|
Net income for the year ended August 31, 2009
|
1,961,175 | 1,961,175 | ||||||||||||||||||
|
Balance, August 31, 2009
|
19,533,533 | 19,533 | 8,661,526 | (6,152,269 | ) | 2,528,790 | ||||||||||||||
|
Stock based compensation
|
- | - | 661,040 | - | 661,040 | |||||||||||||||
|
Reversal of stock based compensation due to forfeiture of stock options
|
- | - | (478,971 | ) | - | (478,971 | ) | |||||||||||||
|
Cumulative adjustment upon adoption of ASC 815-40
|
- | - | (1,785,560 | ) | (342,771 | ) | (2,128,331 | ) | ||||||||||||
|
Net loss for the year ended August 31, 2010
|
(233,136 | ) | (233,136 | ) | ||||||||||||||||
|
Balance, August 31, 2010
|
19,533,533 | 19,533 | 7,058,035 | (6,728,176 | ) | 349,392 | ||||||||||||||
|
Rounding due to reverse one for three stock split effective March 16, 2011
|
(3 | ) | - | - | - | - | ||||||||||||||
|
Exercise of Class F Warrants at $3.75 per share
|
1,054,512 | 1,055 | 3,953,320 | - | 3,954,375 | |||||||||||||||
|
Exercise of stock options
|
50,318 | 50 | 30,750 | - | 30,800 | |||||||||||||||
|
Stock based compensation
|
- | - | 2,855,630 | - | 2,855,630 | |||||||||||||||
|
Reversal of stock based compensation due to forfeiture of stock options
|
- | - | (1,304,551 | ) | - | (1,304,551 | ) | |||||||||||||
|
Net loss for the year ended August 31, 2011
|
(3,619,750 | ) | (3,619,750 | ) | ||||||||||||||||
|
Balance, August 31, 2011
|
20,638,360 | 20,638 | 12,593,184 | (10,347,926 | ) | 2,265,896 | ||||||||||||||
|
Stock based compensation
|
- | - | 237,046 | - | 237,046 | |||||||||||||||
|
Reversal of stock based compensation due to forfeiture of stock options
|
- | - | (31,948 | ) | - | (31,948 | ) | |||||||||||||
|
Discount on convertible promissory note due to detachable warrants
|
- | - | 547,050 | - | 547,050 | |||||||||||||||
|
Discount on convertible promissory note due to beneficial conversion feature
|
- | - | 452,950 | - | 452,950 | |||||||||||||||
|
Net loss for the year ended August 31, 2012
|
(2,433,431 | ) | (2,433,431 | ) | ||||||||||||||||
|
Balance, August 31, 2012
|
20,638,360 | 20,638 | 13,798,282 | (12,781,357 | ) | 1,037,563 | ||||||||||||||
|
Stock based compensation
|
- | - | 334,305 | - | 334,305 | |||||||||||||||
|
Reversal of stock based compensation due to forfeiture of stock options
|
- | - | (10,075 | ) | - | (10,075 | ) | |||||||||||||
|
Issuance of common stock and warrants at $0.64 per unit
|
1,875,000 | 1,875 | 1,198,125 | - | 1,200,000 | |||||||||||||||
|
Issuance of common stock upon the conversion of note at $0.64 per share
|
1,650,869 | 1,651 | 1,054,905 | - | 1,056,556 | |||||||||||||||
|
Exercise of stock options
|
22,672 | 22 | (22 | ) | - | - | ||||||||||||||
|
Issuance of common stock upon the exercise of Series H Warrants
|
7,812 | 8 | 6,476 | - | 6,484 | |||||||||||||||
|
Expense related to issuance of Series H Warrants as inducement to convert the 2012 Promissory Note
|
- | - | 1,059,038 | - | 1,059,038 | |||||||||||||||
|
Net loss for the year ended August 31, 2013
|
- | - | - | (4,272,532 | ) | (4,272,532 | ) | |||||||||||||
|
Balance, August 31, 2013
|
24,194,713 | $ | 24,194 | $ | 17,441,034 | $ | (17,053,889 | ) | $ | 411,339 | ||||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
29
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2013 AND 2012 AND FOR THE
PERIOD FROM INCEPTION (MAY 5, 1998) TO AUGUST 31, 2013
|
Cumulative
|
||||||||||||
|
May 5, 1998
|
||||||||||||
|
Year Ended August 31,
|
(Inception) to
August 31,
|
|||||||||||
|
2013
|
2012
|
2013
|
||||||||||
|
Cash flows from operating activities
|
||||||||||||
|
Loss from continuing operations
|
$ | (4,272,532 | ) | $ | (2,191,221 | ) | $ | (15,906,811 | ) | |||
|
Add: loss from discontinued operations
|
- | (242,210 | ) | (404,307 | ) | |||||||
|
Adjustments to reconcile net loss to net cash used in operating activities
|
||||||||||||
|
Depreciation
|
6,143 | 5,419 | 16,507 | |||||||||
|
Stock based compensation expense
|
334,305 | 237,046 | 7,871,637 | |||||||||
|
Reversal of stock based compensation expense due to forfeiture of stock options
|
(10,075 | ) | (31,948 | ) | (5,416,638 | ) | ||||||
|
Warrants issued to note holder
|
1,059,038 | - | 1,059,038 | |||||||||
|
Change in fair value of warrant liability
|
- | - | (2,128,331 | ) | ||||||||
|
Loss on disposal of fixed assets
|
- | - | 5,307 | |||||||||
|
Payable written off
|
- | (156,109 | ) | (186,109 | ) | |||||||
|
Common stock issued for services
|
- | - | 3,000 | |||||||||
|
Common stock issued for debt settlement
|
- | - | 103,332 | |||||||||
|
Accretion of debt discount
|
999,485 | 515 | 1,000,000 | |||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Decrease (increase) in deferred research and development costs
|
(117,405 | ) | 123,684 | (150,000 | ) | |||||||
|
Decrease (increase) in prepaid expenses and other current assets
|
5,854 | 41,149 | (22,379 | ) | ||||||||
|
Increase (decrease) in accounts payable
|
58,953 | (56,465 | ) | 152,356 | ||||||||
|
Increase (decrease) in accrued liabilities
|
30,325 | 21,331 | 212,665 | |||||||||
|
Net cash used in operating activities
|
(1,905,909 | ) | (2,248,809 | ) | (13,790,733 | ) | ||||||
|
Cash flows from investing activity
|
||||||||||||
|
Purchase of equipment
|
- | (24,458 | ) | (35,637 | ) | |||||||
|
Net cash used in investing activity
|
- | (24,458 | ) | (35,637 | ) | |||||||
|
Cash flows from financing activities
|
||||||||||||
|
Proceeds from the issuance of common stock, exercise of warrants and stock options, net
|
1,206,484 | - | 13,573,863 | |||||||||
|
Repayment of promissory note
|
- | - | (155,000 | ) | ||||||||
|
Proceeds from promissory notes
|
- | 1,000,000 | 1,155,000 | |||||||||
|
Dividend paid
|
- | - | (400,000 | ) | ||||||||
|
Net cash provided by financing activities
|
1,206,484 | 1,000,000 | 14,173,863 | |||||||||
|
Increase (decrease) in cash and cash equivalents
|
(699,425 | ) | (1,273,267 | ) | 347,493 | |||||||
|
Cash and cash equivalents at beginning of period
|
1,046,918 | 2,320,185 | - | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 347,493 | $ | 1,046,918 | $ | 347,493 | ||||||
|
Supplemental disclosure of cash flow information:
|
||||||||||||
|
Interest paid in cash
|
$ | - | $ | - | $ | 12,393 | ||||||
|
Income taxes paid in cash
|
$ | - | $ | - | $ | - | ||||||
|
Supplemental disclosure of non-cash transactions:
|
||||||||||||
|
Accrued management fees converted to equity
|
$ | - | $ | - | $ | 103,332 | ||||||
|
Debt discount recorded for value of warrants issued
|
$ | - | $ | 547,050 | $ | 547,050 | ||||||
|
Debt discount recorded for beneficial conversion feature
|
$ | - | $ | 452,950 | $ | 452,950 | ||||||
|
Warrants issued for broker commissions
|
$ | - | $ | - | $ | 642,980 | ||||||
|
Common stock issued for conversion of note payable
|
$ | 1,056,556 | $ | - | $ | 1,056,556 | ||||||
(The accompanying notes are an integral part of these consolidated financial statements)
30
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2013 AND 2012
Organization
New Energy Technologies, Inc. (the “Company”, "we", "us", "our") was incorporated in the State of Nevada on May 5, 1998, under the name “Octillion Corp.” On December 2, 2008, the Company amended its Articles of Incorporation to effect a change of name to New Energy Technologies, Inc. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Sungen Energy, Inc. (“Sungen”), Kinetic Energy Corporation (“KEC”), and New Energy Solar Corporation (“New Energy Solar”).
Sungen was incorporated on July 11, 2006, in the State of Nevada and is currently inactive.
KEC was incorporated on June 19, 2008, in the State of Nevada and holds the patents related to the Company’s MotionPower™ technology. The Company’s business activities related to the MotionPower™ technology are conducted through KEC.
New Energy Solar was incorporated on February 9, 2009, in the State of Florida and has entered into agreements with USF to sponsor research related to the Company’s SolarWindow™ technology.
On March 16, 2011, pursuant to a consent signed by the Company’s shareholders owning a majority of the Company’s then issued and outstanding shares of common stock, the Company filed a Certificate of Amendment to its Certificate of Incorporation increasing its authorized shares of common stock, $0.001 par value, from 100,000,000 to 300,000,000.
On August 19, 2011, the Company established Nakoda Energy, Inc. (“Nakoda”), a California corporation and wholly owned subsidiary of the Company, which began operations in September 2011. Due to the high costs associated with growing operations and difficult financing environment, management suspended all Nakoda related operations as of November 30, 2011. On January 20, 2012, management completed the sale of Nakoda pursuant to a stock purchase agreement. The Company did not recognize any revenue from Nakoda related operations nor were there any recorded assets or liabilities as of and during the periods presented.
The Company is a renewable and alternative energy company, actively developing two novel technologies for generating sustainable electricity, one of which collects light energy from the sun and artificial sources (SolarWindow™), and the other harvests kinetic energy present in moving vehicles (MotionPower™). The Company’s proprietary, patent-pending technologies and products, which are the subjects of one hundred and one (101) patent-filings, have been invented, designed, engineered, and prototyped in preparation for further field testing, product development, and eventual commercial deployment.
The Company’s SolarWindow™ technology generates electrical energy when the electricity-generating coating is applied to glass and plastic surfaces creating semi-transparent, see-through solar cells. If successfully developed, SolarWindow™ could potentially be used on any of the more than 85 million commercial and residential buildings in the United States alone (U.S. Census Bureau, 2007 American Housing Survey & U.S. Energy Information Administration, 2003 Commercial Buildings Energy Consumption Survey). The Company’s SolarWindow™ technology is the subject of forty-two (42) patent filings.
The Company’s MotionPower™ technology harvests, or captures, the “kinetic” or “motion” energy of cars, trucks, buses, and heavy commercial vehicles when they pass over the system or slow down before coming to a stop. MotionPower™ converts this captured energy into electricity. If successfully developed, MotionPower™ could potentially be used to harvest kinetic energy generated by any of the estimated 250 million vehicles registered in America (U.S. Department of Transportation Federal Highway Administration, 2008 Highway Statistics), which drive approximately six billion miles on our nation’s roadways every day (U.S. Environmental Protection Agency). The Company’s MotionPower™ technology is the subject of fifty-nine (59) patent filings.
31
The Company’s product development programs involve ongoing research and development efforts, and the commitment of significant resources to support the extensive invention, design, engineering, testing, prototyping, and intellectual property initiatives carried-out by its contract engineers, scientists, and consultants.
The Company continues to assess the ongoing development and value propositions of its novel SolarWindow™ and MotionPower™ technologies. This assessment helps us strategically focus on specific technology development which best delivers significant long-term commercial competitive advantages.
Liquidity
The Company is a development stage company, does not have any commercialized products and has not generated any revenue since inception. The Company has an accumulated deficit
of $17,053,889
as of August 31, 2013, and does not have positive cash flows from operating activities. Included in the deficit are non cash expenses totaling $4,620,369 relating to the issuance of stock for services, compensatory stock options, warrants granted for value and accretion of debt discount. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern, which is dependent upon the Company’s ability to establish itself as a profitable business.
On February 1, 2013, the Company received $1,200,000 from an equity financing through the sale of its securities. As of August 31, 2013, the Company had cash and cash equivalents of $347,493.
Subsequent to the Company’s fiscal year end, o
n October 7, 2013, the Company received proceeds of $3,000,000 in connection with issuing a 7% unsecured convertible note. Based upon its current and near term anticipated level of operations and expenditures, the Company believes that cash on hand should be sufficient to enable it to continue operations
into our fiscal year ended August 31, 2015. However, there is no assurance that the Company will be able to generate revenue and achieve profitability or secure additional financing once the current cash balance is depleted.
If adequate funds are not available on reasonable terms, or at all, it would result in a material adverse effect on the Company’s business, operating results, financial condition and prospects. In particular, the Company may be required to delay, reduce the scope of or terminate one or more of its research programs, sell rights to its SolarWindow™ technology and/or MotionPower
TM
technology or other technologies or products based upon such technologies, or license the rights to such technologies or products on terms that are less favorable to the Company than might otherwise be available.
Summary of Significant Accounting Policies
Principles of Consolidation
These consolidated financial statements presented are those of the Company and its wholly owned subsidiaries, Sungen, KEC, and New Energy Solar. All significant intercompany balances and transactions have been eliminated.
Estimates
The preparation of the Company’s consolidated financial statements
requires management to make estimates and use assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. On an on-going basis, the Company evaluates its estimates. Actual results and outcomes may differ materially from these estimates and assumptions.
32
Cash and Cash Equivalents
Cash and cash equivalents includes highly liquid investments with original maturities of three months or less. The Company has amounts deposited with financial institutions in excess of federally insured limits.
Fair Value Measurement
The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company has no assets or liabilities valued with Level 1 inputs.
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company has no assets or liabilities valued with Level 2 inputs.
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company has no assets or liabilities valued with Level 3 inputs.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments and their liquidity. It is not practical to determine the fair value of our notes payable due to the complex terms. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Research and Development
Research and development costs represent costs incurred
to develop the Company’s technology, including
salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, supplies, equipment purchase and repair and other costs
.
Research and development costs are expensed when incurred,
except for nonrefundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed.
Stock-Based Compensation
The Company measures all employee stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite service period.
The Company uses the Black-Scholes-Merton formula to determine the fair value of stock-based compensation awards on the date of grant. The Black-Scholes-Merton formula requires management to make assumptions
regarding the option lives, expected volatility, and risk free interest rates. See “Note 4 -
Stockholders’ Equity (Deficit)
” and “Note 5 - Stock Options” for additional information on the Company’s stock-based compensation plans.
33
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
The Company reports a liability for unrecognized tax benefits resulting from uncertain income tax positions, if any, taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest expense or other expense, respectively.
Segment Reporting
The Company’s business is considered to be operating in one segment based upon the Company’s organizational structure, the way in which the operations are managed and evaluated, the availability of separate financial results and materiality considerations.
Net Income (Loss) Per Share
The computation of basic earnings per share (“EPS”) is based on the weighted average number of shares that were outstanding during the period, including
shares of common stock that are issuable at the end of the reporting period
. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. The computation of diluted net income per share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on earnings per share. Therefore, when calculating EPS if the Company experienced a loss, there is no inclusion of dilutive securities as their inclusion in the EPS calculation is antidilutive. Furthermore, options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants (they are in the money).
See “Note 6 - Net Loss Per Share” for further discussion.
All share and per share amounts reflect the 1-for-3 reverse stock split declared effective on March 21, 2011, by FINRA.
Recently Adopted Accounting Pronouncements
The Company reviews new accounting standards as issued. Although some of these accounting standards issued or effective after the end of the Company’s previous fiscal year may be applicable to the Company, it has not identified any standards that it believes merit further discussion. The Company believes that none of the new standards will have a significant impact on its consolidated financial statements.
At August 31, 2013, accounts payable totaling $122,356 consisted of $42,539 of professional services, $70,327 related to R&D and $9,490 of trade payables.
At August 31, 2012, accounts payable totaling $63,403 consisted of $24,863 of professional services and $38,540 of trade payables. Accrued liabilities consisted of $26,231 of accrued interest on the Company’s $1,000,000 outstanding Bridge Loan dated April 17, 2012.
34
On April 17, 2012, the Company entered into a Bridge Loan Agreement (the “Loan Agreement”) with 1420524 Alberta Ltd. (the “Creditor”), pursuant to which the Company borrowed $1,000,000 at an annual interest rate of 7% (the “Loan”). As a condition to the Creditor’s entry into the Loan Agreement, the Company issued the Creditor a Series G Stock Purchase Warrant to purchase 625,000 shares of the Company’s common stock (the “Series G Warrant”), which is exercisable through April 17, 2015, with an initial exercise price of 84% of the average of the closing price for our common stock as reported on the OTC Markets Group Inc. QB tier (the “OTCQB”) for the five trading days immediately preceding the closing of the Loan, or $1.92 per share, subject to adjustment as provided therein. According to the original terms of the Loan Agreement, the Creditor could elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Loan, and any or all accrued and unpaid interest thereon into shares of our common stock at an initial fixed conversion price equal to seventy (70%) percent of the average of the closing price for the Company’s common stock as reported on the OTCQB for the five trading days immediately preceding the closing of the Loan, or $1.60 per share subject to adjustment as provided therein.
The debt discount attributable to the relative fair value of the warrants and the beneficial conversion feature amounted to $547,050 and $452,950, respectively, and was to be accreted over the term of the Loan using the effective interest method.
On February 1, 2013, the Company and the Creditor entered into a Loan Conversion Agreement (“LCA”) whereby the Creditor agreed to convert the entire balance outstanding, including $1,000,000 of principal and $56,556 of accrued interest payable into 1,650,869 shares of restricted common stock. In order to induce the Creditor to convert the Loan into shares of common stock, and eliminate the Company’s obligation to repay the Loan in cash, the effective conversion price was reduced to $0.64 (the price at which the Company sold shares pursuant to its self-directed registered offering; see “NOTE 4 – Stockholders’ Equity (Deficit)” below) from the initial conversion price of $1.60. In addition, as part of the conversion, the Company issued to the Creditor a Series H Warrant to purchase 825,435 shares of the Company’s common stock (See “NOTE 4 – Stockholders’ Equity (Deficit)” below for additional information). No incremental expense was recognized in these consolidated financial statements related to the reduction in the exercise price of the Series G Warrant, and the conversion of the Loan, because the transaction did not meet the requirements for an inducement under accounting principles generally accepted in the United States. As such, the Loan conversion was accounted for as a debt extinguishment with no gain or loss recognized due to the related party nature of the transaction. The Company recognized expense amounting to $1,059,038 for the issuance of the Series H Warrant to the Creditor, representing additional financing costs associated with the Loan.
During the years ended August 31, 2013 and 2012, the Company recognized $30,325 and $26,231, respectively of interest expense related to the Loan and $999,485 and $515, respectively of accretion related to the debt discount. As a result of the Loan conversion, the debt discount was fully amortized by February 1, 2013, the date of the LCA.
On February 1, 2013, in full satisfaction of the 2012 Promissory Note, the Company issued to the Creditor 1,650,869 shares of restricted common stock upon the conversion of the 2012 Promissory Note, as adjusted in accordance with the terms of the LCA. Additionally, pursuant to the terms of the LCA,
the Company issued to the Creditor 825,435 Series H Warrants and reduced the exercise price of the Series G Warrant to $0.64
(See “Note 3 - Convertible Promissory Note” above for additional information).
On February 1, 2013, the Company completed a self-directed registered offering of 1,875,000 units at a price of $0.64 per unit for $1,200,000 in aggregate proceeds (the “Registered Offering”). Each unit consisted of one share of the Company’s common stock and one-half Series H Stock Purchase Warrant (“Series H Warrant”) to purchase one-half of a share of common stock at the initial exercise price of $0.83 per share for a period of three years from the date of issuance. The Company issued 937,503 Series H Warrants as part of the Registered Offering. The relative fair value of the common stock was estimated to be $638,717 and the relative fair value of the warrants was estimated to be $561,283 as determined based on the relative fair value allocation of the proceeds received. The Series H Warrants were valued using the Black-Scholes option pricing model
using the following variables: $0.83 exercise price, $1.48 stock price, 161% volatility, 0.40% risk-free interest rate, 3 year term and no dividends.
On March 21, 2013, the Company issued 7,812 shares of common stock upon the exercise of an equal number of Series H Warrants and received proceeds of $6,484.
35
Warrants
Each of the Company’s warrants outstanding entitles the holder to purchase one share of the Company’s common stock for each warrant share held. A summary of the Company’s warrants outstanding and exercisable as of August 31, 2013 and 2012 is as follows:
|
Shares of Common Stock Issuable from Warrants Outstanding as of
|
|||||||||||||
|
Description
|
August 31, 2013
|
August 31, 2012
|
Exercise Price
|
Expiration
|
|||||||||
|
Series G
|
625,000 | 625,000 | $ | 0.64 |
April 17, 2015
|
||||||||
|
Series H
|
1,755,126 | - | $ | 0.83 |
February 1, 2016
|
||||||||
|
Total
|
2,380,126 | 625,000 | |||||||||||
The Series G Warrant was issued on April 17, 2012, as a condition to the Creditor entering into the Loan Agreement more fully described above under “Note 3 - Convertible Promissory Note.” In order to induce the Creditor to convert the Loan into shares of the Company’s common stock, the initial exercise price of $1.92 was reduced to $0.64. Additionally, the Series G Warrant contains a cashless exercise provision and registration rights requiring us to file a registration statement with the SEC for the shares issuable upon exercise of the Series G Warrant within 60 days receipt of a written request by the Creditor.
As inducement to convert the Loan, on February 1, 2013, the Company issued to the Creditor 825,435 Series H Warrants (See “Note 3 - Convertible Promissory Note” above for additional information). The warrants have an exercise price of $0.83 per share, expire on the third anniversary of the LCA, or on February 1, 2016 and may be exercised in whole or in part at any time from the date of issuance through expiration. Based on the following Black-Scholes Option Pricing Model assumptions
: exercise price - $0.83; market price of common stock - $1.48 per share; estimated volatility - 161%; risk free interest rate - 0.40%; expected dividend rate - 0%; and expected life - 3.0 years
, the Company calculated the fair value of these warrants to be $1,059,038.
On February 1, 2013, as part of the Registered Offering, the Company issued 937,503 Series H Warrants (See “Note 4 – Stockholders’ Equity (Deficit)” above for additional information).
During the year ended August 31, 2013, the Company received $6,484 upon the exercise of
7,812
Series H Warrants by two warrant holders
.
On October 10, 2006, the Company’s Board of Directors (the “Board”) adopted and approved the 2006 Incentive Stock Option Plan (the “2006 Plan”) that provides for the grant of stock options to employees, directors, officers and consultants. Stock option grants vest over two to five years and expire ten years after the date of grant.
Stockholders previously approved 5,000,000 shares for grant under the 2006 Plan, of which 3,892,495
remain available for grant and 136,667 options have been exercised as of August
31, 2013. All shares approved for grant and subsequently forfeited are available for future grant. The Company does not repurchase shares to fulfill the requirements of options that are exercised. The Company issues new shares when options are exercised.
The Company measures all stock-based compensation based on the fair value on the grant date
using the
Black-Scholes-Merton formula
and recognizes expense over the requisite service period.
The
Black-Scholes
model
requires management to make assumptions
regarding option time to expiration, expected volatility, and risk-free interest rates, all of which have a significant impact on the fair value of the option.
36
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a bond with a similar term. The Company does not anticipate declaring dividends in the foreseeable future. Volatility is calculated based on the historical closing stock prices. The Company uses the “simplified” method for determining the expected term of its “plain vanilla” stock options. The Company recognizes compensation expense for only the portion of stock options that are expected to vest. Therefore, the Company applies an estimated forfeiture rate that is derived from historical employee termination data and adjusted for expected future employee turnover rates. If the actual number of forfeitures differs from those estimated by the Company, additional adjustments to compensation expense may be required in future periods.
A summary of the Company’s stock option activity for the year ended August 31, 2013 and related information follows:
|
Number of Options
|
Weighted Average Exercise Price ($)
|
Weighted Average Remaining Contractual Term
|
Aggregate Intrinsic Value ($)
|
||||||||||
|
Outstanding at August
31, 2012
|
861,671 | 2.10 | |||||||||||
|
Grants
|
177,500 | 1.59 | |||||||||||
|
Exercises
|
(63,333 | ) | 1.65 | ||||||||||
|
Forfeitures
|
(5,000 | ) | 3.27 | ||||||||||
|
Outstanding at August 31, 2013
|
970,838 | 2.03 |
6.83 years
|
$ | 236,334 | ||||||||
|
Exercisable at August 31, 2013
|
479,337 | 2.42 |
6.27 years
|
$ | 108,084 | ||||||||
|
Available for grant at August 31, 2013
|
3,892,495 | ||||||||||||
The aggregate intrinsic value in the table above represents the total pretax intrinsic value for all “in-the-money” options (i.e. the difference between the Company’s closing stock price on the last trading day of the period covered by this report and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all in-the-money option holders exercised their options on August 31, 2013. The intrinsic value of the option changes based upon the fair market value of the Company’s common stock. Since the closing stock price was $1.90 on August 31, 2013 and 828,335 outstanding options have an exercise price below $1.90 per share, as of August 31, 2013, there is intrinsic value to our outstanding in-the-money stock options.
The following table sets forth the share-based compensation cost resulting from stock option grants, including those previously granted and vesting over time, that were recorded in the Company’s Consolidated Statements of Operations for the years ended August 31, 2013 and 2012, and from May 5, 1998 (inception) to August 31, 2013:
| Year Ended August 31, |
Cumulative
May 5, 1998
(Inception) to
August 31,
|
|||||||||||
|
2013
|
2012
|
2013
|
||||||||||
|
Stock Compensation Expense:
|
||||||||||||
|
Selling general and administrative expense
|
$ | 324,230 | $ | 205,098 | $ | 2,454,998 | ||||||
As of August 31, 2013, the Company had $67,329 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 2.0 years.
37
Stock Option Activity During the Year Ended August 31, 2013
On December 20, 2012, the Company granted two stock options to purchase up to 15,000 (a 10,000 and 5,000 option grant, respectively) shares of the Company’s common stock at an exercise price of $0.80 per share, the fair market value of the Company’s common stock on the date of grant, to two employees as partial compensation for services. The stock options expire ten years from the date of grant, on December 20, 2022 and vest as follows: (a) 7,500 shares vest immediately on the date of grant and (b) 7,500 shares on the one-year anniversary on December 20, 2013. The stock options are further subject to the terms and conditions of a stock option agreement between the Company and the employees. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that employees cease to be one of the Company’s employees. Upon termination of such service, the employee will have a specified period of time to exercise vested stock options, if any. The grant date fair value of the stock option granted was $11,700, or $0.78 per option, estimated using the Black-Scholes model containing the following assumptions: Exercise price / spot price of $0.80 per share, dividend yield of 0%, volatility of 160.1%, risk-free rate of 1.14%, and a term of 7.67 years. During the year ended August 31, 2013, the Company recognized $10,238 of expense related to these two issuances.
On April 27, 2012, pursuant to his employment agreement, the Company’s former Vice President of Business and Technology Development, Mr. John Patrick Thompson received a grant of 100,000 stock options. The options have an exercise price of $2.30, the fair market value of the Company’s common stock on the date of grant. The stock options expire ten years from the date of grant, on April 27, 2022 and vest in various amounts upon the meeting of certain milestones and which vesting is subject to Board approval. The stock option is further subject to the terms and conditions of a stock option agreement between the Company and the employee. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date the employee ceases to be one of the Company’s employees. Upon termination of such service, the employee will have a specified period of time to exercise vested stock options, if any. The grant date fair value of the stock option granted was $225,000, or $2.25 per option, estimated using the Black-Scholes model containing the following assumptions: Exercise price / spot price of $2.30 per share, dividend yield of 0%, volatility of 167.1%, risk-free rate of 1.34%, and term of 7.67 years. The Company recognizes compensation cost associated with this stock option grant with performance conditions when the Company determines that it is probable that certain milestones will be achieved. On December 20, 2012, the Company’s Board determined that milestones related to 2,500 options were substantially met. Thus, during the year ended August 31, 2013, the Company recognized $5,625 of expense related to this award. On August 6, 2013, Mr. Thompson's employment with the Company ceased. As a result no further vesting of the aforementioned option grant will vest. Mr. Thompson has 120 days from the date of his departure to exercise his 2,500 vested options.
On January 23, 2013, the Board approved, and the Company granted, a stock option to each of the Company’s four directors, including John Conklin, CEO, to purchase 40,000 shares of its common stock at an exercise price of $1.65 per share, the fair market value of the Company’s common stock on the date of grant. Each stock option expires ten years from the date the applicable stock option agreement was executed, on January 23, 2023, and vests as follows: (a) 20,000 shares vest immediately on the date of grant and (b) 20,000 shares on the one-year anniversary on January 23, 2014. The stock options are further subject to the terms and conditions of a stock option agreement between the Company and each director. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that the director ceases to be one of the Company’s directors. Upon termination of such service, the director will have a specified period of time to exercise vested stock options, if any. The grant date fair value of each of the stock options granted to each of the Company’s directors was $64,386 estimated using a Black-Scholes model containing the following assumptions: Exercise price / spot price of $1.65 per share, dividend yield of 0%, volatility of 161.1%, risk-free rate of 1.24%, and a term of 7.67 years. During the year ended August 31, 2013, the Company recognized $225,349 of expense related to these four issuances.
On December 10, 2012, Mr. Peter Fusaro resigned from the Board. As a result of his resignation, Mr. Fusaro forfeited 5,000 unvested stock options and had vested 11,667 stock options. Total stock based compensation expense related to Mr. Fusaro’s options was $48,850 of which $44,270 was expensed through August 31, 2012. On November 30, 2012, the Company reversed $10,075 of expense related to forfeited options on which expense was previously recorded resulting in total recognized expense related to Mr. Fusaro’s options of $34,195. Mr. Fusaro has until December 10, 2014, to exercise his 11,667 vested stock options.
38
In addition to the above, the Company recorded compensation expense of $88,644 during the year ended August 31, 2013 related to options granted prior to 2012 and which are currently vesting.
Stock Option Activity During the Year Ended August 31, 2012
On December 8, 2011, Mr. Todd Pitcher resigned from the Board. Mr. Pitcher had vested 6,667 stock options and forfeited 10,000 unvested stock options with an exercise price of $3.27 per share.
During the year ended August 31, 2011, the Company recorded stock based compensation of $27,784
for the amortization of the fair value of his stock option. Since the stock option was forfeited prior to 10,000 options vesting, $8,243 previously recognized for stock
based
compensation was reversed on November 30, 2011, resulting in total stock
based
compensation expense related to Mr. Pitcher’s stock option grant of $19,541. Mr. Pitcher has until December 8, 2013, to exercise his 6,667 vested stock options.
On
August 12, 2012, 83,334 vested options with an exercise price of $6.21 per share held by Mr. Andrew Farago, the Company’s former Chief Operating Officer expired unexercised.
On September 30, 2012, Mr. Javier Jimenez resigned from the Board. As a result of his resignation, Mr. Jimenez forfeited 5,000 unvested stock options and had vested 11,667 stock options with an exercise price of $3.27 per share. The
Company recorded stock based compensation totaling $91,780 related to
the amortization of the fair value of this stock option
grant, including the recognition of $66,252 of expense for the year ended August 31, 2012.
Since the stock option was forfeited prior to 5,000 options vesting, $23,705 previously recognized for stock
based
compensation was reversed on August 31, 2012, resulting in total stock
based
compensation expense related to Mr. Jimenez’s stock option grant of $68,075. Mr. Jimenez has until September 30, 2014, to exercise his 11,667 vested stock options.
The following table summarizes information about stock options outstanding and exercisable at August 31, 2013:
|
Stock Options Outstanding
|
Stock Options Exercisable
|
|||||||||||||||||||||||||
|
Range of
Exercise
Prices
|
Number of
Options
Outstanding
|
Weighted
Average
Contractual
Life (years)
|
Weighted
Average
Exercise
Price
|
Number
of Options
Exercisable
|
Weighted Average
Remaining
Contractual
Life (Years)
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||||
| $ | 0.80 | 15,000 | 9.31 | $ | 0.80 | 7,500 | 9.31 | $ | 0.80 | |||||||||||||||||
| 1.32 | 50,001 | 1.29 | 1.32 | 50,001 | 1.29 | 1.32 | ||||||||||||||||||||
| 1.65 | 763,334 | 6.83 | 1.65 | 283,333 | 8.34 | 1.65 | ||||||||||||||||||||
| 2.30 | 2,500 | 8.66 | 2.30 | 2,500 | 8.66 | 2.30 | ||||||||||||||||||||
| 2.50 | 10,000 | 7.60 | 2.50 | 6,000 | 7.60 | 2.50 | ||||||||||||||||||||
| 2.55 | 33,334 | 5.03 | 2.55 | 33,334 | 5.03 | 2.55 | ||||||||||||||||||||
| 3.27 | 18,334 | 0.91 | 3.27 | 18,334 | 0.91 | 3.27 | ||||||||||||||||||||
| 4.98 | 16,667 | 4.53 | 4.98 | 16,667 | 4.53 | 4.98 | ||||||||||||||||||||
| 5.94 | 50,001 | 7.32 | 5.94 | 50,001 | 7.32 | 5.94 | ||||||||||||||||||||
| 6.51 | 11,667 | 1.08 | 6.51 | 11,667 | 1.08 | 6.51 | ||||||||||||||||||||
|
Total
|
970,838 | 6.83 | $ | 2.03 | 479,337 | 6.27 | $ | 2.42 | ||||||||||||||||||
39
During the years ended August 31, 2013 and 2012, the Company recorded a net loss. Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company has not included the effects of warrants, stock options and convertible debt on net loss per share for the past two fiscal years because to do so would be antidilutive.
Following is the computation of basic and diluted net loss per share for the years ended August 31, 2013 and 2012:
|
Year Ended
August 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Basic and Diluted EPS Computation
|
||||||||
|
Numerator:
|
||||||||
|
Loss available to common stockholders'
|
$ | (4,272,532 | ) | $ | (2,433,431 | ) | ||
|
Denominator:
|
||||||||
|
Weighted average number of common shares outstanding
|
22,686,892 | 20,638,360 | ||||||
|
Basic and diluted EPS
|
$ | (0.19 | ) | $ | (0.12 | ) | ||
A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
For services rendered in the capacity of a Board member, non-employee Board members received $3,750 per quarter through the quarter ended February 28, 2013. The amount was increased to $4,250 per quarter beginning with our third quarter ending on May 31, 2013. New Board member compensation is pro rated in their first quarter. During the years ended August 31
, 2013
and 2012, the Company incurred $59,618 and $91,200, respectively in cash based Board compensation. Additionally, the Company recognized stock compensation expense related to stock options granted for services rendered by non-employee directors of the Company, which is included in professional fees (See “Note 5 - Stock Options” above) during the years ended August 31, 2013 and 2012 of $176,699 and $90,297, respectively.
During his tenure as Director from March 21, 2011 through December 11, 2012, Mr. Peter Fusaro provided consulting services to the Company. In addition to the quarterly Board fees received as discussed above, during the year ended August 31, 2013 and 2012, the Company paid Mr. Fusaro $2,100 and $13,300, respectively.
The law firm of Sierchio & Company, LLP, of which Joseph Sierchio, one of the Company’s directors, is a principal, has provided counsel to the Company since its inception. In July 2008, the Company asked Mr. Sierchio to join the Company’s Board. During the years ended August 31, 2013
and 2012, the law firm of Sierchio & Company, LLP provided $128,924 and $176,404, respectively, of legal services. At August 31, 2013, the Company owed Sierchio & Company, LLP $38,013 which is included in accounts payable.
On February 1, 2013, Kalen Capital Holdings LLC, a wholly owned subsidiary of Kalen Capital Corporation, a shareholder owning in excess of 5% of the Company’s issued and outstanding stock, purchased 1,843,750 shares of the Company’s common stock and a Series H Warrant to purchase 921,875 shares of the Company’s common stock for an aggregate purchase price of $1,180,000 pursuant to the registered public offering conducted by the Company (See “NOTE 4 – Stockholders’ Equity (Deficit)” above).
40
All related party transactions are recorded at the exchange amount established and agreed to between related parties and are in the normal course of business.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets at August 31, 2013 and 2012 are as follows:
|
2013
|
2012
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss carryforwards
|
$ | 3,404,418 | $ | 2,506,712 | ||||
|
Capitalized research and development
|
836,568 | 756,562 | ||||||
|
Depreciation
|
(4,700 | ) | (6,788 | ) | ||||
|
Stock based compensation
|
1,130,104 | 659,793 | ||||||
|
Research and development credit carry forward
|
206,715 | 174,558 | ||||||
|
Total deferred tax assets
|
5,573,105 | 4,090,837 | ||||||
|
Less: valuation allowance
|
(5,573,105 | ) | (4,090,837 | ) | ||||
|
Net deferred tax asset
|
$ | - | $ | - | ||||
The net increase in the valuation allowance for deferred tax assets was $1,482,268 and $869,333 for the years ended August 31, 2013 and 2012, respectively. The Company evaluates its valuation allowance requirements on an annual basis based on projected future operations. When circumstances change and this causes a change in management’s judgment about the realizability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current operations.
For federal income tax purposes, the Company has net U.S. operating loss carry forwards at August 31, 2013 available to offset future federal taxable income, if any, of $10,012,994, which will fully expire by the fiscal year ended August 31, 2033. Accordingly, there is no current tax expense for the years ended August 31, 2013 and 2012. In addition, the Company has research and development tax credit carry forwards of $206,715 at August 31, 2013, which are available to offset federal income taxes and begin to expire during the year ended August 31, 2026.
The utilization of the tax net operating loss carry forwards may be limited due to ownership changes that have occurred as a result of sales of common stock.
The effects of state income taxes were insignificant for the years ended August 31, 2013 and 2012.
41
The following is a reconciliation between expected income tax benefit and actual, using the applicable statutory income tax rate of 34% for the years ended August 31, 2013 and 2012:
|
2013
|
2012
|
|||||||
|
Income tax benefit at statutory rate
|
$ | 1,452,661 | $ | 827,367 | ||||
|
Non-deductible meals and entertainment
|
(2,550 | ) | (1,280 | ) | ||||
|
Research and development credit
|
32,157 | 53,576 | ||||||
|
Other
|
- | (10,330 | ) | |||||
|
Change in valuation allowance
|
(1,482,268 | ) | (869,333 | ) | ||||
| $ | - | $ | - | |||||
The fiscal years 2009 through 2013 remain open to examination by federal authorities and other jurisdictions in which the Company operates.
On October 31, 2013, Mr. Jatinder S. Bhogal resigned as a director.
On October 7, 2013, the Company received proceeds of $3,000,000 in connection with issuing a 7% unsecured convertible note (the “
Note
”) to Kalen Capital Corporation, a private corporation owning in excess of 10% of the Company’s issued and outstanding shares of common stock. As part of the loan the Company issued a Series I Stock Purchase Warrant (the “
Series I Warrant
”) allowing the holder to purchase up to 921,875 shares of the Company’s common stock at an initial exercise price of $1.37 for a period on five (5) years. The Series I Warrant is exercisable on a “cashless basis.” The Note is due on October 6, 2014, and interest is to be compounded quarterly. The conversion price of the Note is the lesser of (1) $1.37, or (2) 70% of the 20 day average closing price of the common stock. The Note is convertible into units, with each unit consisting of (a) one share of common stock; (b) one Series J Stock Purchase Warrant for the purchase of one share of common stock; and (c) one Series J Stock Purchase Warrant for the purchase of one share of common stock. For additional information regarding the Note see the Company’s Current Report on Form 8-K filed by the Company with the SEC on October 10, 2013.
42
None.
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this annual report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of August 31, 2013, that our disclosure controls and procedures were effective such that the information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of August 31, 2013.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permanently exempts non-accelerated filers (generally issuers with a public float under $75 million) from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002.
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
43
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of all of our directors and executive officers. We have a Board comprised of three members. Each director holds office until a successor is duly elected or appointed. Executive officers serve at the discretion of the Board and are appointed by the Board. Also provided herein are brief descriptions of the business experience of each of the directors and officers during the past five years, and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities law.
|
Name
|
Age
|
Current Position With Us
|
Director or Officer Since
|
|||
|
John A. Conklin
|
54
|
President, Chief Executive Officer and
Chief Financial Officer, Director
|
August 9, 2010
(1)
|
|||
|
Alastair Livesey
|
56
|
Director
|
September 19, 2007
|
|||
|
Joseph Sierchio
|
64
|
Director
|
July 24, 2008
|
(1)
Mr. Conklin was appointed our President, Chief Executive Officer and Chief Financial Officer following the resignation of Meetesh V. Patel from such positions on August 9, 2010. Mr. Conklin was appointed to the the Board on March 21, 2011.
Biographical Information
Set forth below are the names of all of our directors and executive officers, all positions and offices held by each person, the period during which each has served as such, and the principal occupations and employment of such persons during at least the last five years, and other director positions held currently or during the last five years:
Current Directors and Officers
John A. Conklin.
Mr. Conklin is founder of Tellurium Associates, LLC, an industrial and environmental process design and operations consulting company, and founder of National Solar Systems, LLC, a New York based renewable energy firm. Mr. Conklin has studied chemical engineering, chemical technology, and numerous industrial, safety and renewable energy programs. With 26 years of industrial process and renewable and alternative energy experience, Mr. Conklin has consulted regarding and overseen the technical and business requirements of over 50 technology, manufacturing and industrial companies, ranging from start-ups to Fortune 500 companies, including industry leaders such as Lockheed Martin and TDI Power, a global manufacturer of power systems. Mr. Conklin serves as our President and Chief Executive Officer and brings a combination of technical, business and hands-on alternative and renewable energy experience.
Alastair Livesey.
Dr. Livesey earned his B.A. in Science from the University of Cambridge in 1979, followed by an M.A. and Ph.D. in materials science from the Cavendish Physics Laboratory at the University of Cambridge in 1982 and 1984, respectively. From May 2001 to July 2007, Dr. Livesey was employed by Energy Conversion Devices, Inc. During his tenure at Energy Conversion Devices, Dr. Livesey held several positions, including Director of Integrated Hydrogen Energy Systems, Head of New Business Development and Strategic Planning, and Director, Cognitive Computer Business Development and Architecture Design. In these roles, he led projects involving product development and commercialization, strategic and business planning, new business development, joint venture partnerships, financing, human resources, information technology, and public relations across a diverse range of technologies including hydrogen storage, thin-film solar cells, advanced batteries, and fuel cells. From August 2007 to the present, Dr. Livesey has worked as an independent consultant in the alternative and renewable energy field. In April 2010, Dr. Livesey was appointed as the Managing Director of Diverse Energy Ltd, a UK firm developing and assembling fuel cell power plants to replace diesel generators. Dr. Livesey has subsequently left Diverse Energy and started a new company, Africa Power Ltd., to sell low-carbon and renewable power in Africa. Dr. Livesey was invited to join the Board due to, and we continue to benefit from, his experience with scientific research, and product and business development.
44
Joseph Sierchio.
Mr. Sierchio earned his J.D. at Cornell University Law School in 1974, and a B.A., with Highest Distinction in Economics from Rutgers College at Rutgers University in 1971. Mr. Sierchio has been engaged in the practice of law as a member of Sierchio & Company, LLP, our counsel, since May of 2007. Mr. Sierchio was engaged in the practice of law as a member of Sierchio Greco & Greco, LLP from January 2003 through May 2007. Prior thereto Mr. Sierchio was a partner at Eiseman Levine Learhaupt and Kakoyannis, PC. Since 1975, Mr. Sierchio has continuously practiced corporate and securities law in New York City, representing domestic and foreign corporations, investors, brokerage firms, entrepreneurs, and public and private companies in the U.S., Canada, United Kingdom, Germany, Italy, Switzerland, Australia, and Hong Kong. Mr. Sierchio is admitted in all New York state courts and federal courts in the Eastern, Northern, and Southern Districts of the State of New York as well as the federal Court of Appeals for the Second Circuit. Mr. Sierchio is also a director of the following reporting companies: Ceres Ventures, Inc., which is developing an internet based financial services platform linking entrepreneurs with potential investors and Janus Resources, Inc., which is engaged in the research and development of an organ regenerating technology. Mr. Sierchio was invited to join the Board due to his experience representing corporations (public and private) and individuals in numerous and various organizational, compliance, administrative, governance, finance (equity and debt private and public offerings), regulatory and legal matters.
All of our directors are elected annually to serve for one year or until their successors are duly elected and qualified.
Family Relationships and Other Matters
There are no family relationships among or between any of our officers and directors.
Legal Proceedings
None of or directors or officers are involved in any legal proceedings as described in
Regulation S-K (§229.401(f))
.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Because we do not have a class of equity securities registered pursuant to section 12 of the Exchange Act we are not required to make the disclosures required by Item 405 of Regulation SK.
CODE OF ETHICS
We have adopted a Code of Ethics that applies to all of our officers, directors and employees, including our Chief Executive Officer and Chief Financial Officer. The Code of Ethics is designed to deter wrongdoing, and to promote, among other things, honest and ethical conduct, full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to the SEC, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations of the Code of Ethics, and accountability for adherence to the Code of Ethics. Our Code of Ethics is available on our website at http://www.newenergytechnologiesinc.com. To access our Code of Ethics, click on “Investors”, and then click on “Code of Ethics” located under “Corporate Governance.”
A copy of our Code of Ethics may be obtained at no charge by sending a written request to our President and Chief Executive Officer, John A. Conklin, 10632 Little Patuxent Parkway, Suite 406, Columbia, Maryland 21044.
CORPORATE GOVERNANCE
We have adopted Corporate Governance Guidelines applicable to our Board. Our Corporate Governance Guidelines are available on our website at http://www.newenergytechnologiesinc.com. To access our Corporate Governance Guidelines, click on “Investors,” and then click on “Corporate Governance Principles” located under “Corporate Governance.”
45
Director Independence
We are not listed on a major U.S. securities exchange and, therefore, are not subject to the corporate governance requirements of any such exchange, including those related to the independence of directors. However, at this time,
after considering all of the relevant facts and circumstances, our Board has determined that Mr. Livesey is independent from our management and qualifies as an “independent director” under the standards of independence of the FINRA listing standards. We do not currently have a majority of independent directors as required by the FINRA listing standards.
Upon our listing on any national securities exchange or any inter-dealer quotation system, we will elect such independent directors as is necessary under the rules of any such securities exchange.
Board Leadership Structure
We currently have only one executive officer and three directors. Our Board has reviewed our current Board leadership structure — which consists of a Chief Executive Officer and no Chairman of the Board — in light of the composition of the Board, our size, the nature of our business, the regulatory framework under which we operate, our stockholder base, our peer group and other relevant factors, and has determined that this structure is currently the most appropriate Board leadership structure for our company. Nevertheless, the Board intends to carefully evaluate from time to time whether our Chief Executive Officer and Chairman positions should be combined based on what the Board believes is best for us and our stockholders.
Board Role in Risk Oversight
Risk is inherent in every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including strategic risks, enterprise risks, financial risks, and regulatory risks. While our management is responsible for day to day management of various risks we face, the Board, as a whole, is responsible for evaluating our exposure to risk and to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The Board reviews and discusses policies with respect to risk assessment and risk management. The Board also has oversight responsibility with respect to the integrity of our financial reporting process and systems of internal control regarding finance and accounting, as well as its financial statements.
Board of Directors Meetings, Committees of the Board of Directors, and Annual Meeting Attendance
During the fiscal year ended August 31, 2013, the Board held a total of ten meetings. All members of the Board attended at least 90% of all meetings of the Board. We do not maintain a policy regarding director attendance at annual meetings and we did not have an annual meeting during the fiscal year ended August 31, 2013.
We do not currently have any standing committees of the Board. The full Board is responsible for performing the functions of: (i) the Audit Committee, (ii) the Compensation Committee and (iii) the Nominating Committee.
Audit Committee
The Board does not currently have a standing Audit Committee. The full Board performs the principal functions of the Audit Committee. The full Board monitors our financial reporting process and internal control system and reviews and appraises the audit efforts of our independent accountants.
Compensation Committee
The Board does not currently have a standing Compensation Committee. The full Board establishes our overall compensation policies and reviews recommendations submitted by our management.
46
Nominating Committee
The Board does not currently have a standing Nominating Committee. We do not maintain a policy for considering nominees. Our Bylaws provide that the number of Directors shall be fixed from time to time by the Board, but in no event shall be less than the minimum required by law. The Board of Directors shall be large enough to maintain our required expertise but not too large to function efficiently. Director nominees are recommended, reviewed and approved by the entire Board. The Board believes that this process is appropriate due to the relatively small number of directors on the Board and the opportunity to benefit from a variety of opinions and perspectives in determining director nominees by involving the full Board.
While the Board is solely responsible for the selection and nomination of directors, the Board may consider nominees recommended by stockholders as it deems appropriate. The Board evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although we do not have a policy regarding diversity, the Board does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. Stockholders who wish to recommend a nominee should send nominations to our Chief Executive Officer, John A. Conklin, 10632 Little Patuxent Parkway, Suite 406, Columbia, Maryland 21044, that include all information relating to such person that is required to be disclosed in solicitations of proxies for the election of directors. The recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected.
Compensation Consultants
We have not historically relied upon the advice of compensation consultants in determining Named Executive Officer compensation. Instead, the full Board reviews compensation levels and makes adjustments based on their personal knowledge of competition in the market place, publicly available information and informal surveys of human resource professionals.
Stockholder Communications
Stockholders who wish to communicate with the Board may do so by addressing their correspondence to the Board at New Energy Technologies, Inc., Attention: John A. Conklin, 10632 Little Patuxent Parkway, Suite 406, Columbia, Maryland 21044. The Board will review and respond to all correspondence received, as appropriate.
Our
Board
is responsible for establishing the compensation and benefits for our executive officers. The Board reviews the performance and total compensation package for our executive officers, and considers the modification of existing compensation and the adoption of new compensation plans. The board has not retained any compensation consultants.
The goals of our executive compensation program are to attract, motivate and retain individuals with the skills and qualities necessary to support and develop our business within the framework of our small size and available resources. We designed our executive compensation program to achieve the following objectives:
|
·
|
attract and retain executives experienced in developing and delivering products such as our own;
|
|
·
|
motivate and reward executives whose experience and skills are critical to our success;
|
|
·
|
reward performance; and
|
|
·
|
align the interests of our executive officers and stockholders by motivating executive officers to increase stockholder value.
|
The following table and descriptive materials set forth information concerning compensation earned for services rendered to us by: the Chief Executive Officer (the “
CEO
”); the Chief Financial Officer (the “
CFO
”); the Chief Operating Officer (the “
COO
”) and the other most highly-compensated executive officers other than the CEO and CFO who were serving as executive officers during the fiscal year ended August 31, 2013 (the “
Named Executive Officers
”).
47
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation earned by the Named Executive Officers during the fiscal years ended August 31, 2013, 2012 and 2011.
| Name and Principal Position |
Year Ended
August 31,
|
Salary
($)
|
Bonus
($)
|
Option Awards
($)
(1)
|
All Other Compensation
($)
(2)
|
Total
($)
|
|||||||||||||||
| John A. Conklin (3) |
2013
|
$ | 197,083 | $ | 10,000 | - | $ | 150,205 | $ | 357,288 | |||||||||||
|
President, Chief Executive Officer,
Chief Financial Officer and Director
|
2012
|
$ | 181,250 | $ | 45,000 | - | $ | 19,982 | $ | 246,232 | |||||||||||
| Todd Pitcher (4) |
2013
|
- | - | - | - | - | |||||||||||||||
|
Former President of
Nakoda Energy, Inc.
|
2012
|
$ | 67,500 | - | - | $ | 3,000 | $ | 70,500 | ||||||||||||
(1)
The amounts reported in the Option Awards column represent the grant date fair value of such awards, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 and do not include decreases for forfeited stock options. For information regarding significant factors, assumptions and methodologies used in calculating the fair value of stock options, see “Note 5 - Stock Options” to the New Energy Technologies, Inc. Consolidated Financial Statements contained in this Form 10-K.
(2)
Our employees generally maintain private insurance coverage and are reimbursed an agreed upon amount each month to offset their out-of-pocket medical insurance premiums.
(3)
On April 1, 2010, we entered into a consulting agreement with Mr. John A. Conklin whereby Mr. Conklin provided technical advice, guidance, and management oversight to help advance the commercial development of our technologies, including but not necessarily limited to our SolarWindow™ and MotionPower™ technologies. In consideration of Mr. Conklin’s services, we paid Mr. Conklin $11,000 per calendar month for the first three calendar months of the consulting agreement and $12,444 for each calendar month of service thereafter. Included in the salary amount above for the year ended August 31, 2010, is $45,656 for services rendered by Mr. Conklin pursuant to the consulting agreement from April 1, 2010 through August 8, 2010.
Effective August 9, 2010, we appointed Mr. Conklin to serve as our President, Chief Executive Officer, and Chief Financial Officer, and entered into an Employment Agreement with him on such date.
Pursuant to Mr. Conklin’s Employment Agreement, he is entitled to an annual salary of $150,000 and a stipend of $1,000 per month
to cover medical insurance premiums until such time as we can provide an alternative medical insurance plan. Effective January 1, 2010, Mr. Conklin's annual salary was increased to $175,000 and his medical stipend to $1,334 per month. Mr. Conklin was also awarded a $25,000 bonus during 2011. Effective January 1, 2012, Mr. Conklin’s medical stipend was increased to $1,778 per month. Effective April 1, 2012, Mr. Conklin's annual salary was increased to $190,000 and Mr. Conklin was also awarded bonuses totaling $45,000 during 2012. Effective December 15, 2012, Mr. Conklin’s medical stipend was increased to $1,925 per month and his annual salary was increased to $200,000. Mr. Conklin was awarded bonuses totaling $10,000 during 2013.
On August 9, 2010, we granted Mr. Conklin
a stock option to purchase 666,666 shares of our common stock at an exercise price of $1.65 per share, the fair market value of our common stock on the date of grant. The stock option expires ten years from the date of grant
and vests as follows:
|
a.
|
as to 166,667 shares or such portion thereof as may be determined by the Board at its sole discretion, when one or more of the following items related the development, production, manufacturing, and sale of any commercially viable product have been successfully executed:
|
48
(i) completion of final design and/or engineering;
(ii) the establishment of manufacturing facilities, whether in-house or outsourced; and
(iii) the initial filing of any product safety approval applications, if required, in order to allow for the commercial sale of products by us;
|
b.
|
as to 166,667 shares upon commencing commercial sales of any of our products, as reported in our financial statements, whether to retail customers or wholesale customers;
|
|
c.
|
33,333 shares for each calendar year of service in an Executive Position for the next five years (166,667 shares in the aggregate), which shall become exercisable on each anniversary beginning August 9, 2011
|
|
d.
|
as to 166,667 shares when, to the Board’s satisfaction, we enter into a favorable business partnership with a third-party commercial organization in the industry segment related to our product development and sales efforts, under any of the following conditions:
|
(i) a product development relationship whereby the third-party partner makes a significant financial investment, as determined at the Board’s discretion, directed towards the development of our products; or
(ii) a product development relationship whereby the third-party partner invests significant research and development resources, as determined at the Board’s discretion, directed towards the development of our products; or
(iii) a strategic partnership with the third-party partner where, as determined at the Board’s discretion, such a partnership provides significant business advantages to us which it would otherwise not have, whether related to product development, commercial sales, industry position, or business reputation.
The fair market value of our common stock on the date of grant was $1.62 per share.
The grant date fair value of the 666,666 stock options was estimated at $1.50 each, for a total of $1,008,814, using the Black-Scholes
option pricing model
with the following weighted average assumptions: dividend yield of 0%, expected volatility of 134.81%, risk-free interest rate of 2.21%, and expected life of 7.2 years.
On January 23, 2013, we granted Mr. Conklin a stock option to purchase 40,000 shares of our common stock at an exercise price of $1.65 per share, the fair market value of our common stock on the date of grant. The stock option expires ten years from the date of grant
and vests
and vests as follows: (a) 20,000 shares vest immediately on the date of grant and (b) 20,000 shares on the one-year anniversary on January 23, 2014. The grant date fair value of the stock option was $64,386 estimated using a Black-Scholes model containing the following assumptions: Exercise price / spot price of $1.65 per share, dividend yield of 0%, volatility of 161.1%, risk-free rate of 1.24%, and a term of 7.67 years.
(4)
Todd Pitcher served as a director from March 12, 2011, President of Nakoda Energy, Inc., of our former subsidiary from August 19, 2011 and consulted in the capacity of Vice President of Finance for New Energy Technologies, Inc. pursuant to an Advisory Engagement Agreement dated May 19, 2011 until his resignation on January 3, 2012.
Pursuant to the Advisory Engagement Agreement (the “
Agreement
”) dated May 19, 2011 and related amendments on July 1, 2011 and September 30, 2011with Aspire Clean Tech Communications, Inc., a private corporation wholly owned by Mr. Pitcher, Mr. Pitcher provided ongoing corporate advisory and support services in exchange for compensation of $10,000 per month and a $1,000 per month stipend to cover medical insurance premiums. On March 21, 2011, the Board granted Mr. Pitcher a stock option to purchase 16,667 shares of our common stock at an exercise price of $3.27 per share. The grant date fair value of the stock options was $48,850, estimated using the Black-Scholes model. (See financial statement “Note 7 - Stock Options” for specific terms of this option grant). On December 8, 2011, Mr. Todd Pitcher resigned from the Board. Mr. Pitcher had vested 6,667 stock options and forfeited 10,000 unvested stock options. During the year ended August 31, 2011, we recorded stock compensation of $27,784 for the amortization of the fair value of his stock option. Since the stock option was forfeited prior to 10,000 options vesting, $8,243 previously recognized for stock compensation was reversed on November 30, 2011, resulting in total stock compensation expense related to Mr. Pitcher’s stock option grant of $19,541. Mr. Pitcher has until December 8, 2013, to exercise his 6,667 vested stock options. During 2012, Mr. Pitcher received compensation of $30,000 related to the Agreement, $30,000 severance, $7,500 as a member of the Board and $3,000 of stipend to cover medical insurance premiums.
49
OUTSTANDING EQUITY AWARDS AT FISCAL-YEAR END
The following table sets forth information regarding equity awards that have been previously awarded to each of the Named Executives and which remained outstanding as of August 31, 2013.
|
Option Awards
|
|||||||||||||
|
Name
|
Number of Securities Underlying Unexercised
Options (#)
Exercisable
|
Number of Securities Underlying Unexercised
Options (#)
Unexercisable
|
Option Exercise Price ($)
|
Option Expiration Date
|
|||||||||
|
John A. Conklin
(1)
|
223,333 | 420,001 | 1.65 |
8/9/20 and 1/23/23
|
|||||||||
(1)
On August 9, 2010, we entered into an employment agreement with Mr. John A. Conklin, our President, Chief Executive Officer, and Chief Financial Officer.
On January 23, 2013, we granted Mr. Conklin a stock option to purchase 40,000 shares of our common.
For the terms of the employment agreement between us and Mr. Conklin, please refer to footnote (1) to the Summary Compensation table in “ITEM 11. EXECUTIVE COMPENSATION.”
Employee directors are eligible to receive stock option compensation but do not receive cash compensation in addition to their monthly salary for services rendered as a director.
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
There are no understandings or agreements known by management at this time which would result in a change in control.
On August 9, 2010, we entered into an Employment Agreement with Mr. John A. Conklin pursuant to which the Board approved an annual salary of $150,000, a stipend of $1,000 per month
during the term of Mr. Conklin’s Employment
Agreement
to cover medical insurance premiums until such time as we can provide an alternative medical insurance plan,
and the grant of a stock option to purchase up to 666,666 shares of our common stock, subject to certain vesting requirements, at an exercise price of $1.65 per share. On January 1, 2011, Mr. Conklin’s annual salary was increased to $175,000 and his stipend was increased to $1,334 per month.
Effective January 1, 2012, Mr. Conklin's medical stipend was increased to $1,778 per month. Effective April 1, 2012, Mr. Conklin’s annual salary was increased to $190,000. Effective December 15, 2012, Mr. Conklin’s medical stipend was increased to $1,925 per month and his annual salary was increased to $200,000.
Pursuant to the terms of the Employment Agreement between us and Mr. Conklin, in the event that Mr. Conklin’s employment is terminated by us, he will be entitled to a severance payment (the “
Severance Payment
”) equal to one month salary for every four months that he has been employed by us, up to a maximum of four months’ salary. Pursuant to the terms of the stock option agreement between us and Mr. Conklin, if the Employment Agreement is terminated, as of the date of the termination of the Employment Agreement (the “
Termination Date
”), no further installments of the stock option shall vest and the maximum number of option shares that Mr. Conklin may purchase is limited to the number of options that were vested as of the Termination Date. Mr. Conklin has the right, at any time within 120 days of the Termination Date (the “
Termination Exercise Period
”) to exercise the vested options. Any unexercised vested options will terminate following the expiration of the Termination Exercise Period.
COMPENSATION OF DIRECTORS
We do not pay director compensation to directors who are also our employees. Our Board determines the non-employee directors’ compensation for serving on the Board and its committees. In establishing director compensation, the Board is guided by the following goals:
|
·
|
Compensation should consist of a combination of cash and equity awards that are designed to fairly pay the directors for work required for a company of New Energy Technology, Inc.’s size and scope;
|
|
·
|
Compensation should align the directors’ interests with the long-term interests of stockholders; and
|
|
·
|
Compensation should assist with attracting and retaining qualified directors.
|
50
For their services as directors and actual expenses incurred to attend meetings of the Board, non-employee directors received $3,750 per quarter through the quarter ended February 28, 2013. The amount was increased to $4,250 per quarter beginning with our third quarter ending on May 31, 2013. Directors are entitled to participate in, and have been issued options under, our 2006 Plan.
The following table provides information regarding all compensation paid to our non-employee directors during the fiscal years ended August 31, 2013 and 2012:
|
Director Compensation
|
||||||||||||
|
Fees Earned or
|
Stock
|
|||||||||||
|
Name
|
Paid in Cash ($)
|
Awards ($)
(1)
|
Total ($)
|
|||||||||
|
Year Ended August 31, 2013
|
||||||||||||
|
Alastair Livesey
(2)
|
16,000 | 64,386 | 80,386 | |||||||||
|
Jatinder Bhogal
(2)(3)
|
16,000 | 64,386 | 80,386 | |||||||||
|
Joseph Sierchio
(2)
|
16,000 | 64,386 | 80,386 | |||||||||
|
Javier Jimenez
(4)
|
3,750 | - | 3,750 | |||||||||
|
Peter Fusaro
(5)
|
7,500 | - | 7,500 | |||||||||
|
Total 2013 director compensation
|
59,250 | 193,158 | 252,408 | |||||||||
|
Year Ended August 31, 2012
|
||||||||||||
|
Alastair Livesey
|
17,100 | - | 17,100 | |||||||||
|
Jatinder Bhogal
|
17,100 | - | 17,100 | |||||||||
|
Joseph Sierchio
|
17,100 | - | 17,100 | |||||||||
|
Javier Jimenez
|
15,300 | - | 15,300 | |||||||||
|
Peter Fusaro
|
17,100 | - | 17,100 | |||||||||
|
Todd Pitcher
|
7,500 | - | 7,500 | |||||||||
|
Total 2012 director compensation
|
91,200 | $ | - | 91,200 | ||||||||
(1)
This column reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. For information regarding significant factors, assumptions and methodologies used in determining the fair value of our stock options, see
“Note 5 - Stock Options” in the consolidated notes to the financial statements included in this Form 10-K.
(2)
On January 23, 2013, the Board approved, and we granted, a stock option to each of our directors to purchase 40,000 shares of our common stock at an exercise price of $1.65 per share, the fair market value of our common stock on the date of grant. Each stock option expires ten years from the date the applicable stock option agreement was executed, on January 23, 2023, and vests as follows: (a) 20,000 shares vest immediately on the date of grant and (b) 20,000 shares on the one-year anniversary on January 23, 2014. The stock options are further subject to the terms and conditions of a stock option agreement between us and each director. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that the director ceases to be one of our directors. Upon termination of such service, the director will have a specified period of time to exercise vested stock options, if any.
(3)
Mr. Bhogal resigned as a director effective as of October 31, 2013.
(4)
Mr. Jimenz resigned as a director effective as of September 30, 2012.
(5)
Mr. Fusaro resigned as a director effective as of December 11, 2012.
51
The following table sets forth certain information as of November 19, 2013 by (i) all persons who are known by us to beneficially own more than 5% of our outstanding shares of common stock, (ii) each director, director nominee, and Named Executive Officer; and (iii) all executive officers and directors as a group:
|
Name and Address of Beneficial Owner
(1)
|
Number of shares Beneficially
Owned
(2)
|
% of Class
Owned
(2)
|
||||||
| Directors and Officers | ||||||||
|
John A. Conklin
(3)
|
127,043 | * | ||||||
|
Alastair Livesey
(4)
|
90,001 | * | ||||||
|
Joseph Sierchio
(5)
|
98,335 | * | ||||||
|
All Directors and Officers as a Group (3 people)
|
315,380 | 1.29 | ||||||
|
5% Shareholders
|
||||||||
|
Kalen Capital Corporation
(6)
The Kalen Capital Building
7th Floor, 688 West Hastings St.
Vancouver, BC V6B 1P1
|
11,610,689 | 44.5 | ||||||
|
1420524 Alberta Ltd.
(7)
4979 Edendale Court
West Vancouver, BC
|
3,101,304 | 12.1 | ||||||
* less than 1%
(1)
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock and except as indicated the address of each beneficial owner is 10632 Little Patuxent Parkway, Suite 406, Columbia, Maryland 21044.
(2)
Calculated pursuant to rule 13d-3(d) of the Exchange Act. Beneficial ownership is calculated based on 24,276,612 shares of common stock issued and outstanding on a fully diluted basis as of November 20, 2013. Under Rule 13d-3(d) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed.
(3)
Represents 73,710 shares held as a result of option exercises, stock options to purchase 33,333 shares of our common stock which have fully vested and stock options to purchase 20,000 of our common stock which vest on January 23, 2014.
(4)
Represents stock options to purchase 70,001 shares of our common stock which have fully vested and stock options to purchase 20,000 of our common stock which vest on January 23, 2014.
(5)
Includes 8,334 shares of our common stock owned by Mr. Sierchio, stock options to purchase 70,001 shares of our common stock which have fully vested and stock options to purchase 20,000 of our common stock which vest on January 23, 2014.
52
(6)
Kalen Capital Corporation is a private Alberta corporation wholly owned by Mr. Harmel Rayat (our former director and officer). In such capacity, Mr. Rayat may be deemed to have beneficial ownership of these shares. The number of shares reflected above is as of
November 20, 2013,
based upon the review of our transfer records as of said date and includes: (a) 9,766,940 shares owned by Kalen Capital Corporation and its wholly owned subsidiaries; (b) 921,874 shares issuable upon exercise of a Series H Warrant; and (c) 921,875 shares issuable upon exercise of a Series I Warrant. The number of shares reflected above do not include (1) 3,101,304 shares beneficially owned by 1420524 Alberta Ltd., a private Alberta corporation, wholly owned by David Ernest Jenkins, as the trustee under the KJR Family Trust dated August 28, 2008, for the benefit of Kalen Jai Rayat. Kalen Jai Rayat is Mr. Rayat’s son (see footnote 8 for additional information regarding 1420524 Alberta Ltd.’s share ownership), or (2) the 933,334 shares beneficially owned by 1420468 Alberta Ltd., a private Alberta corporation, wholly owned by Jasbinder Chohan, as the trustee under the TJR Family Trust dated August 28, 2008, for the benefit of Talia Jevan Rayat, Mr. Rayat’s daughter. Mr. Rayat is not a beneficiary or trustee of the aforementioned trusts and disclaims beneficial ownership of all shares owned by each of his children’s trusts.
(7)
Includes 625,000 shares issuable upon exercise of a Series G Warrant and 825,435 shares issuable upon exercise of a Series H Warrant issued to 1420524 Alberta Ltd. as part of the 2012 Bridge Loan entered into between us and 1420524 Alberta Ltd. and the conversion thereof. The Series G Warrant includes a provision prohibiting its exercise if the holder were would beneficially own more than 9.99% of our issued and outstanding shares of common stock.
We do not have a formal written policy for the review and approval of transactions with related parties. However, our Code of Ethics and Corporate Governance Principles require actual or potential conflict of interest to be reported to the Board. Our employees are expected to disclose personal interests that may conflict with ours and they may not engage in personal activities that conflict with their responsibilities and obligations to us. Periodically, we inquire as to whether or not any of our Directors have entered into any transactions, arrangements or relationships that constitute related party transactions. If any actual or potential conflict of interest is reported, our entire Board and outside legal counsel review the transaction and relationship disclosed and the Board makes a formal determination regarding each Director's independence. If the transaction is deemed to present a conflict of interest, the Board will determine the appropriate action to be taken.
Transactions with Related Persons
The Board is responsible for review, approval, or ratification of “related-person transactions” entered into between the Company and related persons. Under SEC rules (Section 404 (a) of Regulation S-K), a related person is a director, officer, nominee for director, or 5% stockholder of the company since the beginning of the previous fiscal year, and their immediate family members. We are required to report any transaction or series of transactions in which the company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest.
The Board has determined that, barring additional facts or circumstances, a related person does not have a direct or indirect material interest in the following categories of transactions:
|
·
|
any transaction with another company for which a related person’s only relationship is as an employee (other than an executive officer), director, or beneficial owner of less than 10% of that company’s shares, if the amount involved does not exceed the greater of $1 million or 2% of that company’s total annual revenue;
|
|
·
|
compensation to executive officers determined by the Board;
|
|
·
|
compensation to directors determined by the Board;
|
|
·
|
transactions in which all security holders receive proportional benefits; and
|
|
·
|
banking-related services involving a bank depository of funds, transfer agent, registrar, trustee under a trust indenture, or similar service.
|
53
The Board reviews transactions involving related persons who are not included in one of the above categories and makes a determination whether the related person has a material interest in a transaction and may approve, ratify, rescind, or take other action with respect to the transaction in its discretion. The Board reviews all material facts related to the transaction and takes into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent of the related person’s interest in the transaction; and, if applicable, the availability of other sources of comparable products or services.
The following are related party transactions for the fiscal years ended August 31, 2013 and 2012:
The law firm of Sierchio & Company, LLP (“
S&C
”)
, of which Joseph Sierchio, one of our directors, is a principal, has provided counsel to us since our inception. In July 2008, we asked Mr. Sierchio to join our
Board
. During the years ended August 31, 2013 and 2012,
S&C
provided $128,924 and $176,404, respectively, of legal services.
At August 31, 2013, we owed S&C $38,013 which is included in accounts payable.
For related party transactions that do not exceed $120,000 please see “Note 7 - Related Party Transactions” in the consolidated notes to the financial statements included in this Form 10-K.
Our unwritten policy with regard to transactions with related persons is that all material transactions are to be reviewed by the entire Board for any possible conflicts of interest. In the event of a potential conflict of interest, the Board will generally evaluate the transaction in terms of the following standards: (i) the benefits to us; (ii) the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer; (iii) the availability of other sources for comparable products or services; (iv) the terms and conditions of the transaction; and (v) the terms available to unrelated parties or the employees generally. The Board will then document its findings and conclusion in written minutes.
Director Independence
Please refer to “Director Independence” under the section titled “CORPORATE GOVERNANCE” in “ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.”
INDEPENDENT PUBLIC ACCOUNTANTS
Peterson Sullivan, LLP (“
Peterson Sullivan
”) currently serves as our independent registered public accounting firm to audit our financial statements for the fiscal year ended August 31, 2013. To the knowledge of management, neither such firm nor any of its members has any direct or material indirect financial interest in us or any connection with us in any capacity otherwise than as independent accountants.
Our Board, in its discretion, may direct the appointment of different public accountants at any time during the year, if the Board believes that a change would be in the best interests of the stockholders. The Board has considered the audit fees, audit-related fees, tax fees and other fees paid to Peterson Sullivan, as disclosed below, and has determined that the payment of such fees is compatible with maintaining the independence of the accountants.
We do not currently have an audit committee.
54
PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents aggregate fees for professional services rendered by Peterson Sullivan during the years ended August 31, 2013 and 2012:
|
Year Ended
|
||||||||
|
August 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Audit fees
|
$ | 25,749 | $ | 30,573 | ||||
|
Audit-related fees
|
3,939 | 5,360 | ||||||
|
Tax fees
|
3,950 | 5,777 | ||||||
|
Total fees
|
$ | 33,638 | $ | 41,710 | ||||
Audit Fees
Audit fees for the years ended August 31, 2013 and 2012, totaled $25,749 and $30,573, respectively, and consist of the aggregate fees billed by Peterson Sullivan for the audit of the
financial statements included in our Annual Report on Form 10-K and review of interim financial statements included in the quarterly reports on Form 10-Q
during the years ended August 31, 2013 and 2012.
Audit-Related Fees
Audit-related fees for the years ended August 31, 2013 and 2012, totaled $3,939 and $5,360, respectively, and consist of the aggregate fees billed by Peterson Sullivan for the review and providing of consents for our Form S-1 and amendments thereto that were filed with the SEC.
Tax Fees
Tax fees for the years ended August 31, 2013 and 2012, totaled $3,950 and $5,777, respectively, and consist of the aggregate fees billed by Peterson Sullivan for professional services rendered for tax compliance, tax advice and tax planning.
All Other Fees
There were no other fees billed by Peterson Sullivan for the years ended August 31, 2013 and 2012.
55
(a) The following documents are filed as a part of this Form 10-K:
|
|
1. Financial Statements
|
|
|
The following financial statements are included in Part II, Item 8 of this Form 10-K:
|
|
·
|
Report of Independent Registered Public Accounting Firm;
|
|
·
|
Consolidated Balance Sheets as of August 31, 2013 and 2012;
|
|
·
|
Consolidated Statements of Operations for the years ended August 31, 2013 and 2012, and the cumulative period from Inception (May 5, 1998) to August 31, 2013;
|
|
·
|
Consolidated Statements of Stockholders’ Equity (Deficit) from May 5, 1998 (Inception) to August 31, 2013;
|
|
·
|
Consolidated Statements of Cash Flows for the years ended August 31, 2013 and 2012, and the cumulative period from Inception (May 5, 1998) to August 31, 2013; and
|
|
·
|
Notes to Consolidated Financial Statements
|
2. Exhibits
The exhibits listed in the Exhibit Index, which appears immediately following the signature page, are incorporated herein by reference, and are filed as part of this Form 10-K.
3. Financial Statement Schedules
Financial
statement
schedules are omitted because they are not required or are not applicable, or the required information is provided in the consolidated financial statements or notes described in Item 15(a)(1) above.
56
SIGNATURES
Pursuant to the
requirements
of Sections 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
New Energy Technologies, Inc.
|
|||
| (Registrant) | |||
|
Date: November 27, 2013
|
By:
|
/s/ John A. Conklin | |
| John A. Conklin | |||
|
Chief Executive Officer, Chief Financial Officer and Director
|
|||
|
(Principal Executive Officer, Principal Financial Officer, and PrincipalAccounting Officer)
|
|||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/
John A. Conklin
|
Chief Executive Officer, Chief
|
Date: November 27, 2013
|
||
|
John A. Conklin
|
Financial Officer and Director
|
|||
|
(Principal Executive Officer,
|
||||
|
Principal Financial Officer, and
|
||||
|
Principal Accounting Officer)
|
||||
|
/s/
Alastair Livesey
|
Director
|
Date: November 27, 2013
|
||
|
Alastair Livesey
|
||||
|
/s/ Joseph Sierchio
|
Director
|
Date: November 27, 2013
|
||
|
Joseph Sierchio
|
57
Exhibit Index
| Exhibit No. | Description of Exhibit |
|
3.1
|
Articles of Incorporation, as amended (Incorporated by reference to the exhibits filed as part of the report on Form 10-Q filed by New Energy Technologies, Inc. on April 16, 2010)
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3.2
|
Certificate of Amendment to the Articles of Incorporation changing name to New Energy Technologies, Inc. (Incorporated by reference to the exhibits filed as part of the report on Form 10-Q filed by New Energy Technologies, Inc. on April 16, 2010)
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3.3
|
Certificate of Amendment to the Articles of Incorporation increasing the authorized shares from 100,000,000 to 300,000,000 (Incorporated by reference to the Form 8-K filed by New Energy Technologies, Inc. on March 21, 2011)
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3.4
|
Certificate of Change to the Articles of Incorporation relating to the one-for-three reverse stock split (Incorporated by reference to the Form 8-K filed by New Energy Technologies, Inc. on March 21, 2011)
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3.5
|
By Laws. (Incorporated by reference to the exhibits filed as part of the report on Form 10-Q filed by New Energy Technologies, Inc. on April 16, 2010)
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4.1
|
Securities Purchase Agreement dated February 8, 2008 (Incorporated by reference to the exhibits filed as part of the report on Form 10-Q filed by New Energy Technologies, Inc. on April 16, 2010)
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4.2
|
Form of Series G Warrant (Incorporated by reference to the Form 8-K filed by New Energy Technologies, Inc. on April 23, 2012)
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4.3
|
Subscription Agreement (Incorporated by reference to the Form S-1/A filed by New Energy Technologies, Inc. on August 16, 2012)
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4.4
|
Form of Series H Warrant (Incorporated by reference to the Form S-1/A filed by New Energy Technologies, Inc. on December 7, 2012)
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10.1
|
2006 Incentive Stock Option Plan
(Incorporated by reference to the Form S-8 filed by New Energy Technologies, Inc. on March 15, 2011)
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10.2
|
Loan Conversion Agreement Dated February 1, 2013, between New Energy Technologies, Inc. and 1420524 Alberta Ltd. (Incorporated by reference to the Form 8-K filed by New Energy Technologies, Inc. on February 7, 2013)
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10.3
|
Form of Stock Option Agreement Dated January 23, 2013, between New Energy Technologies, Inc. and each of John A. Conklin, CEO, Alastair Livesey, Director, Jatinder Bhogal, Director and Joseph Sierchio, Director (Incorporated by reference to the Form 8-K filed by New Energy Technologies, Inc. on January 28, 2013)
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21.1
|
Subsidiaries of the Registrant*
|
|
23.1
|
Consent of Peterson Sullivan, LLP*
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31.1
|
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
32.1
|
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
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101.INS
|
XBRL Instance Document**
|
|
101.SCH
|
XBRL Taxonomy Extension - Schema Document**
|
|
101.CAL
|
XBRL Taxonomy Extension - Calculation Linkbase Document**
|
|
101.DEF
|
XBRL Taxonomy Extension - Definition Linkbase Document**
|
|
101.LAB
|
XBRL Taxonomy Extension - Label Linkbase Document**
|
|
101.PRE
|
XBRL Taxonomy Extension - Presentation Linkbase Document**
|
*Filed herewith.
** Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
58
TABLE OF CONTENTS
Part IItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 8. Financial StatementsNote 1 - Organization, Liquidity and Summary Of Significant Accounting PoliciesNote 2 Accounts PayableNote 3 Convertible Promissory NoteNote 4 Stockholders Equity (deficit)Note 5 Stock OptionsNote 6 Net Loss Per ShareNote 7 Related Party TransactionsNote 8 Income TaxesNote 9 Subsequent EventsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules