NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Going Concern
Basis of Presentation
The unaudited financial statements of New Energy Technologies, Inc. as of May 31, 2013, and for the three and nine months ended May 31, 2013 and 2012, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended August 31, 2012, as filed with the Securities and Exchange Commission as part of the Company’s Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.
Organization
New Energy Technologies, Inc. (the “Company”) 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 the University of South Florida Research Foundation, Inc. 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 more than 50% of the Company’s 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., a California corporation and wholly-owned subsidiary of the Company, which began operations in September 2011. Nakoda is an energy savings and management corporation that provides a broad range of energy solutions and savings projects with the goal of implementing energy conservation, load management, and reducing building energy consumption in target markets. 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 Energy, Inc. 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 sixty-six (66) 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 has filed seven (7) new Patent related to the SolarWindow™ Technology since our last 10-Q filing. The Company’s SolarWindow™ Technology is the subject of a total of twenty-one (21) 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 forty-five (45) patent filings.
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.
Going Concern
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 $16,547,420
as of May 31, 2013, and does not have positive cash flows from operating activities. Included in the deficit are non cash expenses totaling $4,570,869 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.
In its report with respect to the Company’s financial statements for the year ended August 31, 2012, the Company’s independent auditors expressed substantial doubt about the Company’s ability to continue as a going concern. Because the Company has not yet generated revenues from its operations and does not expect to do so in the near future, its ability to continue as a going concern is wholly dependent upon its ability to obtain additional financing.
On February 1, 2013, the Company received $1,200,000 from an equity financing through the sale of its securities. As of May 31, 2013, the Company had cash and cash equivalents of $715,835. The Company will remain engaged in research and product development activities at least through January 2015. Based upon its current and near term anticipated level of operations and expenditures, the Company believes that, absent any modification or expansion of its existing research, development and testing activities, cash on hand should be sufficient to enable it to continue operations through October 2013. However, any significant expansion in scope or acceleration in timing of the Company’s current research and development activities, or commencement of any marketing, and public and investor relations activities, will require additional funds.
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.
In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. These consolidated financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements.
NOTE 2 - Convertible Promissory Note
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”), compounded quarterly; following the occurrence of an event of default, as further specified in the Loan Agreement, the annual interest rate would increase to 15%. The Loan was evidenced by a convertible promissory note with a maturity date of the earlier of: (a) the closing of any equity financing by the Company in excess of $1,000,000, or (b) April 16, 2013 (the “2012 Promissory Note”). As a condition to the Creditor’s entry into the Loan Agreement, the Company issued the Creditor 625,000 Series G Stock Purchase Warrants (the “Series G Warrants”), which are 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. Additionally, the Series G Warrants contain a cashless exercise provision and require us to file a registration statement with the SEC for the shares issuable upon exercise of the Series G Warrants within 60 days receipt of a written request by the Creditor. 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 3 – Stockholders’ Equity (Deficit)” below) from the initial conversion price of $1.60. In addition, as an inducement to convert, the Company issued to the Creditor 825,435 Series H Warrants and reduced the exercise price of the Series G Warrants to $0.64 (See “NOTE 3 – 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 Warrants, 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 warrants to the Creditor, representing additional financing costs associated with the Loan.
During the three and nine months ended
May 31
, 2013, the Company recognized $0 and $30,325, respectively, of interest expense related to the
2012 Promissory Note
. During the three and nine months ended
May 31
, 2012, the Company recognized $8,438 of interest expense related to the
2012 Promissory Note
.
During the three and nine months ended
May 31
, 2013, the Company recognized $0 and $999,485, respectively, of accretion related to the Loan discount. As a result of the Loan conversion, the debt discount was fully amortized by February 1, 2013, the date of the LCA.
NOTE 3 – Stockholders’ Equity (Deficit)
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 Warrants to $0.64
(See “Note 2 - 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.
Warrants
Each of the Company’s warrants outstanding entitle 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 May 31, 2013 and August 31, 2012 is as follows:
|
|
|
Shares of Common Stock Issuable from Warrants Outstanding as of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
May 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
|
|
|
|
|
2,380,126
|
|
|
|
625,000
|
|
|
|
|
|
|
The Series G Warrants were issued on April 17, 2012 as a condition to the Creditor entering into the Loan Agreement more fully described above under “Note 2 - 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 Warrants contain 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 Warrants 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 2 - 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 3 – Stockholders’ Equity (Deficit)” above for additional information).
During the three and nine months ended May 31, 2013, the Company received $6,484 upon the exercise of
7,812
Series H warrants by two warrant holders
.
NOTE 4 - Stock Options
On October 10, 2006, the Company’s Board of Directors (the “Board”) adopted and approved the 2006 Incentive Stock Option Plan (the “2006 Stock 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
May 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.
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 nine months ended May 31, 2013 and the years ended August 31, 2012 and 2011, and related information follows:
|
|
|
Number of Options
|
|
|
Weighted Average Exercise Price ($)
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value ($)
|
|
|
Outstanding at August 31, 2010
|
|
|
900,003
|
|
|
|
1.71
|
|
|
|
|
|
|
Grants
|
|
|
610,002
|
|
|
|
5.97
|
|
|
|
|
|
|
Exercises
|
|
|
(73,334
|
)
|
|
|
1.61
|
|
|
|
|
|
|
Forfeitures
|
|
|
(476,666
|
)
|
|
|
5.59
|
|
|
|
|
|
|
Outstanding at August 31, 2011
|
|
|
960,005
|
|
|
|
2.49
|
|
|
|
|
|
|
Forfeitures
|
|
|
(98,334
|
)
|
|
|
5.93
|
|
|
|
|
|
|
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 May 31, 2013
|
|
|
970,838
|
|
|
|
2.03
|
|
7.09 years
|
|
$
|
410,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at May 31, 2013
|
|
|
446,004
|
|
|
|
2.48
|
|
6.47 years
|
|
$
|
164,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at May 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 May 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 $2.11 on May 31, 2013 and 828,335 outstanding options have an exercise price below $2.11 per share, as of May 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 three and nine months ended May 31, 2013 and 2012, and from May 5, 1998 (inception) to May 31, 2013:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
May 5, 1998
|
|
|
|
|
May 31,
|
|
|
|
|
|
May 31,
|
|
|
|
|
|
(Inception) to
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
May 31, 2013
|
|
|
Stock Compensation Expense net of reversals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling general and administrative expense
|
|
$
|
51,165
|
|
|
$
|
48,272
|
|
|
$
|
274,731
|
|
|
$
|
184,942
|
|
|
$
|
2,405,499
|
|
As of May 31, 2013, the Company had $116,828 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 2.25 years.
Stock Option Activity During the Nine Months Ended May 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 three and nine months ended May 31, 2013, the Company recognized $1,463 and $8,775, respectively of expense related to these two issuances.
On April 27, 2012, pursuant to his employment agreement, the Company’s 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 and during the three and nine months ended May 31, 2013, the Company recognized $5,625 of expense related to this award.
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 three and nine months ended May 31, 2013, the Company recognized $32,193 and $193,157 of expense related to this issuance.
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.
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 and $25,528 of expense for the years ended August 31, 2012 and 2011, respectively.
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 May 31, 2013:
|
|
|
|
Stock Options Outstanding
|
|
|
|
|
|
Stock Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
Range of
|
|
|
Number of
|
|
|
Average
|
|
|
Average
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercise
|
|
|
Options
|
|
|
Contractural
|
|
|
Exercise
|
|
|
of Options
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Prices
|
|
|
Outstanding
|
|
|
Life (years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Life (Years)
|
|
|
Price
|
|
|
$
|
0.80
|
|
|
|
15,000
|
|
|
|
9.56
|
|
|
$
|
0.80
|
|
|
|
7,500
|
|
|
|
9.56
|
|
|
$
|
0.80
|
|
|
|
1.32
|
|
|
|
50,001
|
|
|
|
1.54
|
|
|
|
1.32
|
|
|
|
50,001
|
|
|
|
1.54
|
|
|
|
1.32
|
|
|
|
1.65
|
|
|
|
763,334
|
|
|
|
7.07
|
|
|
|
1.65
|
|
|
|
250,000
|
|
|
|
8.61
|
|
|
|
1.65
|
|
|
|
2.30
|
|
|
|
2,500
|
|
|
|
8.91
|
|
|
|
2.30
|
|
|
|
2,500
|
|
|
|
8.91
|
|
|
|
2.30
|
|
|
|
2.50
|
|
|
|
10,000
|
|
|
|
7.85
|
|
|
|
2.50
|
|
|
|
6,000
|
|
|
|
7.85
|
|
|
|
2.50
|
|
|
|
2.55
|
|
|
|
33,334
|
|
|
|
5.28
|
|
|
|
2.55
|
|
|
|
33,334
|
|
|
|
5.28
|
|
|
|
2.55
|
|
|
|
3.27
|
|
|
|
18,334
|
|
|
|
1.16
|
|
|
|
3.27
|
|
|
|
18,334
|
|
|
|
1.16
|
|
|
|
3.27
|
|
|
|
4.98
|
|
|
|
16,667
|
|
|
|
4.78
|
|
|
|
4.98
|
|
|
|
16,667
|
|
|
|
4.78
|
|
|
|
4.98
|
|
|
|
5.94
|
|
|
|
50,001
|
|
|
|
7.57
|
|
|
|
5.94
|
|
|
|
50,001
|
|
|
|
7.57
|
|
|
|
5.94
|
|
|
|
6.51
|
|
|
|
11,667
|
|
|
|
1.33
|
|
|
|
6.51
|
|
|
|
11,667
|
|
|
|
1.33
|
|
|
|
6.51
|
|
|
Total
|
|
|
|
970,838
|
|
|
|
7.09
|
|
|
$
|
2.03
|
|
|
|
446,004
|
|
|
|
6.47
|
|
|
$
|
2.48
|
|
NOTE 5 - Net Loss Per Share
During the three and nine months ended May 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 three and nine months ended May 31, 2013 and 2012:
|
|
|
Three Months Ended May 31,
|
|
|
Nine Months Ended May 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Basic and Diluted EPS Computation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders'
|
|
$
|
(583,979
|
)
|
|
$
|
(639,758
|
)
|
|
$
|
(3,766,063
|
)
|
|
$
|
(1,967,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
24,174,652
|
|
|
|
20,638,360
|
|
|
|
22,174,541
|
|
|
|
20,638,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The shares listed below were not included in the computation of diluted loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per share because to do so would have been antidilutive for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
2,380,126
|
|
|
|
625,000
|
|
|
|
2,380,126
|
|
|
|
625,000
|
|
|
Stock options
|
|
|
970,838
|
|
|
|
950,005
|
|
|
|
970,838
|
|
|
|
950,005
|
|
NOTE 6 - Related Party Transactions
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 the current quarter ending on May 31, 2013. New Board member compensation is pro rated in their first quarter. During the three months ended May 31
, 2013
and 2012, the Company incurred $12,750 and $18,750, respectively in cash based Board compensation. During the nine months ended May 31
, 2013
and 2012, the Company incurred $40,500 and $70,350, 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 4 - Stock Options” above) during the three months ended May 31, 2013 and 2012 of $24,983 and $19,782, respectively. During the nine months ended May 31, 2013 and 2012, the Company recognized stock compensation expense of $151,785 and $96,138, 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 three months ended May 31, 2013
and 2012, the law firm of Sierchio & Company, LLP provided $18,550 and $44,099, respectively, of legal services. During the nine months ended
May 31
, 2013
and 2012, the law firm of Sierchio & Company, LLP provided $84,873 and $141,528, respectively, of legal services. At May 31, 2013, the Company owed Sierchio & Company LLP $6,225 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 1,843,748 shares of the Company’s common stock and 921,875 Series H Warrants for an aggregate purchase price of $1,180,000 pursuant to the registered public offering conducted by the Company (See “NOTE 3 – Stockholders’ Equity (Deficit)” above).
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.