NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation, Recent Accounting Pronouncements, Organization and Going Concern
Basis of Presentation
The unaudited financial statements of New Energy Technologies, Inc. as of May 31, 2014, and for the three and nine months ended May 31, 2014 and 2013, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and include the Company’s wholly-owned subsidiaries, Sungen Energy, Inc. (“Sungen”), Kinetic Energy Corporation (“KEC”), and New Energy Solar Corporation (“New Energy Solar”). 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, 2013, 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 Company did not record an income tax provision during the periods presented due to net taxable losses. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.
Recent Accounting Pronouncements
On June 10, 2014, accounting principles generally accepted in the United States were amended to remove the definition of a development stage entity thereby removing the financial reporting distinction between development stage entities and other reporting entities. In addition, the amendments eliminate the requirements for the Company to present inception-to-date information and to label the consolidated financial statements as those of a development stage entity. The amendments are effective for the Company’s consolidated financial statements as of August 31, 2016, and interim periods therein; however, early application of each of the amendments is permitted for any reporting period. As of the date these consolidated financial statements were issued, the Company was in the process of evaluating the impact of implementing the amendments. Subsequent to the Company’s adoption of the amendments, the Company will no longer present inception-to-date information in the consolidated statements of operations, stockholders' equity, and cash flows. In addition, the consolidated financial statements will no longer be labeled as those of a development stage entity.
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, KEC, and New Energy Solar. The Company’s common stock, par value $0.001 per share, is quoted on The OTC Markets Group, Inc. QB tier under the ticker symbol “
NENE
.”
The Company is a renewable and alternative energy company, 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 flexible plastic surfaces creating semi-transparent, see-through organic photovoltaic (OPV) 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. MotionPower™ captures kinetic energy and converts it 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.
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 the Company strategically focus on specific technology development which best delivers significant long-term commercial competitive advantages.
As of May 31, 2014, the Company had accumulated a total deficit of $19,454,756 from operations in pursuit of the Company’s development and commercialization objectives.
The Company intends to finance its operations primarily through existing cash and possible future financing transactions. As of May 31, 2014, the Company had cash and cash equivalents of $1,364,454. Based upon the Company’s current and near term anticipated level of operations and expenditures, the Company believes that cash on hand should be sufficient to enable the Company to continue operations into the Company’s fiscal year ending August 31, 2015.
The Company is subject to a number of risks, including its ability to successfully develop SolarWindow™ and MotionPower™ technologies into commercially viable products, the Company’s ability to obtain financing as and when the Company needs it, competition from existing and new products, fluctuation of quarterly financial results, loss of key personnel, uncertain protection for the Company’s intellectual property, litigation or other proceedings, dependence on corporate partners and collaborators and future changes in its target markets that may adversely affect the Company.
NOTE 2 - Convertible Promissory Note
On October 7, 2013 (the “Closing Date”), the Company entered into a Bridge Loan Agreement (the “Loan Agreement”) with Kalen Capital Corporation (the “Investor”), a private corporation owning in excess of 10% of the Company’s issued and outstanding shares of common stock. Pursuant to the Loan Agreement, the Company received proceeds of $3,000,000 and issued a 7% unsecured Convertible Promissory Note (the “Note”) due on October 6, 2014, with interest compounded quarterly and 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.” According to the original terms of the Loan Agreement, the Investor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Note, and any or all accrued and unpaid interest thereon into units (collectively, the “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 (the “
Series J Warrants
”); and (c) one Series K Stock Purchase Warrant for the purchase of one share of common stock (the “
Series K Warrants
”). The conversion price for each Unit is the lesser of (i) $1.37, with the exercise price of each Series J Warrant set at $1.47 and the exercise price of each Series K Warrant set at $1.57; or (ii) 70% of the 20 day average closing price of the Company’s common stock prior to conversion, subject to a floor of $1.00 with the exercise price of each Series J Warrant included in the Units issued upon conversion being equal to 107.3% of the unit exercise price and the exercise price of each Series K Warrant included in the Units issued upon conversion being equal to 114.6% of the unit exercise price.
Together with the Loan Agreement, the Company entered into (a) a Lock-Up Agreement whereby the Investor agreed not to sell any shares of common stock owned by the Investor, including any shares issued upon conversion of the Note or upon exercise of any warrants held by Investor, whether issued pursuant to this Loan Agreement or otherwise, for a period of one (1) year from the Closing Date (as defined in the Loan Agreement) and (b) a Registration Rights Agreement that requires the Company to prepare and file a registration statement on Form S-1 no later than the 90th day prior to the expiration of the Lock-Up Agreement covering the resale of all shares of common stock issuable upon conversion of any portion of the Note and the shares of common stock issuable upon exercise of the Series I, Series J and Series K Warrants.
The Company calculated the debt discount related to the Note and Series I Warrants by first allocating the respective fair value of the Loan and the Series I Warrants based upon their relative fair values to the total Note proceeds. The fair value of the Series I Warrants issued with the Note was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $2.12 per share; estimated volatility - 165.67%; risk free interest rate - 1.41%; expected dividend rate - 0% and expected life - 5.0 years. The resulting fair value of $1,137,149 was allocated to the Series I Warrants.
The intrinsic value of the beneficial conversion feature amounted to $1,862,851. The resulting $3,000,000 discount to the Note is being accreted over the one year term of the Note using the effective interest method.
During the three and nine months ended May 31, 2014, the Company recognized $54,403 and $137,788 of interest expense related to this Note and $15,464 and $15,828 of accretion related to the debt discount. The remaining debt discount of $2,984,172 will be amortized through October 6, 2014 with $670,492 recorded during the quarter ended August 31, 2014 and $2,313,680 recorded during the quarter ended November 30, 2014.
NOTE 3 – Common Stock and Warrants
Common Stock
During the nine months ended May 31, 2014, the Company issued 1) 81,899 shares of unrestricted common stock as a result of the cashless exercise of 190,000 stock options; and 2) 10,000 shares of restricted common stock to each of the Company’s three directors (30,000 shares total) valued at $2.90 per share, the closing price of the Company's common stock on the day the stock was issued.
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 May 31, 2014 and August 31, 2013 is as follows:
|
Shares of Common Stock Issuable from
Warrants Outstanding as of
|
|
Description
|
|
May 31, 2014
|
|
|
August 31, 2013
|
|
|
Exercise Price
|
|
Expiration
|
|
Series G
|
|
|
625,000
|
|
|
|
625,000
|
|
|
$
|
0.64
|
|
April 17, 2015
|
|
Series H
|
|
|
1,755,126
|
|
|
|
1,755,126
|
|
|
$
|
0.83
|
|
February 1, 2016
|
|
Series I
|
|
|
921,875
|
|
|
|
-
|
|
|
$
|
1.37
|
|
October 7, 2018
|
|
Total
|
|
|
3,302,001
|
|
|
|
2,380,126
|
|
|
|
|
|
|
The Series I Warrant was issued on October 7, 2013, in connection with the Loan Agreement more fully described above under “Note 2 - Convertible Promissory Note.” In addition, there are a total of 4,793,155 Series J warrants and Series K warrants issuable as described under “NOTE 2 - Convertible Promissory Note.”
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 Plan”) that provides for the grant of stock options to employees, directors, officers and consultants. Stock option grants vest either immediately or over one 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 3,347,496 remain available for grant and 326,667 options have been exercised as of May 31, 2014. 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 only for 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, 2014 and 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
|
|
|
|
|
|
|
Grants
|
|
|
805,000
|
|
|
|
2.90
|
|
|
|
|
|
|
Exercises
|
|
|
(190,000
|
)
|
|
|
1.65
|
|
|
|
|
|
|
Forfeitures
|
|
|
(260,001
|
)
|
|
|
1.69
|
|
|
|
|
|
|
Outstanding at May 31, 2014
|
|
|
1,325,837
|
|
|
|
2.68
|
|
8.21 years
|
|
$
|
148,601
|
|
|
Exercisable at May 31, 2014
|
|
|
571,337
|
|
|
|
2.39
|
|
6.31 years
|
|
$
|
148,601
|
|
|
Available for grant at May 31, 2014
|
|
|
3,347,496
|
|
|
|
|
|
|
|
|
|
|
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 vested options on May 31, 2014. 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 $1.96 on May 31, 2014 and 385,001 outstanding options have an exercise price below $1.96 per share, as of May 31, 2014, there is intrinsic value to the Company’s 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, 2014 and 2013, and from May 5, 1998 (inception) to May 31, 2014 (excludes $87,000 of stock based compensation for restricted stock grants during the nine months ended May 31, 2014 described in "Note 3 - Common Stock and Warrants"):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
May 5, 1998
|
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
(Inception) to
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
May 31, 2014
|
|
|
Stock Compensation Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A - expense
|
|
$
|
237,577
|
|
|
$
|
51,165
|
|
|
$
|
517,149
|
|
|
$
|
284,806
|
|
|
$
|
8,388,786
|
|
|
SG&A - income due to forfeitures
|
|
|
-
|
|
|
|
-
|
|
|
|
(356,973
|
)
|
|
|
(10,075
|
)
|
|
|
(5,773,611
|
)
|
|
Net stock compensation cost
|
|
$
|
237,577
|
|
|
$
|
51,165
|
|
|
$
|
160,176
|
|
|
$
|
274,731
|
|
|
$
|
2,615,175
|
|
As of May 31, 2014, the Company had $844,009 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 4.25 years.
Stock Option Activity During the Nine Months Ended May 31, 2014
On January 27, 2014, pursuant to his employment agreement executed on January 1, 2014, John Conklin, CEO received a grant of 700,000 stock options. The 700,000 stock options granted on January 27, 2014 are exercisable at $2.90 per share, expire ten years from the date of grant, on January 27, 2024 and vest at the rate of 50,000 shares every six months beginning on June 30, 2014 through December 31, 2017 (4 years) for 400,000 options with the remaining 300,000 options vesting at such time as the Company shall have generated cumulative revenues of no less than $1,000,000 from the sale of a commercial product ("Performance Stock Options"). The stock option is further subject to the terms and conditions of a stock option agreement between the Company and Mr. Conklin. 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 employee ceases to be one of the Company’s employees. Upon termination of such service, the employee will have 120 days to exercise vested stock options, if any. The grant date fair value of the stock option granted was $1,862,000, or $2.66 per share, with $1,064,000 related to the ratable vesting over 4 years of 400,000 stock options and $798,000 related to the 300,000 Performance Stock Options. The grant date fair value of the stock option was estimated using a Black-Scholes model containing the following assumptions: Exercise price of $2.90, Spot price of $2.75, dividend yield of 0%, volatility of 154.0%, risk-free rate of 2.21%, and term of 7.67 years. During the three and nine months ended May 31, 2014, the Company recognized $200,271 and $267,028 of expense related to this issuance. During the nine months ended May 31, 2014, the Company reversed compensation expense amounting to $324,781 associated with 233,334 unvested performance based stock options originally granted to Mr. Conklin on August 9, 2010. The reversal was recorded when the Company determined it was no longer probable that the performance condition associated with the options would be achieved. The 233,334 performance based stock options were subsequently cancelled.
On January 9, 2014, the Board approved, and the Company granted, a stock option to each of the Company’s three directors to purchase 30,000 shares of its common stock at an exercise price of $2.90 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 of grant, on January 9, 2024, and vests as follows: (a) 15,000 shares immediately on the date of grant, and (b) 15,000 shares on December 31, 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 two years 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 $84,300, or $2.81 per share, estimated using a Black-Scholes model containing the following assumptions: Exercise price / spot price of $2.90 per share, dividend yield of 0%, volatility of 154.5%, risk-free rate of 2.41%, and a term of 7.67 years. During the three and nine months ended May 31, 2014, the Company recognized $31,613 and $179,138 of expense related to this issuance.
On January 9, 2014, 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 $2.90 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 January 9, 2024 and vest as follows: (a) 7,500 shares vest immediately on the date of grant, and (b) 7,500 shares on December 31, 2014. 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 that employee ceases to be one of the Company’s employees. Upon termination of such service, the employee will have two years to exercise vested stock options, if any. The grant date fair value of the stock option granted was $42,150, or $2.81 per option, estimated using the Black-Scholes model containing the following assumptions: Exercise price/spot price of $2.90 per share, dividend yield of 0%, volatility of 154.5%, risk-free rate of 2.41%, and a term of 7.67 years. During the three and nine months ended May 31, 2014, the Company recognized $5,269 and $29,856 of expense related to these two issuances.
On each of November 11, 2013 and November 13, 2013, 95,000 stock options (190,000 in the aggregate) were exercised on a cashless basis resulting in the issuance of an aggregate of 81,999 shares of unrestricted common stock. Said shares were registered under Form S-8 filed with the Securities and Exchange Commission on February 28, 2013.
On October 31, 2013, Jatinder Bhogal resigned from the Board. As a result of his resignation, Mr. Bhogal forfeited 20,000 unvested stock options originally granted on January 23, 2013, and had vested 20,000 stock options with an exercise price of $1.65 per share. The Company recorded costs relating to stock based compensation totaling $64,386 related to the amortization of the fair value of this stock option grant, including the recognition of $8,049 and $56,337 of expense for the nine months ended May 31, 2014 and the year ended August 31, 2013, respectively. Since the stock option was forfeited prior to 20,000 options vesting, $32,192 previously recognized for stock based compensation was reversed on October 31, 2013, resulting in total stock based compensation expense related to Mr. Bhogal’s January 23, 2013, stock option grant of $32,194. In total, Mr. Bhogal has 70,001 of vested stock options which will be forfeited if not exercised prior to October 31, 2015.
During the three and nine months ended May 31, 2014, the Company recognized $424 and $33,078 of expense related to options granted during prior periods and not described above.
The following table summarizes information about stock options outstanding and exercisable at May 31, 2014:
|
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
|
|
|
|
8.56
|
|
|
$
|
0.80
|
|
|
|
15,000
|
|
|
|
8.56
|
|
|
$
|
0.80
|
|
|
|
1.32
|
|
|
|
50,001
|
|
|
|
0.54
|
|
|
|
1.32
|
|
|
|
50,001
|
|
|
|
0.54
|
|
|
|
1.32
|
|
|
|
1.65
|
|
|
|
320,000
|
|
|
|
5.84
|
|
|
|
1.65
|
|
|
|
320,000
|
|
|
|
8.16
|
|
|
|
1.65
|
|
|
|
2.30
|
|
|
|
2,500
|
|
|
|
7.91
|
|
|
|
2.30
|
|
|
|
2,500
|
|
|
|
7.91
|
|
|
|
2.30
|
|
|
|
2.50
|
|
|
|
10,000
|
|
|
|
6.85
|
|
|
|
2.50
|
|
|
|
8,000
|
|
|
|
6.85
|
|
|
|
2.50
|
|
|
|
2.55
|
|
|
|
33,334
|
|
|
|
4.28
|
|
|
|
2.55
|
|
|
|
33,334
|
|
|
|
4.28
|
|
|
|
2.55
|
|
|
|
2.90
|
|
|
|
805,000
|
|
|
|
9.66
|
|
|
|
2.90
|
|
|
|
52,500
|
|
|
|
9.62
|
|
|
|
2.90
|
|
|
|
3.27
|
|
|
|
11,667
|
|
|
|
0.53
|
|
|
|
3.27
|
|
|
|
11,667
|
|
|
|
0.53
|
|
|
|
3.27
|
|
|
|
4.98
|
|
|
|
16,667
|
|
|
|
3.78
|
|
|
|
4.98
|
|
|
|
16,667
|
|
|
|
3.78
|
|
|
|
4.98
|
|
|
|
5.94
|
|
|
|
50,001
|
|
|
|
6.57
|
|
|
|
5.94
|
|
|
|
50,001
|
|
|
|
6.57
|
|
|
|
5.94
|
|
|
|
6.51
|
|
|
|
11,667
|
|
|
|
0.33
|
|
|
|
6.51
|
|
|
|
11,667
|
|
|
|
0.33
|
|
|
|
6.51
|
|
|
Total
|
|
|
|
1,325,837
|
|
|
|
8.21
|
|
|
$
|
2.68
|
|
|
|
571,337
|
|
|
|
6.31
|
|
|
$
|
2.39
|
|
NOTE 5 - Net Loss Per Share
During the three and nine months ended May 31, 2014 and 2013, 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 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, 2014 and 2013:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
Basic and Diluted EPS Computation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders'
|
|
$
|
(932,263
|
)
|
|
$
|
(583,979
|
)
|
|
$
|
(2,400,867
|
)
|
|
$
|
(3,766,063
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
24,306,612
|
|
|
|
24,174,652
|
|
|
|
24,270,086
|
|
|
|
22,174,541
|
|
|
Basic and diluted EPS
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The shares listed below were not included in the computation of diluted losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per share because to do so would have been antidilutive for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
|
2,396,577
|
|
|
|
-
|
|
|
|
2,396,577
|
|
|
|
-
|
|
|
Warrants issuable upon conversion of debt (See "NOTE 2 - Convertible Promissory Note" above)
|
|
|
4,793,155
|
|
|
|
-
|
|
|
|
4,793,155
|
|
|
|
-
|
|
|
Warrants
|
|
|
3,302,001
|
|
|
|
2,380,126
|
|
|
|
3,302,001
|
|
|
|
2,380,126
|
|
|
Stock options
|
|
|
1,325,837
|
|
|
|
970,838
|
|
|
|
1,325,837
|
|
|
|
970,838
|
|
NOTE 6 - Related Party Transactions
A related party with respect to the Company is generally defined as any person (i) (and, if a natural person, inclusive of his or her immediate family) that holds 10% or more of the Company’s securities, (ii) that is part of the Company’s management, (iii) that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) 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 Company’s third quarter ending on May 31, 2013. New Board member compensation is pro rated in their first quarter. During the three months ended May 31, 2014 and 2013, the Company incurred $8,500 and $12,750, respectively in cash based Board compensation. During the nine months ended May 31, 2014 and 2013, the Company incurred $29,750 and $40,500, respectively in cash based Board compensation.
The Company grants stock options and restricted common stock for services rendered by certain individuals, including the Company’s non-employee directors and sole officer, Mr. Conklin. During the nine months ended May 31, 2014, the Company's three directors each received a grant of 30,000 stock options with Mr. Conklin receiving a grant of 700,000 stock options (see “NOTE 4 - Stock Options” above). Additionally, each director was issued 10,000 shares of restricted common stock valued at $2.90 per share, the fair market value of the Company’s common stock on the date of issuance, which the Company expensed on the date of issue on January 9, 2014. In total, during the three months ended May 31, 2014 and 2013 the Company recognized net compensation expense related to stock options and restricted stock issued to the Company’s non-employee directors and executive of $231,883 and $48,820, respectively. During the nine months ended May 31, 2014 and 2013 the Company recognized net compensation expense related to stock options and restricted stock issued to the Company’s non-employee directors and executive of $214,059 and $256,898, respectively. These amounts include the reversal of compensation expense due to pre-vesting forfeitures.
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, 2014 and 2013, the law firm of Sierchio & Company, LLP provided $18,275 and $18,550, respectively, of legal services. During the nine months ended May 31, 2014 and 2013, the law firm of Sierchio & Company, LLP provided $92,997 and $84,866, respectively, of legal services. At May 31, 2014, the Company owed Sierchio & Company, LLP $6,000 which is included in accounts payable.
On October 7, 2013, the Company entered into the Loan Agreement with Kalen Capital Corporation, a private corporation owning in excess of 10% of the Company’s issued and outstanding shares of common stock. In connection with the Loan Agreement, the Company issued a $3,000,000 Note and Series I Warrants (see “NOTE 2 - Convertible Promissory Note” 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.