(The accompanying notes are an integral part of these consolidated financial statements)
(The accompanying notes are an integral part of these consolidated financial statements)
(The accompanying notes are an integral part of these consolidated financial statements)
(The accompanying notes are an integral part of these consolidated financial statements)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2016 AND 2015
NOTE 1 – Organization and Going Concern
Organization
SolarWindow 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. Effective as of March 9, 2015, the Company amended its Articles of Incorporation to change its name to SolarWindow Technologies, Inc. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, KEC and New Energy Solar.
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 entered into agreements with The University of South Florida Research Foundation (“
USF
”) to sponsor research related to the Company’s SolarWindow™ technology. On February 18, 2015, the Company terminated the license agreement entered into with USF which originated on June 21, 2010.
On March 9, 2015, the Company changed its name to “SolarWindow Technologies, Inc.” to align the company name with its brand identity. The Company’s ticker symbol changed to WNDW.
The Company has been developing two sustainable electricity generating systems. These novel technologies are branded as SolarWindow™ and MotionPower™. On March 2, 2015, the Company announced its exclusive focus on SolarWindow™.
The Company’s SolarWindow™ technology provides the ability to harvest light energy from the sun and artificial sources and generate electricity from a transparent coating of organic photovoltaic solar cells. The Company’s SolarWindow™ transparent electricity generating coatings are the subject of patent pending technologies. Initially being developed for application on glass surfaces, SolarWindow™ coatings could potentially be used on any of the more than 85 million commercial and residential buildings in the United States alone.
The Company’s SolarWindow™ 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. As such, the Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to commercialize the Company’s SolarWindow™ technology before another company develops a similar technology and products.
Going Concern
The Company does not have any commercialized products and has not generated any revenue since inception. The Company has a retained deficit of $33,676,327 and cash of $2,509,215 as of August 31, 2016, and does not have positive cash flows from operating activities. 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.
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 through June 2017.
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 its research programs, sell rights to its SolarWindow
TM
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 – Summary of Significant Accounting Policies
Principles of Consolidation
These consolidated financial statements presented are those of the Company and its wholly owned subsidiaries, 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.
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.
Property, Plant, and Equipment
Fixed assets are carried at cost, less accumulated depreciation and amortization. Major improvements are capitalized, while repair and maintenance are expensed when incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
Depreciation is computed on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
|
|
Estimated
|
|
|
|
Useful Lives
|
|
|
|
|
|
Office equipment
|
|
3-5 years
|
|
Furniture & equipment
|
|
5 - 7 years
|
|
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 interest payable 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 the Company’s 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 6 – Common Stock and Warrants” and “NOTE 7 - Stock Options” for additional information on the Company’s stock-based compensation plans.
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 8 - Net Loss Per Share” for further discussion.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02 amending the accounting for leases. The new guidance requires the recognition of lease assets and liabilities for operating leases with terms of more than 12 months, in addition to those currently recorded, on our consolidated balance sheets. Presentation of leases within the consolidated statements of operations and consolidated statements of cash flows will be generally consistent with the current lease accounting guidance. The ASU is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company does not expect this accounting update to have a material effect on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU requires retrospective adoption and will be effective for fiscal years beginning after December 15, 2015 and for interim periods within those fiscal years. The Company does not expect this accounting update to have a material effect on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08 to further clarify the implementation guidance on principal versus agent considerations. The guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company does not expect this accounting update to have a material effect on its consolidated financial statements.
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, the Company has not identified any standards that the Company believes merit further discussion. The Company believes that none of the new standards will have a significant impact on the financial statements.
NOTE 3 - Debt
December 7, 2015, $550,000 Bridge Loan
On December 7, 2015, the Company entered into a Bridge Loan Agreement (the “
December 2015 Loan Agreement
”) with Kalen Capital Corporation (the “
Investor
”). Pursuant to the December 2015 Loan Agreement, the Company received advances of $400,000 on October 7, 2015 and $150,000 on December 22, 2015 (Each advance includes an additional $5 related to wire fees). The December 2015 Loan was evidenced by a promissory note with an annual interest rate of 10% (default rate of 18%), compounded quarterly, and an initial maturity date of the earlier of: (a) the closing of any equity financing by the Company in excess of $3,000,000, or (b) September 1, 2016. The December 2015 Loan was initially convertible at any time into shares of common stock at a conversion price equal to 85% of the thirty day volume weighted average price of the Company’s common stock. In connection with the December 2015 Loan Agreement, the Company issued the Investor a Series M Stock Purchase Warrant (the “
Series M Warrant
”) to purchase up to 275,000 shares of the Company’s common stock for a period of five years, with an exercise price of $2.34.
The debt discount attributable to the warrants and beneficial conversion feature amounted to $458,777 (including $400,000 recognized as of October 7, 2015 and $58,777 recognized on December 22, 2015). The estimated fair value of the Series M Warrants was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $3.01 per share; estimated volatility – 79%; 5-year risk free interest rate – 1.67%; expected dividend rate - 0% and expected life - 5 years. The resulting $458,777 discount was accreted through March 31, 2016.
On March 31, 2016, the Investor received 177 PPM Units (as defined below under Note 4) from the conversion of $548,700 of the principal owed under the December 2015 Loan Agreement resulting in a remaining balance of $18,146. The remaining balance was evidenced by a new promissory note (the “
March 2016 Note
”) dated March 31, 2016. The March 2016 Note accrued interest at 10% and was due September 1, 2016. The March 2016 Note was repaid on November 14, 2016. The PPM Units issued in exchnge for the conversion of principal owed under the December 2015 Loan Agreement contained terms that were more beneficial to the Investor resulting in the Company recognizing a loan conversion inducement expense of $36,176 related to the common stock issued and $529,230 related to the warrant component of the PPM Units (i.e., the Series O Warrant and Series P Warrant as defined below under Note 4).
As consideration for the Investor agreeing to extend the 2013 Note (defined below) maturity date to December 31, 2017 (as described below), the Company extended the expiration date of all of the Investor’s existing warrants, including the Series M Warrant maturity date from December 7, 2020 to December 31, 2020. The difference in fair value of the Series M Warrant as a result of the extension of the expiration date was immaterial.
During the year ended August 31, 2016, the Company recognized $18,076 of interest expense. During the year ended August 31, 2016, the Company recognized $458,777 of accretion related to the debt discount of the December 2015 Loan Agreement.
March 4, 2015, $600,000 Bridge Loan
On March 4, 2015, the Company entered into a Bridge Loan Agreement (the “
Bridge Loan Agreement
”) with 1420468 Alberta Ltd. (the “
Creditor
”). On or about December 31, 2015, the Creditor merged with and into the Investor. Pursuant the Bridge Loan Agreement, the Company borrowed $600,000 at an annual interest rate of 7% (the “
March 2015 Loan
”), compounded quarterly, with a default rate of 15%. The March 2015 Loan was evidenced by a promissory note with an initial maturity date of the earlier of: (a) the closing of any equity financing by the Company in excess of $600,000, or (b) September 4, 2015. In connection with the Bridge Loan Agreement, the Company issued Creditor a Series L Stock Purchase Warrant to purchase up to 500,000 shares of the Company’s common stock, which was initially exercisable from September 5, 2015 through March 4, 2020, with an exercise price of $1.20.
The debt discount attributable to the relative fair value of the warrants issued with the March 2015 Loan, amounted to $299,750. The estimated fair value of the Series L Warrant was $1.198 per share and was calculated using the Black-Scholes option pricing model with the following assumptions: market price of common stock - $1.78 per share; estimated volatility - 76%; risk free interest rate – 1.55%; expected dividend rate - 0% and expected life – 4.5 years. The resulting discount was accreted over the original term of the March 2015 Loan through September 4, 2015.
On December 7, 2015, Creditor agreed to extend the maturity date of the March 2015 Loan from September 4, 2015 to December 31, 2016. As consideration the Company issued Creditor a Series M Stock Purchase Warrant to purchase 100,000 shares of the Company’s common stock through December 7, 2020, at an exercise price of $2.34 per share. As a result, the Company recognized an additional debt discount for the fair value of the Series M Stock Purchase Warrant amounting to $205,800.
The fair value of the Series M Warrant was $2.058 and was calculated using the Black-Scholes option pricing model and the following assumptions: exercise price - $2.34; market price of common stock - $3.01 per share; estimated volatility - 79%; risk free interest rate - 1.67%; expected dividend rate - 0% and expected life - 5 years.
The Company recorded $33,000 as additional debt discount to recognize the increase in fair value for the extension of the expiration date of the Series L Warrant from March 4, 2020 to December 7, 2020. The increase in fair value was calculated using the Black-Scholes option pricing model and the following assumptions: exercise price - $1.20; market price of common stock - $3.01 per share; estimated volatility - 79%; risk free interest rate - 1.67%; expected dividend rate - 0% and expected life - 5 years for the new warrant and 4.24 years for the original warrant.
During the years ended August 31, 2016, the Company recognized $44,742 and $20,891, respectively, of interest expense. Accretion related to the debt discount for the March 2015 Loan, Series L Warrant and Series M Warrant amounted to $170,614 and $293,234 during the years ended August 31, 2016 and 2015, respectively.
October 7, 2013, $3,000,000 Convertible Promissory Note
On October 7, 2013, the Company entered into a Bridge Loan Agreement (the “
2013 Loan Agreement
”) with the Investor. Pursuant to the 2013 Loan Agreement, the Company received proceeds of $3,000,000 and issued a 7% unsecured Convertible Promissory Note (the “
2013 Note
”) initially due on October 6, 2014, with interest compounded quarterly and issued a Series I Stock Purchase Warrant (the “
Series I Warrant
”) for the purchase up to 921,875 shares of the Company’s common stock at an initial exercise price of $1.37 for a period of five years. According to the original terms of the 2013 Loan Agreement, the Investor may have elected to convert all or any portion of the outstanding principal amount of the 2013 Note, and accrued interest thereon 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 (the “
Series J Warrant
”); and (c) one Series K Stock Purchase Warrant for the purchase of one share of common stock (the “
Series K Warrant
”).
On November 10, 2014, the Company entered into an Amended Bridge Loan Agreement (the “
2015 Loan Agreement
”) with the Investor pursuant to which the maturity date was extended to December 31, 2015 (the “
Amended Note
”). According to the terms of the 2015 Loan Agreement, the Investor may elect to convert principal and accrued interest into units of the Company’s equity securities (collectively, the “
Units
”), with each Unit consisting of (a) one share of common stock; and (b) one Stock Purchase Warrant for the purchase of one share of common stock. The conversion price for each Unit is the lesser of (i) $1.37; 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 Warrant being equal to 60% of the 20 day average closing price of the Company’s common stock prior to conversion. If issued, the Warrant included in the Units will be exercisable for a period of five years.
In order to induce the Investor to enter into the 2015 Loan Agreement and extend the maturity date to December 31, 2015, the Company issued a Series J Warrant to purchase 3,110,378 shares of its common stock at an exercise price of $1.12 and a Series K Warrant to purchase 3,110,378 shares of its common stock at an exercise price of $1.20. Each of the Series J Warrant and Series K Warrant was initially exercisable through November 9, 2019. As a result of the modification (which did not result in a gain or loss due to the related party nature of the transaction), the fair value of the Warrant amounting to $3,629,309 (limited to the $3,000,000 face value of the note) was recognized as a debt discount as of November 10, 2014.
On December 31, 2015, the Company entered into a Second Amended Bridge Loan Agreement (the “
2015 Second Amended Loan Agreement
”) with the Investor pursuant to which the Company and the Investor amended the 2015 Loan Agreement by amending the 2013 Note to extend the maturity date to December 31, 2017 (the “
Second Amended Note
”).
As consideration for the Investor agreeing to extend the 2013 Note maturity date to December 31, 2017, the Company issued a Series N Warrant and extended the maturity date of all of the Investor’s existing warrants, as described below, resulting in an additional debt discount of $2,476,875 as of December 31, 2015. The modification did not result in a gain or loss due to the related party nature of the transaction.
The Company issued a Series N Warrant to purchase 767,000 shares of common stock at an exercise price of $3.38 through December 31, 2020. The fair value of the Series N Warrant was $2.102 per share, or $1,612,234 and was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $3.24 per share; estimated volatility – 82.00%; risk free interest rate - 1.76%; expected dividend rate - 0% and expected life - 5 years. As a result, the Company recorded a debt discount of $1,612,234 which is being accreted through December 31, 2017.
The maturity date of the Series I Warrant to purchase 921,875 shares of common stock was extended from October 6, 2018 to December 31, 2020. The Company recorded $233,234 as a debt discount to recognize the increase in value for the extension of the expiration date. The increase in the fair value was calculated using the Black-Scholes option pricing model and the following assumptions: exercise price - $1.37; market price of common stock - $3.24 per share; estimated volatility – 81.81%; risk free interest rate - 1.76%; expected dividend rate - 0% and expected life - 5 years as a result of the extension and 2.77 years remaining at the time of extension through December 31, 2017.
The maturity date of the Series J Warrant to purchase 3,110,378 shares of common stock was extended from November 9, 2019 to December 31, 2020. The Company recorded $304,817 as a debt discount to recognize the increase in fair value for the extension of the expiration date. The increase in fair value was calculated using the Black-Scholes option pricing model and the following assumptions: exercise price - $1.12; market price of common stock - $3.24 per share; estimated volatility – 81.81%; risk free interest rate - 1.76%; expected dividend rate - 0% and expected life - 5 years as a result of the extension and 3.86 years remaining at the time of extension. The debt discount is being accreted through December 31, 2017.
The maturity date of the Series K Warrant to purchase 3,110,378 shares of common stock was extended from November 9, 2019 to December 31, 2020. The Company recorded $326,590 as a debt discount to recognize the increasein fair value for the extension of the expiration date. The increase in fair value was calculated using the Black-Scholes option pricing model and the following assumptions: exercise price - $1.20; market price of common stock - $3.24 per share; estimated volatility – 81.81%; risk free interest rate - 1.76%; expected dividend rate - 0% and expected life - 5 years as a result of the extension and 3.86 years remaining at the time of extension. The debt discount is being accreted through December 31, 2017.
Interest expense related to the 2013 Loan Agreement, as amended, amounted to $246,637 and $229,457 during the years ended August 31, 2016 and 2015, respectively.
Accretion of the debt discount related to the 2013 Loan Agreement as amended amounted to $1,706,563 and $4,433,872 during the years ended August 31, 2016 and 2015, respectively. The remaining debt discount related to the Series N Warrants and Series I, J and K Warrant expiration date extensions totals $1,650,120 and will be amortized through December 31, 2017.
Principal maturities for notes payable for the years ending August 31 are as follows:
2017
|
|
$
|
618,146
|
|
2018
|
|
|
3,000,000
|
|
Total
|
|
$
|
3,618,146
|
|
NOTE 4 – Private Placements
June 2016 Private Placement
On June 20, 2016, the Company completed a self-directed offering of 937,500 units at a price of $3.20 per unit for $3,000,000 in aggregate proceeds (the “
June 2016 Private Placement
”). Each unit consisted of (a) one share of common stock; (b) one Series Q Stock Purchase Warrant to purchase one share of common stock at an exercise price of $3.20 per share through June 20, 2019; and (c) one Series R Stock Purchase Warrant to purchase one share of common stock at a price of $4.00 per share through June 20, 2021. The warrants may be exercised on a cashless basis.
The relative fair value of the common stock was estimated to be $1,338,000. The relative fair value of the Series Q Warrants and Series R Warrants was estimated to be $783,000 and $879,000, respectively, as determined based on the relative fair value allocation of the proceeds received. The Series Q Warrants were valued using the Black-Scholes option pricing model using the following variables: market price of common stock - $3.99 per share; estimated volatility – 83%; 3-year risk free interest rate – 0.87%; expected dividend rate - 0% and expected life - 3 years. The Series R Warrants were also valued using the Black-Scholes option pricing model using the following variables: market price of common stock - $3.99 per share; estimated volatility – 83%; 5-year risk free interest rate – 1.17%; expected dividend rate - 0% and expected life - 5 years.
March 2016 Private Placement
Beginning on February 18, 2016 and closing on March 31, 2016, the Company completed an offering pursuant to a Private Placement Memorandum dated February 16, 2016 (the “
Offering
”) for the sale to accredited investors of units of the Company’s equity securities (each a “
PPM Unit
” and collectively, the “"
PM Units
”) at a price of $3,100 per PPM Unit with each PPM Unit comprised of (a) one thousand shares of common stock; (b) one warrant to purchase one thousand shares of common stock at a price, subject to certain adjustments, of $3.10 per Warrant Share through October 31, 2017 (the “
Series O Warrant
”); and (c) one warrant to purchase five hundred shares Common Stock at a price, subject to certain adjustments, of $3.70 per Warrant Share through April 30, 2018 (the “
Series P Warrant
”). Pursuant to the Offering, the Company issued 618 PPM Units consisting of 441 PPM Units in exchange for cash of $1,367,100 and 177 PPM Units for the conversion of $548,700 of the principal owed under the December 2015 Loan Agreement.
The terms of the Offering provided for a onetime reset adjustment (the “
Reset Adjustment
”) such that if, within 6 months from the Offering Termination Date on September 30, 2016, the Company sells equity securities at a price less than $3.10 per share (“
Reset Price
”), each of the subscribers having purchased Units in the Offering will receive additional Units (the “
Reset Units
”) equal to the difference between the number of Units that would have been issuable to such subscribers if the price per share of common stock included in the Units was equal to the Reset Price less the number of Units actually received by such subscriber.
NOTE 5 - Derivative Liability related to the PPM Units
The Reset Adjustment contained in the Offering did not have fixed settlement provisions because the number of PPM Units issued may be adjusted higher if the Company sells securities at lower prices in the future; therefore, the Company concluded that the Reset Adjustment feature was not indexed to the Company’s stock and is to be treated as a derivative liability for accounting purposes. The accounting treatment for derivative financial instruments requires that the Company allocate a portion of the equity proceeds to the derivative for an amount equal to its initial fair value. Subsequently, on each reporting date, the fair value of the derivative is measured with changes in value recorded to other income/expense. In determining the fair value of the derivative liabilities, the Company used a Monte Carlo simulation at the date the instrument was issued and at each quarter end until the termination date of the Reset Adjustment on September 30, 2016.
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s derivative liability that is categorized within Level 3 of the fair value hierarchy during the year ended August 31, 2016 as follows:
Common stock issuable upon exercise of Series O Warrants
|
|
|
618,000
|
|
Common stock issuable upon exercise of Series P Warrants
|
|
|
309,000
|
|
Stock price
|
|
$
|
3.13 - $4.19
|
|
Volatility (Annual)
|
|
80% - 83%
|
|
Strike price
|
|
$
|
3.10, Series O Warrants; $3.70, Series P Warrants
|
|
Risk-free rate
|
|
0.71% - 0.80% Series O Warrants; 0.71% - 0.79%, Series P Warrants
|
|
Term
|
|
1.4 – 1.7 years Series O Warrants; 2.1 - 2.2 years, Series P Warrants
|
|
Probability of Reset Adjustment
|
|
0% - 100
|
%
|
As of August, 31, 2016, as a result of the June 2016 Private Placement, the Company had no plans to raise capital prior to the expiration date of the Reset Adjustment. As a result, the Company determined that the Reset Adjustment had no value as of August 31, 2016 resulting in the recognition of other income.
The following table sets forth the Company’s derivative liabilities that were accounted for at fair value on a recurring basis categorized within Level 3 of the fair value hierarchy during the year ended August 31, 2016:
|
|
Balance at
August 31, 2015
|
|
|
Initial valuation of derivative liabilities upon issuance of new securities during the period
|
|
|
Increase (decrease) in fair value of derivative liabilities
|
|
|
|
Balance at
August 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
1,714,395
|
|
|
$
|
(1,714,395
|
)
|
|
|
$
|
-
|
|
NOTE 6 – Common Stock and Warrants
Common Stock
At August 31, 2016, the Company had 300,000,000 authorized shares of common stock with a par value of $0.001 per share, 28,500,221 shares of common stock outstanding and 3,216,665 shares reserved for issuance under the Company’s 2006 Long-Term Incentive Plan (the “
2006 Plan
”) as adopted and approved by the Company’s Board of Directors (the “
Board
”) on October 10, 2006 that provides for the grant of stock options to employees, directors, officers and consultants (See “NOTE 7 - Stock Options”).
During the year ended August 31, 2016, the Company had the following common stock related transactions:
|
·
|
issued 282,106 shares of common stock upon the cashless exercise of 556,667 options.
|
|
|
|
|
·
|
issued 30,000 shares of common stock on January 5, 2016 to each of the Company’s three directors pursuant to the 2006 Plan (90,000 shares total) valued at $3.75 per share, the closing price of the Company’s common stock on the day the stock was granted.
|
|
|
|
|
·
|
received $1,367,100 pursuant to the Offering for the purchase of 441 PPM Units resulting in the issuance of 441,000 shares of common stock (See “NOTE 4 – Private Placements”).
|
|
|
|
|
·
|
converted loan principal of $548,700 from the December 2015 Loan Agreement in exchange for 177 PPM Units resulting in the issuance of 177,000 shares of common stock (See “NOTE 3 – Debt”).
|
|
|
|
|
·
|
received $3,000,000 pursuant to the June 2016 Private Placement for the purchase of 937,500 units resulting in the issuance of 937,500 shares of common stock (See “NOTE 4 – Private Placements”).
|
During the year ended August 31, 2015, the Company had the following common stock related transactions:
|
·
|
issued 454,787 shares of common stock upon the cashless exercise of 625,000 Series G Warrants.
|
|
|
|
|
·
|
issued 1,751,216 shares of common stock as a result of the exercise of Series H Warrants for which the Company received $1,453,514.
|
|
|
|
|
·
|
issued 20,000 shares of common stock on January 26, 2015 to each of the Company’s three directors pursuant to the 2006 Plan (60,000 shares total) valued at $1.40 per share, the closing price of the Company’s common stock on the day the stock was granted.
|
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. Other than the Series O Warrants and Series P Warrants, all of the following warrants may be exercised on a cashless basis. A summary of the Company’s warrants outstanding and exercisable as of August 31, 2016 and 2015 is as follows:
|
|
Shares of Common Stock Issuable from Warrants Outstanding as of
August 31,
|
|
|
Weighted
Average
|
|
|
|
|
Description
|
|
2016
|
|
|
2015
|
|
|
Exercise Price
|
|
|
Expiration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series H
|
|
|
-
|
|
|
|
3,906
|
|
|
$
|
0.83
|
|
|
February 1, 2016
|
|
Series I
|
|
|
921,875
|
|
|
|
921,875
|
|
|
$
|
1.37
|
|
|
December 31, 2020
|
|
Series J
|
|
|
3,110,378
|
|
|
|
3,110,378
|
|
|
$
|
1.12
|
|
|
December 31, 2020
|
|
Series K
|
|
|
3,110,378
|
|
|
|
3,110,378
|
|
|
$
|
1.20
|
|
|
December 31, 2020
|
|
Series L
|
|
|
500,000
|
|
|
|
500,000
|
|
|
$
|
1.20
|
|
|
December 7, 2020
|
|
Series M
|
|
|
375,000
|
|
|
|
-
|
|
|
$
|
2.34
|
|
|
December 31, 2020
|
|
Series N
|
|
|
767,000
|
|
|
|
-
|
|
|
$
|
3.38
|
|
|
December 31, 2020
|
|
Series O
|
|
|
618,000
|
|
|
|
-
|
|
|
$
|
3.10
|
|
|
October 31, 2017
|
|
Series P
|
|
|
309,000
|
|
|
|
-
|
|
|
$
|
3.70
|
|
|
April 30, 2018
|
|
Series Q
|
|
|
937,500
|
|
|
|
-
|
|
|
$
|
3.20
|
|
|
June 20, 2019
|
|
Series R
|
|
|
937,500
|
|
|
|
-
|
|
|
$
|
4.00
|
|
|
June 20, 2021
|
|
Total
|
|
|
11,586,631
|
|
|
|
7,646,537
|
|
|
|
|
|
|
|
|
Series H Warrants to purchase common stock were issued on February 1, 2013, in connection with the self-directed registered offering of 1,875,000 units. The remaining 3,906 Series H Warrants outstanding as of August 31, 2015 expired on February 1, 2016.
The Series I Warrant was issued on October 7, 2013, in connection with the 2013 Loan Agreement. On December 31, 2015, as consideration for the Investor agreeing to extend the 2013 Note maturity date to December 31, 2017, the Company extended the maturity date of the Series I Warrant from October 6, 2018 to December 31, 2020.
The Series J Warrant and Series K Warrant were issued on November 10, 2014 as a condition to the Investor entering into the 2015 Loan Agreement. On December 31, 2015, as consideration for the Investor agreeing to extend the 2013 Note maturity date to December 31, 2017, the Company extended the maturity date of the Series J and K Warrants from November 9, 2019 to December 31, 2020.
The Series L Warrant was issued on March 4, 2015 in connection with the March 2015 Loan. On December 7, 2015, the expiration date of the Series L Warrant was extended from March 4, 2020 to December 7, 2020.
A Series M Warrant, with an exercise price of $2.34, to purchase 275,000 shares of common stock was issued on December 7, 2015 in connection with the December 2015 Loan. A Series M Warrant, with an exercise price of $2.34, to purchase 100,000 shares was issued on December 7, 2015 as an inducement for Creditor to extend the maturity date of the March 2015 Loan from September 4, 2015 to December 21, 2016.
The Series N Warrant to purchase 767,000 shares was issued on December 31, 2015 pursuant to the 2015 Second Amended Loan Agreement as an inducement for the Investor to extend the maturity date of the 2013 Note from December 31, 2015 to December 31, 2017.
The Series O and Series P Warrant were issued in connection with the Offering described above under “NOTE 4 – Private Placement”.
The Series Q and Series R Warrant were issued in connection with the June 2016 Private Placement described above under “NOTE 4 – Private Placement”.
There are a total of approximately 2,678,280 warrants issuable pursuant to the 2013 Loan Agreement as described above under “NOTE 3 - Debt.”
NOTE 7 - Stock Options
Stock option grants pursuant to the 2006 Plan 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 3,216,665 remain available for grant and 883,334 were issued pursuant to the exercise of vested options as of August 31, 2016. 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 employs the following key weighted-average assumptions in determining the fair value of stock options, using the Black-Scholes option pricing model and the simplified method to estimate the expected term of “plain vanilla” options:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
August 31, 2016
|
|
|
August 31, 2015
|
|
Expected dividend yield
|
|
|
–
|
|
|
|
–
|
|
Expected stock price volatility
|
|
|
82
|
%
|
|
|
137.5
|
%
|
Risk-free interest rate
|
|
|
2.06
|
%
|
|
|
1.90
|
%
|
Expected term (in years)
|
|
|
7.67
|
|
|
|
7.67
|
|
Exercise price
|
|
$
|
3.46
|
|
|
$
|
1.40
|
|
Weighted-average grant date fair-value
|
|
$
|
2.64
|
|
|
$
|
1.33
|
|
A summary of the Company’s stock option activity for the years ended August 31, 2016 and 2015 and related information follows:
|
|
Number of Shares Subject to Option Grants
|
|
|
Weighted Average Exercise
Price ($)
|
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value ($)
|
|
Outstanding at August 31, 2014
|
|
|
1,325,837
|
|
|
|
2.68
|
|
|
|
|
|
|
Grants
|
|
|
15,000
|
|
|
|
1.40
|
|
|
|
|
|
|
Forfeitures
|
|
|
(73,335
|
)
|
|
|
2.46
|
|
|
|
|
|
|
Outstanding at August 31, 2015
|
|
|
1,267,502
|
|
|
|
2.68
|
|
|
|
|
|
|
Grants
|
|
|
65,000
|
|
|
|
3.46
|
|
|
|
|
|
|
Forfeitures
|
|
|
(55,834
|
)
|
|
|
3.23
|
|
|
|
|
|
|
Exercises
|
|
|
(556,667
|
)
|
|
|
2.22
|
|
|
|
|
|
|
Outstanding at August 31, 2016
|
|
|
720,001
|
|
|
|
3.06
|
|
|
7.26 years
|
|
|
70,100
|
|
Exercisable at August 31, 2016
|
|
|
225,001
|
|
|
|
3.30
|
|
|
6.55 years
|
|
|
61,100
|
|
Available for grant at August 31, 2016
|
|
|
3,216,665
|
|
|
|
|
|
|
|
|
|
|
|
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 August 31, 2016. 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 $2.92 on August 31, 2016 and 605,000 outstanding options have an exercise price below $2.92 per share, as of August 31, 2016, there is intrinsic value to the Company’s outstanding, in-the-money stock options.
There were 556,667 options exercised during the year ended August 31, 2016 on a cashless basis resulting in the issuance of 282,106 shares of common stock. The aggregate intrinsic value of the options exercised during the year ended August 31, 2016 was $1,237,333.
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, 2016 and 2015:
|
|
Years Ended
|
|
|
|
August 31,
|
|
|
|
2016
|
|
|
2015
|
|
Stock Compensation Expense:
|
|
|
|
|
|
|
SG&A
|
|
$
|
211,406
|
|
|
$
|
420,488
|
|
R&D
|
|
|
97,357
|
|
|
|
16,286
|
|
Total
|
|
$
|
308,763
|
|
|
$
|
436,774
|
|
As of August 31, 2016, the Company had $145,716 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 2.25 years.
The following table summarizes information about stock options outstanding and exercisable at August 31, 2016:
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
Range of
Exercise
Prices
|
|
|
Number of
Shares
Subject to
Outstanding
Options
|
|
|
Weighted
Average
Contractual
Life (years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
of Shares Subject
To Options
Exercise
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.80
|
|
|
|
15,000
|
|
|
|
6.31
|
|
|
$
|
0.80
|
|
|
|
15,000
|
|
|
|
6.31
|
|
|
$
|
0.80
|
|
|
1.40
|
|
|
|
15,000
|
|
|
|
8.30
|
|
|
|
1.40
|
|
|
|
15,000
|
|
|
|
8.30
|
|
|
|
1.40
|
|
|
2.50
|
|
|
|
10,000
|
|
|
|
4.60
|
|
|
|
2.50
|
|
|
|
10,000
|
|
|
|
4.60
|
|
|
|
2.50
|
|
|
2.90
|
|
|
|
565,000
|
|
|
|
7.41
|
|
|
|
2.90
|
|
|
|
115,000
|
|
|
|
7.405
|
|
|
|
2.90
|
|
|
3.46
|
|
|
|
65,000
|
|
|
|
9.35
|
|
|
|
3.46
|
|
|
|
20,000
|
|
|
|
9.35
|
|
|
|
3.46
|
|
|
4.98
|
|
|
|
16,667
|
|
|
|
1.52
|
|
|
|
4.98
|
|
|
|
16,667
|
|
|
|
1.52
|
|
|
|
4.98
|
|
|
5.94
|
|
|
|
33,334
|
|
|
|
4.32
|
|
|
|
5.94
|
|
|
|
33,334
|
|
|
|
4.32
|
|
|
|
5.94
|
|
Total
|
|
|
|
720,001
|
|
|
|
7.26
|
|
|
$
|
3.06
|
|
|
|
225,001
|
|
|
|
6.55
|
|
|
$
|
3.30
|
|
NOTE 8 - Net Loss Per Share
During the years ended August 31, 2016 and 2015, 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 years ended August 31, 2016 and 2015:
|
|
Years Ended August 31,
|
|
|
|
2016
|
|
|
2015
|
|
Basic and Diluted EPS Computation
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Loss available to common stockholders'
|
|
$
|
(4,637,313
|
)
|
|
$
|
(8,092,744
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
27,295,540
|
|
|
|
25,131,836
|
|
Basic and diluted EPS
|
|
$
|
(0.17
|
)
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
720,001
|
|
|
|
1,267,502
|
|
Warrants
|
|
|
11,586,631
|
|
|
|
7,646,537
|
|
Convertible debt
|
|
|
2,685,524
|
|
|
|
2,498,254
|
|
Warrants issuable upon conversion of debt (See "NOTE 3 - Debt" above)
|
|
|
2,678,280
|
|
|
|
2,498,254
|
|
Total shares not included in the computation of diluted losses per share
|
|
|
17,670,436
|
|
|
|
13,910,547
|
|
NOTE 9 - 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.
The law firm of Sierchio & Partners, LLP (formerly 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. During the years ended August 31, 2016 and 2015, the law firm of Sierchio & Partners, LLP provided $291,951 and $235,459, respectively, of legal services. At August 31, 2016, the Company owed Sierchio & Partners, LLP $53,467 which is included in accounts payable.
On October 7, 2013, the Company entered into the 2013 Loan Agreement with the Investor. On November 10, 2014, the Company and the Investor entered into the 2015 Loan Agreement resulting in the extension of the 2013 Note’s maturity date to December 31, 2015 and the issuance of a Series J Warrant to purchase 3,110,378 shares of our common stock and a Series K Warrant to purchase 3,110,378 shares of our common stock. On December 31, 2015, the Company entered into the 2015 Second Amended Loan Agreement with the Investor resulting in the extension of the 2013 Note’s maturity date to December 31, 2017 and the issuance of a Series N Warrant to purchase 767,000 shares of our common stock. Additionally, as consideration for the Investor agreeing to extend the 2013 Note maturity date to December 31, 2017, the Company extended the maturity date of the Series I Warrant to purchase 921,875 shares of common stock from October 6, 2018 to December 31, 2020, and extended the maturity date of the Series J Warrant to purchase 3,110,378 shares of common stock and Series K Warrant to purchase 3,110,378 shares of common stock from November 9, 2019 to December 31, 2020. For more information, see “NOTE 3 - Debt” above.
On December 7, 2015, the Company entered into a Bridge Loan Agreement with the Investor pursuant to which the Company may borrow up to $550,000; of which $400,000 was advanced on October 7, 2015 and $150,000 on December 22, 2015 (each advance includes an additional $5 related to wire fees). As a condition to the Investor’s entry into the December 2015 Loan Agreement, the Company issued the Investor a Series M Stock Purchase Warrant to purchase up to 275,000 shares of the Company's common stock for a period of five years, with an exercise price of $2.34. Additionally, as consideration for the Investor agreeing to extend the 2013 Note maturity date to December 31, 2017, the Company extended the maturity date of the Series M Warrant to purchase 275,000 shares of common stock from December 7, 2020 to December 31, 2020. For more information, see “NOTE 3 – Debt” above.
During the year ended August 31, 2016, the Investor purchased 250 PPM Units related to the Offering resulting in the Company receiving $775,000. Additionally, the Investor converted $548,700 of principal owed under the December 2015 Loan Agreement in exchange for 177 PPM units. As a result, the Company issued 427,000 shares of common stock, 427,000 Series O Warrants, and 213,500 Series P Warrants. For more information, see “NOTE 3 – Debt” and “NOTE 4 – Private Placement” above.
During the year ended August 31, 2016, the Investor purchased 468,750 units under the June 2016 Private Placement resulting in the Company receiving $1,500,000 and issuing 468,750 shares of common stock, 468,750 Series Q Warrants, and 468,750 Series R Warrants. For more information, see “NOTE 4 – Private Placement” above.
During 2015, the Company received $765,156 upon the Investor’s exercise of 921,875 Series H Warrants, for an equal number of shares, originally issued on February 1, 2013 pursuant to the Company’s $1.2 million self-directed financing.
During the year ended August 31, 2016, the Company received and repaid a short term cash advance from the Investor totaling $25,720.
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.
NOTE 10 – Income Taxes
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, 2016 and 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
5,995,528
|
|
|
$
|
4,817,277
|
|
Capitalized research and development
|
|
|
1,285,254
|
|
|
|
1,157,431
|
|
Depreciation
|
|
|
(82
|
)
|
|
|
(5,615
|
)
|
Stock based compensation
|
|
|
1,207,988
|
|
|
|
1,425,291
|
|
Foreign affiliate interest expense
|
|
|
190,173
|
|
|
|
-
|
|
Research and development credit carry forward
|
|
|
369,117
|
|
|
|
310,797
|
|
Total deferred tax assets
|
|
|
9,047,979
|
|
|
|
7,705,181
|
|
Less: valuation allowance
|
|
|
(9,047,979
|
)
|
|
|
(7,705,181
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The net increase in the valuation allowance for deferred tax assets was $1,342,798 and $759,565 for the years ended August 31, 2016 and 2015, 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, 2016 available to offset future federal taxable income, if any, of $17,633,905, which will fully expire between the period from August 31, 2020 to August 31, 2036. Accordingly, there is no current tax expense for the years ended August 31, 2016 and 2015. In addition, the Company has research and development tax credit carry forwards of $369,117 at August 31, 2016, which are available to offset federal income taxes and begin to expire during the fiscal year ending August 31, 2027.
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, 2016 and 2015.
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, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Income tax benefit at statutory rate
|
|
$
|
1,576,686
|
|
|
$
|
2,751,533
|
|
Permanent differences
|
|
|
(297,211
|
)
|
|
|
(2,046,348
|
)
|
Research and development credit
|
|
|
63,323
|
|
|
|
54,380
|
|
Change in valuation allowance
|
|
|
(1,342,798
|
)
|
|
|
(759,565
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The fiscal years 2014 through 2016 remain open to examination by federal authorities and other jurisdictions in which the Company operates.
NOTE 11 – Subsequent Events
Management has reviewed material events subsequent of the quarterly period ended May 31, 2016 and prior to the filing of financial statements in accordance with FASB ASC 855 “Subsequent Events”.
On September 8, 2016, John Conklin, the Company’s President & CEO, exercised 100,000 stock purchase options on a cashless basis resulting in the issuance of 30,120 shares of common stock.
On November 15, 2016, each of the three members of the Company’s board of directors were issued 40,000 shares of common stock pursuant to the 2006 Plan and entered into a lock-up agreement restricting their sale of 30,000 of those shares for a period of one year.