NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – Basis of Presentation and Organization
Basis of Presentation
The unaudited financial statements of SolarWindow Technologies, Inc. (the “
Company
”) as of February 28, 2019, and for the three and six months ended February 28, 2019 and 2018, have been prepared in accordance with generally accepted accounting principles (“
GAAP
”) in the United States for interim financial reporting and include the Company’s wholly-owned subsidiaries, 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, 2018, 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.
Organization
SolarWindow Technologies, Inc. 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. to align the company name with its brand identity, SolarWindow™. Products derived from the Company’s SolarWindow™ technology are intended to harvest light energy from the sun and artificial sources and generate electricity from a transparent coating of organic photovoltaic (“
OPV
”) solar cells, applied to glass and plastics, thereby creating a “photovoltaic” effect. The Company’s ticker symbol changed to WNDW.
Until the fourth quarter of the 2015 fiscal year, the Company was 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 harvests light energy from the sun and artificial sources to generate electricity from a transparent coating of organic photovoltaic solar cells applied to glass or plastics, creating a “photovoltaic” effect. Photovoltaics are best known as “solar panels” providing a method to generate electricity using solar cells to convert energy from the sun into a flow of electrons. Conventional PV power is generated by solar modules composed of interconnected mono- or poly-crystalline cells containing PV and electricity-conducting materials. These materials are usually opaque (i.e., not see-through) and only effectively generate electricity with sun light. The Company’s researchers have replaced these materials with a very thin layer of specially developed compounds that allow our SolarWindow™ technology to remain see-through or “transparent,” while generating electricity when exposed to either sun or artificial light. SolarWindow™ coatings are capable of generating electricity when exposed to direct, diffused, filtered, low, or reflected natural or artificial light.
The Company does not have any commercialized products, has not generated any revenue since inception and has sustained recurring losses and negative cash flows from operations since inception. Due to the “start-up” nature of our business, we expect to incur losses as we continue development of our products and technologies. On November 26, 2018, the Company completed a self-directed offering resulting in $19,800,000 of proceeds. Simultaneously, the 2013 Note and March 2015 Loan were converted in the amount of $5,200,000, including outstanding debt principal and unpaid interest. As of February 28, 2019, the Company had $18,701,874 of cash on hand and current liabilities of $162,674. The Company believes that, as a result of the recent financing, it currently has sufficient cash to meet its funding requirements over the next twelve months following the issuance of this Quarterly Report on Form 10-Q. However, the Company has experienced and continues to experience negative cash flows from operations, as well as an ongoing requirement for substantial additional capital investment. The Company expects that it may need to raise additional capital to accomplish its business plan over the next several years. If additional funding is required, the Company expects to seek to obtain that funding through private equity or convertible debt. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
NOTE 2 – Summary of Significant Accounting Policies
Principles of Consolidation
Kinetic Energy Corporation (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.
These consolidated financial statements presented are those of SolarWindow Technologies, Inc. and its wholly owned subsidiaries, KEC, and New Energy Solar. All significant intercompany balances and transactions have been eliminated.
Use of 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 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.
Equipment
Fixed assets are carried at cost, less accumulated depreciation. 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 that 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
|
Computers
|
|
3 years
|
Equipment
|
|
5 years
|
During the six months ended February 28, 2019, the Company purchased $565,850 of equipment. During the three months ended February 28, 2019, the Company made a payment totaling $553,995 towards the purchase of manufacturing equipment with an estimated total cost of $1,846,650. That equipment is currently being manufactured to our particular specifications and will provide a significant increase in our ability to develop and showcase prototype products and components at or near “full size”.
Fair Value Measurements
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 measured and recorded on a recurring or nonrecurring basis 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 measured and recorded on a recurring or nonrecurring basis 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 measured and recorded on a recurring or nonrecurring basis 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 Product Development
Research and product 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 product 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.
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 7 - Net Loss Per Share” for further discussion.
Recent Accounting Standards
In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).
The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a free-standing equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have a material accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company adopted ASU No. 2017-11 at the beginning of the current fiscal year with no impact on its Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The Company adopted ASU 2017-09 at the beginning of the current fiscal year with no impact on its Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)”, which supersedes ASC Topic 840, Leases, and creates a new topic, ASC 842, Leases. The new guidance requires the recognition of lease assets and liabilities for operating leases with terms of more than 12 months. 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 early adopted ASU No. 2016-02 at the beginning of the current fiscal year with no impact 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
As of August 31, 2018, the Company had the following outstanding debt balances which were converted to Units (defined below) during the six months ended February 28, 2019:
|
|
Issue
|
|
Maturity
|
|
|
|
|
Debt
|
|
|
|
|
|
Interest
|
|
|
|
Date
|
|
Date
|
|
Principal
|
|
|
Discount
|
|
|
Balance
|
|
|
Payable
|
|
As of August 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2015 Loan as amended
|
|
3/4/2015
|
|
12/31/2019
|
|
$
|
600,000
|
|
|
$
|
-
|
|
|
$
|
600,000
|
|
|
$
|
186,797
|
|
2013 Note as amended
|
|
10/7/2013
|
|
12/31/2019
|
|
|
3,000,000
|
|
|
|
(663,918
|
)
|
|
|
2,336,082
|
|
|
|
1,337,146
|
|
|
|
|
|
|
|
$
|
3,600,000
|
|
|
$
|
(663,918
|
)
|
|
$
|
2,936,082
|
|
|
$
|
1,523,943
|
|
March 2015 Loan as Amended
On March 4, 2015, the Company entered into a Bridge Loan Agreement with 1420468 Alberta Ltd. (which has since been merged with and into Kalen Capital Corporation, a British Columbia corporation wholly-owned by our Chairman, Harmel S. Rayat (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%.
On November 3, 2017, the Company entered into the Third Amendment related to the March 2015 Loan pursuant to which the Company and the Investor amended the March 2015 loan to extend the maturity date to December 31, 2019. As consideration for the note extension, the interest rate was increased to 10.5%. On November 26, 2018, $798,566 of the March 2015 Loan was converted in exchange for 532,377 Units pursuant to the November 2018 Private Placement except for $7,922 of accrued interest which the Company agreed to repay from proceeds from the November 2018 Private Placement, See “Note 4 – Private Placements” for additional information.
During the three months ended February 28, 2019 and 2018, the Company recognized $0 and $18,846, respectively, of interest expense. During the six months ended February 28, 2019 and 2018, the Company recognized $19,691 and $33,282, respectively, of interest expense.
2013 Note as Amended
On October 7, 2013, the Company sold to the Investor an unsecured Convertible Promissory Note (the “
2013 Note
”) in the amount of $3,000,000 with 7% interest compounded quarterly. According to the terms of the amended 2013 Note, the Investor may elect to convert principal and accrued interest into units of the Company’s equity securities, 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 would have been exercisable for a period of five years. As of February 28, 2018, if the investor had elected to convert the entirety of amounts owing under the 2013 Note, the Company would have been obligated to issue a warrant for the purchase of 3,004,655 shares of common stock. On November 26, 2018, $4,401,434 of the 2013 Note was further amended and converted in exchange for 2,934,290 Units pursuant to the November 2018 Private Placement except for $44,260 of accrued interest which the Company agreed to repay from proceeds from the November 2018 Private Placement, See “Note 4 – Private Placements” for additional information.
On November 3, 2017, the Company entered into the Third Amendment related to the 2013 Note pursuant to which the Company and the Investor amended the 2013 Note to extend the maturity date to December 31, 2019. As consideration for the note extension, the interest rate was increased to 10.5% and all outstanding warrants held by the Investor had their maturity date extended to December 31, 2022, resulting in an additional debt discount of $1,074,265 as of November 3, 2017. The modification did not result in a gain or loss due to the related party nature of the transaction.
During the three months ended February 28, 2019 and 2018, the Company recognized $0 and $103,885, respectively, of interest expense. Interest expense amounted to $108,548 and $183,465 during the six months ended February 28, 2019 and 2018, respectively. Accretion of the debt discount related to the 2013 Note as amended amounted to $0 and $227,733 during the three months ended February 28, 2019 and 2018, respectively and $663,918 and $572,880 during the six months ended February 28, 2019 and 2018, respectively.The full $663,918 of the remaining debt discount balance related to warrant expiration date extensions was amortized in total due to the conversion of the notes as described above.
NOTE 4 – Private Placements
November 2018 Private Placement
On November 26, 2018, the Company completed a self-directed offering (the “
November 2018 Private Placement
”) to accredited investors of 16,666,667 units of the Company’s equity securities (each a “
Unit
” and collectively, the “Units”) at a price of $1.50 per Unit with each Unit comprised of (a) one share of unregistered common stock; and (b) one warrant to purchase one share of common stock at a price, subject to certain adjustments, of $1.70 per share for a period of seven (7) years (the “
Series T Warrant
”). The Unit price represents an approximately 20% discount to the closing price of the Company's common stock on October 29, 2018, the date the Investor and the Board agreed to enter into a significant financing arrangement. Pursuant to the November 2018 Private Placement, the Company issued 13,200,000 Units in exchange for cash of $19,800,000 and 3,466,667 Units for the conversion of $5,200,000 of the principal and unpaid interest owed under the 2013 Note and the March 2015 Loan. The interest payable remaining under the notes totals $52,182, which the Company agreed to repay from proceeds received under the November 2018 Private Placement. Of the 13,200,000 Units issued in exchange for cash, Kalen Capital Corporation purchased 13,100,000 Units.
The Series T Warrants were accounted for pursuant to ASC 470-20-25-2. The relative fair value of the common stock was estimated to be $13,687,151. The relative fair value of the Series T Warrants was estimated to be $11,312,849 as determined based on the relative fair value allocation of the proceeds received. The Series T Warrants were valued using the Black-Scholes option pricing model using the following variables: market price of common stock - $2.94 per share; estimated volatility – 85.85%; 7-year risk free interest rate – 2.97%; expected dividend rate - 0% and expected life - 7 years.
NOTE 5 – Common Stock and Warrants
Common Stock
At February 28, 2019, the Company had 300,000,000 authorized shares of common stock with a par value of $0.001 per share, 52,959,323 shares of common stock outstanding and 2,570,085 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 on October 10, 2006 that provides for the grant of stock options to employees, directors, officers and consultants (See “NOTE 6 - Stock Options”).
During the six months ended February 28, 2019, the Company completed the November 2018 Private Placement of 16,666,667 units at a price of $1.50 per unit. Each unit consisted of one share of common stock and one Series T Stock Purchase Warrant to purchase one (1) share of common stock at an exercise price of $1.70 per share for a period of seven (7) years (See “NOTE 4 – Private Placements”).
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 February 28, 2019 and August 31, 2018 is as follows:
|
|
Shares of Common Stock Issuable from Warrants Outstanding as of
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
August 31,
|
|
|
Exercise
|
|
|
Date of
|
|
|
|
Description
|
|
2019
|
|
|
|
2018
|
|
|
Price
|
|
|
Issuance
|
|
Expiration
|
|
Series M
|
|
|
246,000
|
|
|
|
246,000
|
|
|
$
|
2.34
|
|
|
December 7, 2015
|
|
December 31, 2022
|
|
Series N
|
|
|
767,000
|
|
|
|
767,000
|
|
|
$
|
3.38
|
|
|
December 31, 2015
|
|
December 31, 2022
|
|
Series P
|
|
|
213,500
|
|
|
|
213,500
|
|
|
$
|
3.70
|
|
|
March 25, 2016
|
|
December 31, 2022
|
|
Series R
|
|
|
468,750
|
|
|
|
468,750
|
|
|
$
|
4.00
|
|
|
June 20, 2016
|
|
December 31, 2022
|
|
Series S-A
|
|
|
300,000
|
|
|
|
300,000
|
|
|
$
|
2.53
|
|
|
July 24, 2017
|
|
December 31, 2022
|
|
Series S
|
|
|
821,600
|
|
|
|
821,600
|
|
|
$
|
3.42
|
|
|
September 29, 2017
|
|
September 29, 2022
|
|
Series T
|
|
|
16,666,667
|
|
|
|
-
|
|
|
$
|
1.70
|
|
|
November 26, 2018
|
|
November 26, 2025
|
|
Total
|
|
|
19,483,517
|
|
|
|
2,816,850
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 - 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 2,570,085 remain available for grant, 1,305,001 have been exercised in total with 629,677 net shares (due to the cashless exercise feature) issued pursuant to such exercises of vested options from inception of the 2006 Plan through August 31, 2018. 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 and therefore issues new shares when options are exercised. The 2006 Plan was approved by stockholders on February 7, 2011 and expires according to its terms on February 7, 2021.
A summary of the Company’s stock option activity for the three and six months ended February 28, 2019 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, 2018
|
|
|
1,291,334
|
|
|
|
5.22
|
|
|
|
|
|
|
Forfeitures and cancellations
|
|
|
(20,000
|
)
|
|
|
4.87
|
|
|
|
|
|
|
Outstanding at February 28, 2019
|
|
|
1,271,334
|
|
|
|
5.23
|
|
|
8.58 years
|
|
|
-
|
|
Exercisable at February 28, 2019
|
|
|
557,334
|
|
|
|
5.08
|
|
|
8.25 years
|
|
|
-
|
|
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 February 28, 2019. 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 $2.25 on February 28, 2019 and no outstanding options have an exercise price below $2.25 per share, as of February 28, 2019, there is no intrinsic value to the Company’s outstanding stock options.
Three and six months Ended February 28, 2019
Due to his resignation from the Board of Directors on October 22, 2018, Joseph Sierchio forfeited 20,000 unvested stock options with an exercise price of $4.87 which resulted in the Company reversing previously recorded stock compensation expense related to the vesting of these options in the amount of $58,367.
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 six months ended February 28, 2019 and 2018:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
February 28,
|
|
|
February 28,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Stock Compensation Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
118,409
|
|
|
$
|
181,201
|
|
|
$
|
253,852
|
|
|
$
|
580,676
|
|
R&D
|
|
|
236,817
|
|
|
|
178,980
|
|
|
|
487,109
|
|
|
|
293,778
|
|
Total
|
|
$
|
355,226
|
|
|
$
|
360,181
|
|
|
$
|
740,961
|
|
|
$
|
874,454
|
|
As of February 28, 2019, the Company had $4,025,889 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 3.0 years.
The following table summarizes information about stock options outstanding and exercisable at February 28, 2019:
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
Range of
Exercise
Prices
|
|
|
Number of
Shares
Subject to
Outstanding Options
|
|
|
Weighted
Average
Contractual
Life (years)
|
|
|
Weighted
Average
Exercise
Price ($)
|
|
|
Number
of Shares Subject
To Options
Exercise
|
|
|
Weighted Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Exercise
Price ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.28
|
|
|
|
7,500
|
|
|
|
7.72
|
|
|
|
3.28
|
|
|
|
7,500
|
|
|
|
7.72
|
|
|
|
3.28
|
|
3.46
|
|
|
|
35,000
|
|
|
|
6.85
|
|
|
|
3.46
|
|
|
|
25,000
|
|
|
|
6.85
|
|
|
|
3.46
|
|
4.87
|
|
|
|
187,500
|
|
|
|
8.73
|
|
|
|
4.87
|
|
|
|
187,500
|
|
|
|
8.73
|
|
|
|
4.87
|
|
5.35
|
|
|
|
1,008,000
|
|
|
|
8.85
|
|
|
|
5.35
|
|
|
|
294,000
|
|
|
|
8.85
|
|
|
|
5.35
|
|
5.94
|
|
|
|
33,334
|
|
|
|
1.82
|
|
|
|
5.94
|
|
|
|
33,334
|
|
|
|
1.82
|
|
|
|
5.94
|
|
Total
|
|
|
|
1,271,334
|
|
|
|
8.58
|
|
|
|
5.23
|
|
|
|
557,334
|
|
|
|
8.25
|
|
|
|
5.08
|
|
NOTE 7 - Net Loss Per Share
During the three and six months ended February 28, 2019 and 2018, 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 six months ended February 28, 2019 and 2018:
|
|
Three Months Ended
February 28,
|
|
|
Six Months Ended
February 28,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Basic and Diluted EPS Computation
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders'
|
|
$
|
(826,836
|
)
|
|
$
|
(1,489,463
|
)
|
|
$
|
(2,513,753
|
)
|
|
$
|
(4,188,615
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
52,959,323
|
|
|
|
36,135,080
|
|
|
|
44,877,131
|
|
|
|
35,743,320
|
|
Basic and diluted EPS
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,271,334
|
|
|
|
2,811,334
|
|
|
|
1,271,334
|
|
|
|
2,811,334
|
|
Warrants
|
|
|
19,483,517
|
|
|
|
2,909,850
|
|
|
|
19,483,517
|
|
|
|
2,909,850
|
|
Convertible debt
|
|
|
-
|
|
|
|
3,004,655
|
|
|
|
-
|
|
|
|
3,004,655
|
|
Warrants issuable upon conversion of debt (See "NOTE 3 - Debt" above)
|
|
|
-
|
|
|
|
3,004,655
|
|
|
|
-
|
|
|
|
3,004,655
|
|
Total shares not included in the computation of diluted losses per share
|
|
|
20,754,851
|
|
|
|
11,730,494
|
|
|
|
20,754,851
|
|
|
|
11,730,494
|
|
NOTE 8 - 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, of which Joseph Sierchio, one of the Company’s directors, was a principal, had provided counsel to the Company since its inception. Beginning in September 2016, Mr. Sierchio became a partner at Satterlee Stephens LLP (“Satterlee”). Concurrently with Mr. Sierchio’s move to Satterlee, the Company engaged with Satterlee to provide legal counsel with Mr. Sierchio maintaining his role as the Company’s primary attorney. Mr. Sierchio resigned from the Board effective October 22, 2018, but maintains his role and the Company’s primary attorney. Fees billed by Satterlee during the three months ended February 28, 2019 and 2018, totaled $27,699 and $71,767, respectively, and $52,699 and $145,834 during the six months ended February 28, 2019 and 2018. At February 28, 2019, the Company had accrued payables owing to Satterlee totaling $15,000 which is included in accounts payable and accrued expenses on the consolidated balance sheets.
On August 7, 2017, the Company appointed Jatinder Bhogal to the Board of Directors. Mr. Bhogal has provided consulting services to the Company through his wholly owned company, Vector Asset Management, Inc., pursuant to a Consulting Agreement dated February 1, 2014, as amended on November 11, 2016 and on December 1, 2018 (Amendment No. 2). Pursuant to the Consulting Agreements in effect prior to December 1, 2018, Mr. Bhogal received compensation of $5,000 per month. Beginning with Amendment No. 2, Mr. Bhogal receives compensation of $18,750 per month. During the three months ended February 28, 2019 and 2018, the Company recognized $56,250 and $15,000 of expense in connection with the Consulting Agreement. During the six months ended February 28, 2019 and 2018, the Company recognized $71,250 and $30,000 of expense in connection with the Consulting Agreement.
On November 26, 2018, the Company completed the November 2018 Private Placement to accredited investors of 16,666,667 Units of the Company’s equity securities at a price of $1.50 per Unit with each Unit comprised of (a) one share of common stock; and (b) one Series T Warrant to purchase one share of common stock at a price of $1.70 per share for a period of seven (7) years. The Investor participated in the November 2018 Private Placement by purchasing 13,100,000 Units in exchange for cash of $19,650,000 and converting $5,200,000 owing under the March 2015 Loan and 2013 Note into 3,466,667 Units.
On November 3, 2017, the Company entered into the Third Amendment to the 2013 Bridge Loan Agreement and the Third Amendment to the 2015 Bridge Loan Agreement with the Investor pursuant to which the Company and the Investor agreed to extend the maturity date to December 31, 2019. Pursuant to the Third Amendment to the 2013 Bridge Loan Agreement and the Third Amendment to the 2015 Bridge Loan Agreement, the rate of interest increased to 10.5% and the following warrants, held by the Investor, had their maturity date extended to December 31, 2022: a) Series M Warrant to purchase 246,000 shares; b) Series N Warrant to purchase 767,000 shares; c) Series P Warrant to purchase 213,500 shares; d) Series R Warrant to purchase 468,750; and e) Series S-A Warrant to purchase 300,000 shares. As a result of extending the expiration date of the above warrants to December 31, 2022, the Company recognized an additional debt discount to the 2013 Note of $1,074,265 as of November 3, 2017. For additional information related to our warrants, please see “NOTE 5 – Common Stock and Warrants”. For additional information related to our debt, please see “NOTE 3 – Debt”.
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 9 – Subsequent Events
Management has reviewed material events subsequent to the period ended February 28, 2019 and through the date of filing of financial statements in accordance with FASB ASC 855 “Subsequent Events”.
There are no material events subsequent to the period ended February 28, 2019 and through to the date of filing of this 10-Q.