(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
NOTE 1 – Basis of Presentation and Organization
Basis of Presentation
The accompanying unaudited interim consolidated financial statements
of SolarWindow Technologies, Inc. (the “
Company
”) as of May 31, 2019, and for the three and nine months ended
May 31, 2019 and 2018, include the accounts of the Company and its wholly-owned and controlled subsidiaries, Kinetic Energy Corporation
(“
KEC
”), and New Energy Solar Corporation (“
New Energy Solar
”) and have been prepared in
accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, for interim financial information
and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain information or footnote disclosures normally included
in financial statements prepared in accordance with GAAP have been condensed or omitted.
The preparation of consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts
of expenses during the reporting periods. Actual results may differ from those estimates. The interim financial statements should
be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on
Form 10-K for the year ended August 31, 2018. In the opinion of management, the accompanying unaudited interim consolidated
financial statements have been prepared on the same basis as the audited financial statements and include all adjustments (including
normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of May 31, 2019,
results of operations for the three and nine months ended May 31, 2019 and 2018, and stockholders equity and cash flows for the
nine months ended May 31, 2019 and 2018. 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 harvest light energy from the sun and from artificial light
sources, by generating 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
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 filed a patent application related to these specially developed
compounds.
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 May 31, 2019, the Company had $17,990,279 of cash on hand and current liabilities of $211,257. 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
(in years)
|
Computers
|
|
|
3
|
|
Equipment
|
|
|
5
|
|
During the nine months ended May 31, 2019, the Company purchased
$596,651 of equipment, including an initial 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”. Subsequent
to May 31, 2019, as of the date of this report, the Company is obligated to the manufacturer for 40% of the cost of the equipment,
or $738,660 which we anticipate remitting in July 2019. The remaining $553,995 is expected to be paid upon completion of the equipment
sometime in October or November of 2019.
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. The adoption of the standard did not impact the Company’s
consolidated net earnings and had no impact on cash flows. As of May 1, 2019, the Company entered into an operating lease for office
space. See NOTE 9 – Lease, for additional information.
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 nine months ended May 31, 2019:
|
|
Issue
Date
|
|
Maturity
Date
|
|
Principal
|
|
Debt
Discount
|
|
Balance
|
|
Interest
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 May 31, 2019 and 2018, the Company
recognized $0 and $19,763, respectively, of interest expense. During the nine months ended May 31, 2019 and 2018, the Company recognized
$19,691 and $53,045, 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.
On November 26, 2018, $4,401,434 of the 2013 Note was 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 May 31, 2019 and 2018, the Company
recognized $0 and $108,943, respectively, of interest expense. Interest expense amounted to $108,548 and $292,408 during the nine
months ended May 31, 2019 and 2018, respectively. Accretion of the debt discount related to the 2013 Note as amended amounted to
$0 and $125,422 during the three months ended May 31, 2019 and 2018, respectively and $663,918 and $698,302 during the nine months
ended May 31, 2019 and 2018, respectively.
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 May 31, 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 nine months ended May 31, 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 May 31, 2019 and August 31, 2018 is as follows:
|
Shares of Common
Stock
Issuable from Warrants
Outstanding as of
|
|
Weighted
Average
|
|
|
|
|
Description
|
|
May
31,
2019
|
|
August
31,
2018
|
|
Exercise
Price
|
|
Date
of
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 nine months ended May 31, 2019 and related information follows:
|
|
Number of
Shares
Subject to
Option
Grants
|
|
Weighted
Average
Exercise
Price ($)
|
|
Weighted
Average
Remaining
Contractual Term
(in years)
|
|
Aggregate
Intrinsic
Value ($)
|
Outstanding at August 31, 2018
|
|
|
1,291,334
|
|
|
|
5.22
|
|
|
|
|
|
|
|
|
|
Forfeitures and cancellations
|
|
|
(20,000
|
)
|
|
|
4.87
|
|
|
|
|
|
|
|
|
|
Outstanding at May 31, 2019
|
|
|
1,271,334
|
|
|
|
5.23
|
|
|
|
8.33
|
|
|
|
-
|
|
Exercisable at May 31, 2019
|
|
|
620,334
|
|
|
|
5.10
|
|
|
|
8.06
|
|
|
|
-
|
|
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,
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 $2.75 on May 31, 2019 and no outstanding options have an exercise price below $2.75 per share, as of May
31, 2019, there is no intrinsic value to the Company’s outstanding stock options.
Three and nine months ended May 31, 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 said 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 nine months ended May 31, 2019 and 2018:
|
|
Three Months Ended
May 31,
|
|
Nine Months Ended
May 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Stock based compensation expense related to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
118,409
|
|
|
$
|
215,695
|
|
|
$
|
372,260
|
|
|
$
|
796,371
|
|
R&D
|
|
|
236,817
|
|
|
|
251,529
|
|
|
|
723,926
|
|
|
|
545,307
|
|
Total
|
|
|
355,226
|
|
|
|
467,224
|
|
|
|
1,096,186
|
|
|
|
1,341,678
|
|
Restricted stock issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,022,700
|
|
R&D
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,022,700
|
|
Total stock based compensation expense
|
|
$
|
355,226
|
|
|
$
|
467,224
|
|
|
$
|
1,096,186
|
|
|
$
|
2,364,378
|
|
As of May 31, 2019, the Company had $3,670,664 of unrecognized compensation
cost related to unvested stock options which is expected to be recognized over a period of 2.75 years.
The following table summarizes information about stock options outstanding
and exercisable at May 31, 2019:
|
|
Stock Options Outstanding
|
|
Stock Options Exercisable
|
Range
of
Exercise
Prices
|
|
Number of
Shares
Subject to
Outstanding
Options
|
|
Weighted
Average
Contractual
Life (years)
|
|
Weighted
Average
Exercise
Price ($)
|
|
Number
of Shares
Subject
To
Options
Exercise
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted
Average
Exercise
Price ($)
|
|
3.28
|
|
|
|
7,500
|
|
|
|
7.46
|
|
|
|
3.28
|
|
|
|
7,500
|
|
|
|
7.72
|
|
|
|
3.28
|
|
|
3.46
|
|
|
|
35,000
|
|
|
|
6.60
|
|
|
|
3.46
|
|
|
|
35,000
|
|
|
|
6.85
|
|
|
|
3.46
|
|
|
4.87
|
|
|
|
187,500
|
|
|
|
8.48
|
|
|
|
4.87
|
|
|
|
187,500
|
|
|
|
8.73
|
|
|
|
4.87
|
|
|
5.35
|
|
|
|
1,008,000
|
|
|
|
8.59
|
|
|
|
5.35
|
|
|
|
357,000
|
|
|
|
8.85
|
|
|
|
5.35
|
|
|
5.94
|
|
|
|
33,334
|
|
|
|
1.57
|
|
|
|
5.94
|
|
|
|
33,334
|
|
|
|
1.82
|
|
|
|
5.94
|
|
|
Total
|
|
|
|
1,271,334
|
|
|
|
8.33
|
|
|
|
5.23
|
|
|
|
620,334
|
|
|
|
8.06
|
|
|
|
5.10
|
|
NOTE 7 - Net Loss Per Share
During the three and nine months ended May 31,
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 nine months ended May 31, 2019 and 2018:
|
|
Three Months Ended May 31,
|
|
Nine Months Ended May 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Basic and Diluted EPS Computation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders'
|
|
$
|
(987,342
|
)
|
|
$
|
(1,444,896
|
)
|
|
$
|
(3,501,095
|
)
|
|
$
|
(5,633,511
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
52,959,323
|
|
|
|
36,270,592
|
|
|
|
47,616,857
|
|
|
|
35,924,340
|
|
Basic and diluted EPS
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
1,291,334
|
|
|
|
1,271,334
|
|
|
|
1,291,334
|
|
Warrants
|
|
|
19,483,517
|
|
|
|
2,816,850
|
|
|
|
19,483,517
|
|
|
|
2,816,850
|
|
Convertible debt
|
|
|
-
|
|
|
|
3,084,175
|
|
|
|
-
|
|
|
|
3,084,175
|
|
Warrants issuable upon conversion of debt (See "NOTE 3 - Debt" above)
|
|
|
-
|
|
|
|
3,084,175
|
|
|
|
-
|
|
|
|
3,084,175
|
|
Total shares not included in the computation of diluted losses per share
|
|
|
20,754,851
|
|
|
|
10,276,534
|
|
|
|
20,754,851
|
|
|
|
10,276,534
|
|
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 and accrued for related to Satterlee during the three months ended May 31, 2019 and 2018, totaled
$84,600 and $74,198, respectively, and $137,299 and $220,032 during the nine months ended May 31, 2019 and 2018. At May 31,
2019, the Company had accrued payables owing to Satterlee totaling $50,000 which is included in accounts payable and accrued expenses
on the face of our balance sheet.
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 May
31, 2019 and 2018, the Company recognized $56,250 and $15,000 of expense in connection with the Consulting Agreement. During the
nine months ended May 31, 2019 and 2018, the Company recognized $108,750 and $45,000 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 – Lease
On May 1, 2019, the Company leased office space in Vestal, New York
and entered into a Professional Building Lease Agreement (the “Lease”). The Lease has an initial term of three years
through May 1, 2022 with monthly rent due of $2,200 for the first two years and $2,266 during year three. The Company has the sole
option to renew the lease for an additional two years through May 1, 2024. The amounts disclosed in the Consolidated Balance Sheets
pertaining to the right-of-use asset and lease liability are measured based on only the initial, three-year term.
The Company’s existing leases are not subject to any restrictions
or covenants which preclude its ability to pay dividends, obtain financing, or enter into additional leases.
As of May 31, 2019 the Company has not entered into
any leases which have not yet commenced which would entitle the Company to significant rights or create additional obligations.
The Company used its estimated incremental borrowing rate as the
basis to calculate the present value of future lease payments at lease commencement. The incremental borrowing rate represents
the rate the Company would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic
environment.
The components of lease expenses were as follows:
|
|
Three Months Ended May 31,
|
|
Nine Months Ended May 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Operating lease cost
|
|
$
|
2,222
|
|
|
$
|
-
|
|
|
$
|
2,222
|
|
|
$
|
-
|
|
Short-term lease costs
|
|
|
-
|
|
|
|
3,600
|
|
|
|
-
|
|
|
|
10,800
|
|
Total net lease costs
|
|
$
|
2,222
|
|
|
$
|
3,600
|
|
|
$
|
2,222
|
|
|
$
|
10,800
|
|
Supplemental balance sheet information related to the Lease is as
follows:
|
|
As of May 31, 2019
|
|
|
|
Operating lease right-of-use asset
|
|
$
|
71,296
|
|
|
|
|
|
|
Current maturities of operating lease
|
|
$
|
22,834
|
|
Non-current operating lease
|
|
|
48,484
|
|
Total operating lease liabilities
|
|
$
|
71,318
|
|
|
|
|
|
|
Weighted Average remaining lease term (in years):
|
|
|
2.9
|
|
Discount rate:
|
|
|
5.85
|
%
|
The Company’s future lease payments, which are presented
as current maturities of operating leases and non-current operating leases liabilities on the Company’s consolidated balance
sheets as of May 31, 2019 are as follows:
|
|
Amount
|
2019 (remaining three months)
|
|
$
|
6,600
|
|
2020
|
|
|
26,400
|
|
2021
|
|
|
26,664
|
|
2022
|
|
|
18,128
|
|
Total lease payments
|
|
|
77,792
|
|
Less: Imputed interest
|
|
|
(6,474
|
)
|
Total lease obligation
|
|
|
71,318
|
|
Less: current lease obligations
|
|
|
22,834
|
|
Long term lease obligations
|
|
$
|
48,484
|
|
NOTE 10 – Subsequent Events
Management has reviewed material events
subsequent to the period ended May 31, 2019 and through the date of filing of financial statements in accordance with FASB ASC
855 “Subsequent Events”.
On June 14, 2019, the Company received
a payment request for 40% or $738,660 of the cost of the manufacturing equipment currently in construction which we anticipate
remitting on or about July 19, 2019, See NOTE 2 – Summary of Significant Accounting Policies, for additional information.
On July 5, 2019, the Board appointed Steve
Yan-Klassen to serve as its Treasurer. Mr. Klassen was originally appointed to serve as the Company’s Chief Financial Officer
on October 22, 2018. Currently there is no written employment agreement between the Company and Mr. Yan-Klassen. Mr. Yan-Klassen
employment is at will and may be terminated by him or the Company at any time. Mr. Yan-Klassen will receive an annual salary of
Canadian $31,500 payable bi-weekly.
On July 5, 2019, the Board appointed Justin
Frere, CPA, to serve as its Secretary. Mr. Frere has served as the Company’s Controller since August of 2011 and continues
to serve the Company as its Controller. Mr. Frere and the Company entered into an Accounting Services Agreement originally dated
August 25, 2011 as amended on January 1, 2014 and December 8, 2014. Mr. Frere and the Company have a verbal agreement whereby the
Company will pay Mr. Frere a salary of $8,000 per month for his services as Controller and Secretary.
On July 5, 2019, the Board granted
50,000 options to each of its Board members and the Treasurer and Secretary for a total option grant of 400,000 options. The
non qualified stock options are subject to vesting ratably over five (5) years and are exchangeable for cash upon
exercise.
On July 5, 2019, the Board granted 6,000
options each to two employees for a total option grant of 12,000 options. The non qualified stock options are subject to vesting
ratably over three (3) years and are exchangeable for cash upon exercise.
On July 5, 2019, the Board Granted to Jatinder
Bhogal, an option to purchase 1,008,000 shares of common stock which will vest ratably over 4 years.
Vesting for all options granted on July
5, 2019 as described above options begins on May 31, 2019 and carry an exercise price of $3.54 per share, the closing price of
the Company’s common stock on the date of grant.