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SolarWindow Technologies, Inc. - Quarter Report: 2013 February (Form 10-Q)

nene_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended February 28, 2013

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number 333-127953

NEW ENERGY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
 
 
Nevada
   
59-3509694
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
 
9192 Red Branch Road, Suite 11
Columbia, Maryland
   
21045
(Address of principal executive offices)   (Zip Code)
 
(800) 213-0689
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
(Do not check if a smaller reporting company)    
 
Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act.)  Yes o No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 24,168,135 shares of common stock, par value $0.001, were outstanding on April 15, 2013.
 


 
 

 
 
NEW ENERGY TECHNOLOGIES, INC.
FORM 10-Q
 
For the Quarterly Period Ended February 28, 2013
Table of Contents
 
PART I FINANCIAL INFORMATION
     
         
Item 1. Consolidated Financial Statements (Unaudited)   3  
         
  Consolidated Balance Sheets     3  
           
  Consolidated Statements of Operations     4  
           
  Consolidated Statements of Stockholders’ Equity (Deficit     5  
           
  Consolidated Statements of Cash Flows     7  
           
  Notes to Consolidated Financial Statements     8  
           
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations     18  
           
Item 4. Controls and Procedures     23  
           
PART II OTHER INFORMATION
       
           
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds     24  
           
Item 6.
Exhibits
    24  
           
Signatures     25  
           
Certifications
       
 
 
2

 

PART I - FINANCIAL INFORMATION
 
Item 1. Consolidated Financial Statements (Unaudited)
 
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2013 AND AUGUST 31, 2012
 
 
   
February 28,
   
August 31,
 
   
2013
   
2012
 
   
(Unaudited)
       
ASSETS  
Current assets
           
Cash and cash equivalents
  $ 1,301,118     $ 1,046,918  
Deferred research and development costs
    150,000       32,595  
Prepaid expenses and other current assets
    35,673       28,233  
Total current assets
    1,486,791       1,107,746  
                 
Equipment, net of accumulated depreciation of $8,953 and $5,882, respectively
    16,895       19,966  
Total assets
  $ 1,503,686     $ 1,127,712  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                 
Current liabilities
               
Accounts payable
  $ 109,046     $ 63,403  
Accrued liabilities
    -       26,231  
Convertible promissory note, net of discount of $0 and $999,485, respectively
    -       515  
Total current liabilities
    109,046       90,149  
                 
Commitments and contingencies
               
                 
Stockholders' equity
               
Preferred stock: $0.10 par value; 1,000,000 shares authorized, no shares issued and outstanding at February 28, 2013 and August 31, 2012.
    -       -  
Common stock: $0.001 par value; 300,000,000 shares authorized, 24,164,229 and 20,638,360 shares issued and outstanding at February 28, 2013 and August 31, 2012, respectively.
    24,164       20,638  
Additional paid-in capital
    17,333,916       13,798,282  
Deficit accumulated during the development stage
    (15,963,440 )     (12,781,357 )
Total stockholders' equity
    1,394,640       1,037,563  
Total liabilities and stockholders' equity
  $ 1,503,686     $ 1,127,712  
 
(The accompanying notes are an integral part of these consolidated financial statements)
 
 
3

 
 
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2013 AND FEBRUARY 29, 2012 AND FOR THE
PERIOD FROM INCEPTION (MAY 5, 1998) TO FEBRUARY 28, 2013
 
                           
Cumulative
 
                           
May 5, 1998
 
   
Three Months Ended
   
Six Months Ended
   
(Inception) to
 
   
February 28, 2013
   
February 29, 2012
   
February 28, 2013
   
February 29, 2012
   
February 28, 2013
 
 
                             
Revenue
  $ -     $ -     $ -     $ -     $ -  
                                         
Operating expense
                                       
Selling, general and administrative
    1,742,066       413,727       2,043,596       929,002       13,429,589  
Research and development
    36,451       185,556       108,677       315,748       2,698,815  
Total operating expense
    1,778,517       599,283       2,152,273       1,244,750       16,128,404  
                                         
Loss from operations
    (1,778,517 )     (599,283 )     (2,152,273 )     (1,244,750 )     (16,128,404 )
                                         
Other income (expense)
                                       
Interest income
    -       -       -       -       98,582  
Interest expense - other
    (12,415 )     -       (30,325 )     -       (68,949 )
Interest expense - accretion of debt discount
    (983,689 )     -       (999,485 )     -       (1,000,000 )
Loss on disposal of fixed assets
    -       -       -       -       (5,307 )
Gain on dissolution of foreign subsidiary
    -       -       -       -       59,704  
Foreign exchange loss
    -       (33 )     -       (65 )     (86,428 )
Change in fair value of warrant liability
    -       -       -       -       2,128,331  
Payable written off
    -       -       -       156,109       186,109  
Total other income (expense)
    (996,104 )     (33 )     (1,029,810 )     156,044       1,312,042  
                                         
Loss from continuing operations
    (2,774,621 )     (599,316 )     (3,182,083 )     (1,088,706 )     (14,816,362 )
                                         
Loss from discontinued operations
    -       (103,749 )     -       (239,210 )     (404,307 )
                                         
Net loss
  $ (2,774,621 )   $ (703,065 )   $ (3,182,083 )   $ (1,327,916 )   $ (15,220,669 )
                                         
Basic and Diluted Loss per Common Share:
                                       
Continuing operations
  $ (0.13 )   $ (0.03 )   $ (0.15 )   $ (0.05 )        
Discontinued operations
  $ -     $ -     $ -     $ (0.01 )        
Total
  $ (0.13 )   $ (0.03 )   $ (0.15 )   $ (0.06 )        
                                         
Weighted average number of common shares outstanding - basic and diluted
    21,681,631       20,638,360       21,159,995       20,638,360          
 
(The accompanying notes are an integral part of these consolidated financial statements)
 
 
4

 
 
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited)
FROM MAY 5, 1998 (INCEPTION) TO FEBRUARY 28, 2013
 
                     
Accumulated
    Deficit                
                     
Other
   
 Accumulated
          Total     
               
Additional
   
Comprehensive
   
During the
   
Comprehensive
   
Stockholders'
 
   
Common Stock
   
Paid-in
    Income     Development     Income     Equity  
   
Shares
   
Amount
   
 Capital
   
 (Loss)
   
Stage
   
 (Loss)
   
 (Deficit)
 
Restricted common stock issued to related parties for management services at $0.001 per share
    3,000,000     $ 3,000     $ -     $ -     $ -     $ -     $ 3,000  
Unrestricted common stock sales to third parties at $0.40 per share
    375,000       375       149,625       -       -       -       150,000  
Net loss for the year ended August 31, 1998
                                    (12,326 )     (12,326 )     (12,326 )
Balance, August 31, 1998
    3,375,000       3,375       149,625       -       (12,326 )     (12,326 )     140,674  
                                                         
Net loss for the year ended August 31, 1999
                                    (77,946 )     (77,946 )     (77,946 )
Balance, August 31, 1999
    3,375,000       3,375       149,625       -       (90,272 )     (77,946 )     62,728  
                                                         
Net loss for the year ended August 31, 2000
                                    (12,446 )     (12,446 )     (12,446 )
Balance, August 31, 2000
    3,375,000       3,375       149,625       -       (102,718 )     (12,446 )     50,282  
                                                         
Net loss for year ended August 31, 2001
                                    (12,904 )     (12,904 )     (12,904 )
Balance, August 31, 2001
    3,375,000       3,375       149,625       -       (115,622 )     (12,904 )     37,378  
                                                         
Net loss for the year ended August 31, 2002
                                    (54,935 )     (54,935 )     (54,935 )
Balance, August 31, 2002
    3,375,000       3,375       149,625       -       (170,557 )     (54,935 )     (17,557 )
                                                         
Restricted common stock issued at $.001 per share to two related parties to satisfy outstanding management fees.
    10,333,200       10,333       92,999       -       -       -       103,332  
Net loss for the year ended August 31, 2003
                                    (97,662 )     (97,662 )     (97,662 )
Balance, August 31, 2003
    13,708,200       13,708       242,624       -       (268,219 )     (97,662 )     (11,887 )
                                                         
Net loss for the year ended August 31, 2004
                                    (19,787 )     (19,787 )     (19,787 )
Balance, August 31, 2004
    13,708,200       13,708       242,624       -       (288,006 )     (19,787 )     (31,674 )
                                                         
Net loss for the year ended August 31, 2005
                                    (103,142 )     (103,142 )     (103,142 )
Balance, August 31, 2005
    13,708,200       13,708       242,624       -       (391,148 )     (103,142 )     (134,816 )
                                                         
Issuance of common stock and warrants at $0.50 per share
    1,000,000       1,000       499,000       -       -       -       500,000  
Net loss for the year ended August 31, 2006
                                    (157,982 )     (157,982 )     (157,982 )
Balance, August 31, 2006
    14,708,200       14,708       741,624       -       (549,130 )     (157,982 )     207,202  
                                                         
Exercise of Class A Warrants  at $0.50 per share
    1,000,000       1,000       499,000       -       -       -       500,000  
Exercise of Class B Warrants  at $0.55 per share
    1,000,000       1,000       549,000       -       -       -       550,000  
Exercise of Class C Warrants  at $1.50 per share
    326,667       327       489,673       -       -       -       490,000  
Exercise of Class D Warrants  at $1.65 per share
    293,333       293       483,707       -       -       -       484,000  
Exercise of Class E Warrants  at $1.80 per share
    293,333       293       527,707       -       -       -       528,000  
Issuance of common stock and warrants at $1.50 per share
    333,333       333       499,667       -       -       -       500,000  
Dividend paid - spin off of MircoChannel Technologies Corporation
    -       -       -       -       (400,000 )     -       (400,000 )
Comprehensive income (loss)
                                                       
Foreign currency translation adjustments
                            (1,811 )     -       (1,811 )     (1,811 )
Net loss for the year ended August 31, 2007
                                    (1,442,769 )     (1,442,769 )     (1,442,769 )
Balance, August 31, 2007
    17,954,866       17,955       3,790,377       (1,811 )     (2,391,899 )     (1,444,580 )     1,414,622  
                                                         
Common stock and warrants issued for cash and services at $3.00 per Unit
    1,225,000       1,225       3,394,730       -       -       -       3,395,955  
Exercise of Class C Warrants  at $1.50 per share
    6,667       7       9,993       -       -       -       10,000  
Exercise of Class D Warrants  at $1.65 per share
    6,667       7       10,993       -       -       -       11,000  
Exercise of Class F Warrants  at $3.75 per share
    58,333       58       218,692       -       -       -       218,750  
Stock based compensation
    -       -       3,600,303       -       -       -       3,600,303  
Comprehensive income (loss)
                                                       
Foreign currency translation adjustments
                            12,504       -       12,504       12,504  
Net loss for the year ended August 31, 2008
                                    (5,721,545 )     (5,721,545 )     (5,721,545 )
Balance, August 31, 2008
    19,251,533       19,251       11,025,089       10,693       (8,113,444 )     (5,709,041 )     2,941,589  
 
 
5

 
 
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited)
FROM MAY 5, 1998 (INCEPTION) TO FEBRUARY 28, 2013
 
                     
Accumulated
    Deficit                
                     
Other
   
Accumulated
          Total   
               
Additional
   
Comprehensive
   
During the
     Comprehensive     Stockholders'   
   
Common Stock
   
Paid-in
    Income     Development    
Income
   
Equity 
 
   
Shares
   
Amount
   
 Capital
   
(Loss)
   
 Stage
   
 (Loss)
   
 (Deficit)
 
                                           
Exercise of Class E Warrants  at $1.80 per share
    6,667       7       11,993       -       -       -       12,000  
Exercise of Class F Warrants  at $3.75 per share
    275,333       275       1,032,225       -       -       -       1,032,500  
Stock based compensation
    -       -       183,312       -       -       -       183,312  
Reversal of stock based compensation due to forfeiture of stock options
    -       -       (3,591,093 )     -       -       -       (3,591,093 )
Comprehensive income
                                                       
Foreign currency translation adjustments
                            (10,693 )     -       (10,693 )     (10,693 )
Net income for the year ended August 31, 2009
                                    1,961,175       1,961,175       1,961,175  
Balance, August 31, 2009
    19,533,533       19,533       8,661,526       -       (6,152,269 )     1,950,482       2,528,790  
                                                         
Stock based compensation
    -       -       661,040       -       -       -       661,040  
Reversal of stock based compensation due to forfeiture of stock options
    -       -       (478,971 )     -       -       -       (478,971 )
Cumulative adjustment upon adoption of ASC 815-40
    -       -       (1,785,560 )     -       (342,771 )     -       (2,128,331 )
Net loss for the year ended August 31, 2010
                                    (233,136 )     (233,136 )     (233,136 )
Balance, August 31, 2010
    19,533,533       19,533       7,058,035       -       (6,728,176 )     (233,136 )     349,392  
                                                         
Rounding due to reverse one for three stock split effective March 16, 2011
    (3 )     -       -       -       -       -       -  
Exercise of Class F Warrants at $3.75 per share
    1,054,512       1,055       3,953,320       -       -       -       3,954,375  
Exercise of stock options
    50,318       50       30,750       -       -       -       30,800  
Stock based compensation
    -       -       2,855,630       -       -       -       2,855,630  
Reversal of stock based compensation due to forfeiture of stock options
    -       -       (1,304,551 )     -       -       -       (1,304,551 )
Net loss for the year ended August 31, 2011
                                    (3,619,750 )     (3,619,750 )     (3,619,750 )
Balance, August 31, 2011
    20,638,360       20,638       12,593,184       -       (10,347,926 )     (3,619,750 )     2,265,896  
                                                         
Stock based compensation
    -       -       237,046       -       -       -       237,046  
Reversal of stock based compensation due to forfeiture of stock options
    -       -       (31,948 )     -       -       -       (31,948 )
Discount on convertible promissory note due to detachable warrants
    -       -       547,050       -       -       -       547,050  
Discount on convertible promissory note due to beneficial conversion feature
    -       -       452,950       -       -       -       452,950  
Net loss for the year ended August 31, 2012
                                    (2,433,431 )     (2,433,431 )     (2,433,431 )
Balance, August 31, 2012
    20,638,360       20,638       13,798,282       -       (12,781,357 )     (2,433,431 )     1,037,563  
                                                         
Stock based compensation
    -       -       233,641       -       -       -       233,641  
Reversal of stock based compensation due to forfeiture of stock options
    -       -       (10,075 )     -       -       -       (10,075 )
Issuance of common stock and warrants at $0.64 per unit
    1,875,000       1,875       1,198,125       -       -       -       1,200,000  
Issuance of common stock upon the conversion of note at $0.64 per share
    1,650,869       1,651       1,054,905       -       -       -       1,056,556  
Expense related to issuance of Series H Warrants as inducement to convert April 17, 2012, $1,000,000 note.
                    1,059,038                               1,059,038  
Net loss for the six months ended February 28, 2013
                                    (3,182,083 )     (3,182,083 )     (3,182,083 )
Balance, February 28, 2013
    24,164,229     $ 24,164     $ 17,333,916     $ -     $ (15,963,440 )   $ (3,182,083 )   $ 1,394,640  

(The accompanying notes are an integral part of these consolidated financial statements)
 
 
6

 
 
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2013 AND FEBRUARY 29, 2012 AND FOR THE
PERIOD FROM INCEPTION (MAY 5, 1998) TO FEBRUARY 28, 2013
 
               
Cumulative
 
         
May 5, 1998
 
   
Six Months Ended
   
(Inception) to
 
   
February 28, 2013
   
February 29, 2012
   
February 28, 2013
 
Cash flows from operating activities
                 
Loss from continuing operations
  $ (3,182,083 )   $ (1,088,706 )   $ (14,816,362 )
Add: loss from discontinued operations
    -       (239,210 )     (404,307 )
Adjustments to reconcile net loss to net cash used in operating activities
                       
Depreciation
    3,071       2,348       13,435  
Stock based compensation expense
    233,641       144,913       7,770,972  
Reversal of stock based compensation expense due to forfeiture of stock options
    (10,075 )     (8,243 )     (5,416,638 )
Warrants issued to note holder
    1,059,038       -       1,059,038  
Change in fair value of warrant liability
    -       -       (2,128,331 )
Loss on disposal of fixed assets
    -       -       5,307  
Payable written off
    -       -       (186,109 )
Common stock issued for services
    -       -       3,000  
Common stock issued for debt settlement / conversion
    -       -       103,332  
Accretion of debt discount
    999,485       -       1,000,000  
Changes in operating assets and liabilities:
                       
Decrease (increase) in deferred research and development costs
    (117,405 )     45,081       (150,000 )
Decrease (increase) in prepaid expenses and other current assets
    (7,440 )     46,603       (35,673 )
Increase (decrease) in accounts payable
    45,643       (64,324 )     139,046  
Increase (decrease) in accrued liabilities
    30,325       (159,109 )     212,665  
Net cash used in operating activities
    (945,800 )     (1,320,647 )     (12,830,625 )
                         
Cash flows from investing activity
                       
Purchase of equipment
    -       (24,458 )     (35,637 )
Net cash used in investing activity
    -       (24,458 )     (35,637 )
                         
Cash flows from financing activities
                       
Proceeds from the issuance of common stock, exercise of warrants and stock options, net
    1,200,000       -       13,567,380  
Repayment of promissory note
    -       -       (155,000 )
Proceeds from promissory notes
    -       -       1,155,000  
Dividend paid
    -       -       (400,000 )
Net cash provided by financing activities
    1,200,000       -       14,167,380  
                         
Increase (decrease) in cash and cash equivalents
    254,200       (1,345,105 )     1,301,118  
                         
Cash and cash equivalents at beginning of period
    1,046,918       2,320,185       -  
                         
Cash and cash equivalents at end of period
  $ 1,301,118     $ 975,080     $ 1,301,118  
                         
                         
Supplemental disclosure of cash flow information:
                       
Interest paid in cash
  $ -     $ -     $ 12,393  
Income taxes paid in cash
  $ -     $ -     $ -  
                         
Supplemental disclosure of non-cash transactions:
                       
Accrued management fees converted to equity
  $ -     $ -     $ 103,332  
Debt discount recorded for value of warrants issued
  $ -     $ -     $ 547,050  
Debt discount recorded for beneficial conversion feature
  $ -     $ -     $ 452,950  
Warrants issued for broker commissions
  $ -     $ -     $ 642,980  
Common stock issued for conversion of note payable
  $ 1,056,556     $ -     $ 1,056,556  

(The accompanying notes are an integral part of these consolidated financial statements)
 
 
7

 
 
NEW ENERGY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Organization and Going Concern

Basis of Presentation

The unaudited financial statements of New Energy Technologies, Inc. as of February 28, 2013, and for the three and six months ended February 28, 2013 and February 29, 2012, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended August 31, 2012, as filed with the Securities and Exchange Commission as part of the Company's Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.
 
Organization
 
New Energy Technologies, Inc. (the “Company”) was incorporated in the State of Nevada on May 5, 1998, under the name “Octillion Corp.” On December 2, 2008, the Company amended its Articles of Incorporation to effect a change of name to New Energy Technologies, Inc. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Sungen Energy, Inc. (“Sungen”), Kinetic Energy Corporation (“KEC”), and New Energy Solar Corporation (“New Energy Solar”).
 
Sungen was incorporated on July 11, 2006, in the State of Nevada and is currently inactive.
 
KEC was incorporated on June 19, 2008, in the State of Nevada and holds the patents related to the Company’s MotionPower™ Technology. The Company’s business activities related to the MotionPower™ Technology are conducted through KEC.
 
New Energy Solar was incorporated on February 9, 2009, in the State of Florida and has entered into a License Agreement, an Addendum to the License Agreement, an Option Agreement and a Sponsored Research Agreement with the University of South Florida Research Foundation, Inc.
 
On March 16, 2011, pursuant to a consent signed by a majority of the Company’s shareholders, the Company filed a Certificate of Amendment to its Certificate of Incorporation increasing its authorized shares of common stock, $0.001 par value, from 100,000,000 to 300,000,000.
 
On August 19, 2011, the Company established Nakoda, a California corporation and wholly-owned subsidiary of the Company, which began operations in September 2011. Nakoda is an energy savings and management corporation that provides a broad range of energy solutions and savings projects with the goal of implementing energy conservation, load management, and reducing building energy consumption in target markets. Due to the high costs associated with growing operations and difficult financing environment, management suspended all Nakoda related operations as of November 30, 2011. On January 20, 2012, management completed the sale of Nakoda Energy, Inc. pursuant to a Stock Purchase Agreement. The Company did not recognize any revenue from Nakoda related operations nor were there any recorded assets or liabilities as of and during the periods presented.
 
 
8

 
 
The Company is a renewable and alternative energy company, actively developing two novel technologies for generating sustainable electricity, one of which collects light energy from the sun and artificial sources, and the other harvests kinetic energy present in moving vehicles. The Company’s proprietary, patent-pending technologies and products, which are the subjects of fifty-nine (59) patent-filings, have been invented, designed, engineered, and prototyped in preparation for further field testing, product development, and eventual commercial deployment.
 
The Company’s SolarWindow™ Technology generates electrical energy when the electricity-generating coating is applied to glass surfaces, creating, semi-transparent, see-through solar cells. If successfully developed, SolarWindow™ could potentially be used on any of the more than 85 million commercial and residential buildings in the United States alone (U.S. Census Bureau, 2007 American Housing Survey & U.S. Energy Information Administration, 2003 Commercial Buildings Energy Consumption Survey). The Company’s SolarWindow™ Technology is the subject of fourteen (14) patent filings.
 
The Company’s MotionPower™ Technology harvests, or captures, the “kinetic” or “motion” energy of cars, trucks, buses, and heavy commercial vehicles when they pass over the system or slow down before coming to a stop. MotionPower™ converts this captured energy into electricity. If successfully developed, MotionPower™ could potentially be used to harvest kinetic energy generated by any of the estimated 250 million vehicles registered in America (U.S. Department of Transportation Federal Highway Administration, 2008 Highway Statistics), which drive approximately six billion miles on our nation’s roadways every day (U.S. Environmental Protection Agency). The Company’s MotionPower™ Technology is the subject of forty-five (45) patent filings.
 
The Company’s product development programs involve ongoing research and development efforts, and the commitment of significant resources to support the extensive invention, design, engineering, testing, prototyping, and intellectual property initiatives carried-out by its contract engineers, scientists, and consultants.
 
During 2013, the Company will take steps to assess the development and purpose, as well as the mission, vision, goals and value propositions of its novel SolarWindow™ and MotionPower™ technologies. The purpose of this assessment will be to determine the Company’s structure, function, process and direction, emphasizing the development of a strategic focus on technology development that presents competitive advantages for technology development and presents the potential to become a significant long-term competitive advantage for commercialization.
 
Going Concern
 
The Company is a development stage company, does not have any commercialized products and has not generated any revenue since inception. The Company has an accumulated deficit of $15,963,440 as of February 28, 2013, and does not have positive cash flows from operating activities. Included in the deficit are non cash expenses totaling $4,435,114 relating to the issuance of stock for services, compensatory stock options, warrants granted for value and accretion of debt discount. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern, which is dependent upon the Company’s ability to establish itself as a profitable business.
 
In its report with respect to the Company’s financial statements for the year ended August 31, 2012, the Company’s independent auditors expressed substantial doubt about the Company’s ability to continue as a going concern. Because the Company has not yet generated revenues from its operations and does not expect to do so in the near future, its ability to continue as a going concern is wholly dependent upon its ability to obtain additional financing.
 
On February 1, 2013, the Company received $1,200,000 of an equity financing. As of February 28, 2013, the Company had cash and cash equivalents of $1,301,118. The Company will remain engaged in research and product development activities at least through January, 2015. Based upon its current and near term anticipated level of operations and expenditures, the Company believes that, absent any modification or expansion of its existing research, development and testing activities, cash on hand should be sufficient to enable it to continue operations through December 2013. However, any significant expansion in scope or acceleration in timing of the Company’s current research and development activities, or commencement of any marketing, and public and investor relations activities, will require additional funds.

 
9

 
 
If adequate funds are not available on reasonable terms, or at all, it would result in a material adverse effect on the Company’s business, operating results, financial condition and prospects. In particular, the Company may be required to delay, reduce the scope of or terminate one or more of its research programs, sell rights to its SolarWindow™ Technology and/or MotionPowerTM 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 - Accounts Payable
 
At February 28, 2013, accounts payable totaling $109,046 consisted of $51,969 of professional services and $57,077 of trade payables.
 
At August 31, 2012, accounts payable totaling $63,403 consisted of $24,863 of professional services and $38,540 of trade payables. Accrued liabilities consisted of $26,231 of accrued interest on the Company's $1,000,000 outstanding bridge Loan agreement dated April 17, 2012. This loan was converted in full to common stock on February 1, 2013.
 
NOTE 3 - Convertible Promissory Note
 
On April 17, 2012, the Company entered into a Bridge Loan Agreement (the “Loan Agreement”) with 1420524 Alberta Ltd. (the “Creditor”), an entity controlled by Kalen Capital Corporation our largest shareholder with beneficial ownership of 42.3% of our issued common stock as of our fiscal year end, August 31, 2012, pursuant to which the Company borrowed $1,000,000 at an annual interest rate of 7% (the “Loan”), compounded quarterly; following the occurrence of an event of default, as further specified in the Loan Agreement, the annual interest rate would increase to 15%. The Loan was evidenced by a promissory note with a maturity date of the earlier of: (a) the closing of any equity financing by us in excess of $1,000,000, or (b) April 16, 2013. As a condition to the Creditor’s entry into the Loan Agreement, we issued the Creditor 625,000 Series G Stock Purchase Warrants (the “Series G Warrants”), which are exercisable through April 17, 2015, with an initial exercise price of 84% of the average of the closing price for our common stock as reported on the OTCQB for the five trading days immediately preceding the closing of the Loan, or $1.92 per share, subject to adjustment as provided therein. Additionally, the Series G Warrants contain a cashless exercise provision and require us to file a registration statement with the SEC for the shares issuable upon exercise of the Series G Warrants within 60 days receipt of a written request by the Creditor. According to the original terms of the Loan Agreement, the Creditor could elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Loan, and any or all accrued and unpaid interest thereon into shares of our common stock at an initial fixed conversion price equal to seventy (70%) percent of the average of the closing price for the Company’s common stock as reported on the OTCQB for the five trading days immediately preceding the closing of the Loan, or $1.60 per share subject to adjustment as provided therein. The debt discount attributable to the relative fair value of the warrants and the beneficial conversion feature amounted to $547,050 and $452,950, respectively, and was to be accreted over the term of the Loan using the effective interest method.
 
On February 1, 2013, the Company and the Creditor entered into a Loan Conversion Agreement ("LCA") whereby the Creditor agreed to convert the entire balance outstanding, including $1,000,000 of principal and $56,556 of accrued interest payable into 1,650,869 shares of restricted common stock. In order to induce the Creditor to convert the Loan into shares of common stock, and eliminate the Company’s obligation to repay the Loan in cash, the effective conversion price was reduced to $0.64 from the initial conversion price of $1.60. In addition, as an inducement to convert, the Company issued to the Creditor 825,435 Series H Warrants and reduced the exercise price of the Series G Warrants to $0.64 (See NOTE 4 - Stockholders' Equity (Deficit) below for additional information). No incremental expense was recognized in these consolidated financial statements related to the reduction in the exercise price of the Series G Warrants, and the conversion of the Loan, because the transaction did not meet the requirements for an inducement under accounting principles generally accepted in the United States. As such, the Loan conversion was accounted for as a debt extinguishment with no gain or loss recognized due to the related party nature of the transaction. The Company recognized expense amounting to $1,059,038 for the issuance of the Series H warrants to the Creditor, representing additional financing costs associated with the Loan.

 
10

 
 
During the three and six months ended February 28, 2013, the Company recognized $12,415 and $30,325, respectively, of interest expense related to this Loan.
 
During the three and six months ended February 28, 2013, the Company recognized $983,689 and $999,485, respectively, of accretion related to the Loan discount. As a result of the Loan conversion, the debt discount was fully amortized by February 28, 2013.
 
NOTE 4 - Stockholders' Equity (Deficit)
 
On February 1, 2013, the Company issued 1,650,869 shares of restricted common stock upon the conversion of a convertible promissory note originally dated April 17, 2012 and including $1,000,000 of principal and $56,556 of accrued interest payable thereon (See “Note 3 - Convertible Promissory Note” above for additional information).
 
Also, on February 1, 2013, the Company completed a registered offering of 1,875,000 units at a price of $0.64 per unit or $1,200,000 in the aggregate. Each unit consists of one share of the Company’s common stock and one-half Series H stock purchase warrant (“Series H Warrant”) to purchase one-half of a share of common stock at the initial exercise price of $0.83 per share for a period of three years from the date of issuance. The number of stock purchase warrants issued was 937,503. The relative fair value of the common stock was estimated to be $638,717 and the relative fair value of the warrants was estimated to be $561,283 as determined based on the relative fair value allocation of the proceeds received. The warrants were valued using the Black-Scholes option pricing model using the following variables: $0.83 exercise price, $1.48 stock price, 161% volatility, 0.40% risk-free interest rate, 3 year term and no dividends.
 
Warrants
 
Each of the Company’s warrants outstanding entitles the holder to purchase one share of the Company’s common stock for each warrant share held. A summary of the Company’s warrants outstanding and exercisable as of February 28, 2013 and August 31, 2012 is as follows:
 
   
Shares of Common Stock
           
   
Issuable from Warrants
           
   
Outstanding as of
           
   
February 28,
   
August 31,
   
Exercise
     
Description
 
2013
   
2012
   
Price
 
Expiration
 
                       
Series G
   
625,000
     
625,000
   
$
0.64
 
April 17, 2015
 
Series H
   
1,762,938
     
-
   
$
0.83
 
February 1, 2016
 
     
2,387,938
     
625,000
             
 
The Series G Warrants were issued on April 17, 2012 as a condition to 1420524 Alberta Ltd. entering into the Bridge Loan Agreement more fully described above under “Note 3 - Convertible Promissory Note.” In order to induce 1420524 Alberta Ltd. to convert the Loan into shares of the Company’s common stock, the initial exercise price of $1.92 was reduced to $0.64. Additionally, the Series G Warrants contain a cashless exercise provision and registration rights requiring us to file a registration statement with the SEC for the shares issuable upon exercise of the Series G Warrants within 60 days receipt of a written request by the Creditor.
 
 
11

 

As an additional inducement to convert its Loan, on February 1, 2013, the Company issued to 1420524 Alberta Ltd. 825,435 Series H Warrants (See “Note 3 - Convertible Promissory Note” above for additional information). The warrants have an exercise price of $0.83 per share, expire on the third anniversary of the LCA, or on February 1, 2016 and may be exercised in whole or in part at any time from the date of issuance through expiration. Based on the following Black-Scholes Option Pricing Model assumptions: exercise price - $0.83; market price of common stock - $1.48 per share; estimated volatility - 161%; risk free interest rate - 0.40%; expected dividend rate - 0%; and expected life - 3.0 years, the Company calculated the fair value of these options to be $1,059,038.
 
Also on February 1, 2013, as part of the registered offering, the Company issued 937,503 Series H Warrants (See “Note 4 – Stockholders' Equity (Deficit)” above for additional information).
 
No warrants were exercised during the year ended August 31, 2012 or the six months ended February 28, 2013.
 
NOTE 5 - Stock Options
 
On October 10, 2006, the Company's Board of Directors (the “Board”) adopted and approved the 2006 Incentive Stock Option Plan (the “2006 Stock Plan”) that provides for the grant of stock options to employees, directors, officers and consultants. Stock option grants vest over two to five years and expire ten years after the date of grant. Stockholders previously approved 5,000,000 shares for grant under the 2006 Plan, of which 3,892,495 remain available for grant and 73,334 options have been exercised as of February 28, 2013. All shares approved for grant and subsequently forfeited are available for future grant. The Company does not repurchase shares to fulfill the requirements of options that are exercised. The Company issues new shares when options are exercised.
 
The Company measures all stock-based compensation based on the fair value on the grant date using the Black-Scholes-Merton formula and recognizes expense over the requisite service period. The Black-Scholes model requires management to make assumptions regarding option time to expiration, expected volatility, and risk-free interest rates, all of which have a significant impact on the fair value of the option.
 
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a bond with a similar term. The Company does not anticipate declaring dividends in the foreseeable future. Volatility is calculated based on the historical closing stock prices. The Company uses the “simplified” method for determining the expected term of its “plain vanilla” stock options. The Company recognizes compensation expense for only the portion of stock options that are expected to vest. Therefore, the Company applies an estimated forfeiture rate that is derived from historical employee termination data and adjusted for expected future employee turnover rates. If the actual number of forfeitures differs from those estimated by the Company, additional adjustments to compensation expense may be required in future periods.
 
 
12

 
 
A summary of the Company’s stock option activity for the six months ended February 28, 2013 and the years ended August 31, 2012 and 2011, and related information follows:
 
   
Number of Options
 
Weighted Average Exercise Price ($)
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value ($)
 
                   
Outstanding at August 31, 2010
    900,003     1.71          
Grants
    610,002     5.97          
Exercises
    (73,334 )   1.61          
Forfeitures
    (476,666 )   5.59          
Outstanding at August 31, 2011
    960,005     2.49          
Forfeitures
    (98,334 )   5.93          
Outstanding at August 31, 2012
    861,671     2.10          
Grants
    177,500     1.59          
Forfeitures
    (5,000 )   3.27          
Outstanding at February 28, 2013
    1,034,171     2.01  
7.34 years
  $ 5,850  
                         
Exercisable at February 28, 2013
    507,337     2.38  
6.81 years
  $ 2,925  
                         
Available for grant at February 28, 2013
    3,892,495                  

The aggregate intrinsic value in the table above represents the total pretax intrinsic value for all “in-the-money” options (i.e. the difference between the Company’s closing stock price on the last trading day of the period covered by this report and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all in-the-money option holders exercised their options on February 28, 2013. The intrinsic value of the option changes based upon the fair market value of the Company’s common stock. Since the closing stock price was $1.19 on February 28, 2013 and 15,000 outstanding options have an exercise price below $1.19 per share, as of February 28, 2013, there is intrinsic value to our outstanding in-the-money stock options.
 
The following table sets forth the share-based compensation cost resulting from stock option grants, including those previously granted and vesting over time, that were recorded in the Company’s Consolidated Statements of Operations for the three and six months ended February 28, 2013 and 2012, and from May 5, 1998 (inception) to February 28, 2013:
 
   
Three Months Ended
February 28,
   
Six Months Ended
February 28,
   
Cumulative May 5, 1998
(Inception) to
February 28,
 
   
2013
   
2012
   
2013
   
2012
   
 2013
 
Stock Compensation Expense net of reversals:
                             
Selling general and administrative expense
 
$
200,425
   
$
62,238
     
223,566
     
136,670
   
$
2,354,334
 
 
As of February 28, 2013, the Company had $167,993 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 2.50 years.
 
Stock Option Activity During the Six Months Ended February 28, 2013
 
On December 20, 2012, the Company granted two stock options to purchase up to 15,000 (a 10,000 and 5,000 option grant, respectively) shares of the Company’s common stock at an exercise price of $0.80 per share, the fair market value of the Company’s common stock on the date of grant, to two employees as partial compensation for services. The stock options expire ten years from the date of grant, on December 20, 2022 and vest as follows: (a) 7,500 shares vest immediately on the date of grant, and (b) 7,500 shares on the one-year anniversary on December 20, 2013. The stock option is further subject to the terms and conditions of a stock option agreement between the Company and the employee. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that employee ceases to be one of the Company’s employee. Upon termination of such service, the employee will have a specified period of time to exercise vested stock options, if any. The grant date fair value of the stock option granted was $11,700, or $0.78 per option, estimated using the Black-Scholes model containing the following assumptions: Exercise price / spot price of $0.80 per share, dividend yield of 0%, volatility of 160.1%, risk-free rate of 1.14%, and a term of 7.67 years. During the three and six months ended February 28, 2013, the Company recognized $7,313 of expense related to these two issuances.
 
 
13

 
 
On April 27, 2012, pursuant to his employment agreement, our Vice President of Business and Technology Development, Mr. John Patrick Thompson received a grant of 100,000 stock options. The options have an exercise price of $2.30, the fair market value of the Company’s common stock on the date of grant. The stock options expire ten years from the date of grant, on April 27, 2022 and vest in various amounts upon the meeting of certain milestones and which vesting is subject to Board approval. The stock option is further subject to the terms and conditions of a stock option agreement between the Company and the employee. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that employee ceases to be one of the Company’s employee. Upon termination of such service, the employee will have a specified period of time to exercise vested stock options, if any. The grant date fair value of the stock option granted was $225,000, or $2.25 per option, estimated using the Black-Scholes model containing the following assumptions: Exercise price / spot price of $2.30 per share, dividend yield of 0%, volatility of 167.1%, risk-free rate of 1.34%, and term of 7.67 years. The Company recognizes compensation cost associated with this stock option grant with performance conditions when the Company determines that it is probable that certain milestones will be achieved. On December 20, 2012, the Company's Board determined that milestones related to 2,500 options were substantially met and during the three and six months ended February 28, 2013, the Company recognized $5,625 of expense related to this award.
 
On January 23, 2013, the Board approved, and the Company granted, a stock option to each of the Company’s four directors, including John Conklin, CEO, to purchase 40,000 shares of its common stock at an exercise price of $1.65 per share, the fair market value of the Company’s common stock on the date of grant. Each stock option expires ten years from the date the applicable stock option agreement was executed, on January 23, 2023, and vests as follows: (a) 20,000 shares vest immediately on the date of grant, and (b) 20,000 shares on the one-year anniversary on January 23, 2014. The stock options are further subject to the terms and conditions of a stock option agreement between the Company and each director. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that the director ceases to be one of the Company’s directors. Upon termination of such service, the director will have a specified period of time to exercise vested stock options, if any. The grant date fair value of each of the stock options granted to each of the Company’s directors was $64,386 estimated using a Black-Scholes model containing the following assumptions: Exercise price / spot price of $1.65 per share, dividend yield of 0%, volatility of 161.1%, risk-free rate of 1.24%, and a term of 7.67 years. During the three and six months ended February 28, 2013, the Company recognized $160,964 of expense related to this issuance.
 
On December 10, 2012, Mr. Peter Fusaro resigned from the Board. As a result of his resignation, Mr. Fusaro forfeited 5,000 unvested stock options and had vested 11,667 stock options. Total stock based compensation expense related to Mr. Fusaro's options was $48,850 of which $44,270 was expensed through August 31, 2012. On November 30, 2012, the Company reversed $10,075 of expense related to forfeited options on which expense was previously recorded resulting in total recognized expense related to Mr. Fusaro's options of $34,195. Mr. Fusaro has until December 10, 2014, to exercise his 11,667 vested stock options.
 
Stock Option Activity During the Years Ended August 31, 2012
 
On December 8, 2011, Mr. Todd Pitcher resigned from the Board. Mr. Pitcher had vested 6,667 stock options and forfeited 10,000 unvested stock options with an exercise price of $3.27 per share. During the year ended August 31, 2011, the Company recorded stock based compensation of $27,784 for the amortization of the fair value of his stock option. Since the stock option was forfeited prior to 10,000 options vesting, $8,243 previously recognized for stock based compensation was reversed on November 30, 2011, resulting in total stock based compensation expense related to Mr. Pitcher’s stock option grant of $19,541. Mr. Pitcher has until December 8, 2013, to exercise his 6,667 vested stock options.

 
14

 
 
On August 12, 2012, 83,334 vested options with an exercise price of $6.21 per share held by Mr. Andrew Farago, the Company's former Chief Operating Officer expired unexercised.
 
On September 30, 2012, Mr. Javier Jimenez resigned from the Board. As a result of his resignation, Mr. Jimenez forfeited 5,000 unvested stock options and had vested 11,667 stock options with an exercise price of $3.27 per share. The Company recorded stock based compensation totaling $91,780 related to the amortization of the fair value of this stock option grant, including the recognition of $66,252 and $25,528 of expense for the years ended August 31, 2012 and 2011, respectively. Since the stock option was forfeited prior to 5,000 options vesting, $23,705 previously recognized for stock based compensation was reversed on August 31, 2012, resulting in total stock based compensation expense related to Mr. Jimenez's stock option grant of $68,075. Mr. Jimenez has until September 30, 2014, to exercise his 11,667 vested stock options.
 
The following table summarizes information about stock options outstanding and exercisable at February 28, 2013:

     
Stock Options Outstanding
         
Stock Options Exercisable
       
           
Weighted
   
Weighted
         
Weighted Average
   
Weighted
 
Range of
   
Number of
   
Average
   
Average
   
Number
   
Remaining
   
Average
 
Exercise
   
Options
   
Contractural
   
Exercise
   
of Options
   
Contractual
   
Exercise
 
Prices
   
Outstanding
   
Life (years)
   
Price
   
Exercisable
   
Life (Years)
   
Price
 
$ 0.80       15,000       9.81     $ 0.80       7,500       9.81     $ 0.80  
$ 1.32       50,001       1.79     $ 1.32       50,001       1.79     $ 1.32  
$ 1.65       826,667       7.32     $ 1.65       313,333       7.95     $ 1.65  
$ 2.30       2,500       9.16     $ 2.30       2,500       9.16     $ 2.30  
$ 2.50       10,000       8.10     $ 2.50       4,000       8.10     $ 2.50  
$ 2.55       33,334       5.53     $ 2.55       33,334       5.53     $ 2.55  
$ 3.27       18,334       1.42     $ 3.27       18,334       1.42     $ 3.27  
$ 4.98       16,667       5.03     $ 4.98       16,667       5.03     $ 4.98  
$ 5.94       50,001       7.82     $ 5.94       50,001       7.82     $ 5.94  
$ 6.51       11,667       1.59     $ 6.51       11,667       1.59     $ 6.51  
Total
      1,034,171       7.34     $ 2.01       507,337       6.81     $ 2.38  
 
NOTE 6 - Net Loss Per Share
 
During the three and six months ended February 28, 2013 and 2012, the Company recorded a net loss. Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company has not included the effects of warrants, stock options and convertible debt on net loss per share for the past two fiscal years because to do so would be antidilutive.
 
 
15

 

Following is the computation of basic and diluted net loss per share for the three and six months ended February 28, 2013 and February 29, 2012:

   
Three Months Ended
   
Six Months Ended
 
   
February 28, 2013
   
February 29, 2012
   
February 28, 2013
   
February 29, 2012
 
Basic and Diluted EPS Computation
                       
Numerator:
                       
Loss available to common stockholders'
  $ (2,774,621 )   $ (703,065 )   $ (3,182,083 )   $ (1,327,916 )
                                 
Denominator:
                               
Weighted average number of common shares outstanding
    21,681,631       20,638,360       21,159,995       20,638,360  
                                 
Basic and diluted EPS
  $ (0.13 )   $ (0.03 )   $ (0.15 )   $ (0.06 )
                                 
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:
                         
                                 
Warrants
    2,387,938       -       2,387,938       -  
Stock options
    1,034,171       950,005       1,034,171       950,005  
 
NOTE 7 - Related Party Transactions
 
A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
 
For services rendered in the capacity of a Board member, non-employee Board members receive $3,750 per quarter. New Board member compensation is pro rated in their first quarter. During the three months ended February 28, 2013 and February 29, 2012, the Company incurred $15,000 and $22,500, respectively in cash based Board compensation. During the six months ended February 28, 2013 and February 29, 2012, the Company incurred $33,750 and $51,600, respectively in cash based Board compensation. Additionally, the Company recognized stock compensation expense related to stock options granted for services rendered by non-employee directors of the Company, which is included in professional fees (See “Note 5 - Stock Options” above) during the three months ended February 28, 2013 and February 29, 2012 of $125,454 and $32,964, respectively. During the six months ended February 28, 2013 and February 29, 2012, the Company recognized stock compensation expense of $126,802 and $76,356, respectively.
 
The law firm of Sierchio & Company, LLP, of which Joseph Sierchio, one of the Company's directors, is a principal, has provided counsel to the Company since its inception. In July 2008, the Company asked Mr. Sierchio to join the Company's Board. During the three months ended February 28, 2013 and February 29, 2012, the law firm of Sierchio & Company, LLP provided $41,895 and $35,254, respectively, of legal services. During the six months ended February 28, 2013 and February 29, 2012, the law firm of Sierchio & Company, LLP provided $66,316 and $97,429, respectively, of legal services. At February 28, 2013, the Company owed Sierchio & Company LLP $31,435 which is included in accounts payable.
 
 
16

 

On April 17, 2012, the Company entered into a Bridge Loan Agreement with 1420524 Alberta Ltd., an entity controlled by Kalen Capital Corporation our largest shareholder with beneficial ownership of 42.3% of our issued common stock as of our fiscal year end, August 31, 2012. On February 1, 2013, 1420524 Alberta Ltd. converted the note and accrued interest payable into common stock (See “Note 3 - Convertible Promissory Note” above).
 
On February 1, 2013, Kalen Capital Corporation, a shareholder owning in excess of 5% of the Company’s issued and outstanding stock, purchased 1,843,748 shares of the Company’s common stock and 921,875 Series H Warrants for an aggregate purchase price of $1,180,000 pursuant to the registered public offering conducted by the Company (See NOTE 4 - Stockholders' Equity (Deficit)" above).
 
All related party transactions are recorded at the exchange amount established and agreed to between related parties and are in the normal course of business.
 
NOTE 8 - Subsequent Events
 
The Company issued 3,906 shares of common stock and received proceeds of $2,461 from the exercise of Series H Warrants on March 18, 2013.
 
 
17

 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Report on Form 10-Q contains forward-looking statements which involve assumptions and describe our future plans, strategies, and expectations, and are generally identifiable by use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project,” or the negative of these words or other variations on these words or comparable terminology. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished.
 
Such forward-looking statements include statements regarding, among other things, (a) the potential markets for our technologies, our potential profitability, and cash flows, (b) our growth strategies, (c) expectations from our ongoing research and development activities, (d) anticipated trends in the technology industry, (e) our future financing plans, and (f) our anticipated needs for working capital. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in this Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the matters described in this Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.
 
Although forward-looking statements in this report reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect our actual results may vary materially from those expected or projected.
 
Except where the context otherwise requires and for purposes of this Form 10-Q only, “we,” “us,” “our,” “Company,” “our Company,” and “New Energy” refer to New Energy Technologies, Inc., a Nevada corporation, and its consolidated subsidiaries.
 
Overview
 
We were incorporated in the State of Nevada on May 5, 1998, under the name “Octillion Corp.” On December 2, 2008, we amended our Articles of Incorporation to effect a change of name to New Energy Technologies, Inc. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Sungen, KEC and New Energy Solar. Sungen was incorporated on July 11, 2006, in the State of Nevada and is currently inactive. KEC was incorporated on June 19, 2008, in the State of Nevada and holds the patents related to our MotionPower™ technology. Our business activities related to the MotionPower™ Technology are conducted through KEC. New Energy Solar was incorporated on February 9, 2009, in the State of Florida and has entered into a License Agreement, an Addendum to the License Agreement, an Option Agreement and a Sponsored Research Agreement with the University of South Florida Research Foundation, Inc.
 
 
18

 

We are a development stage renewable and alternative energy company developing two (2) sustainable electricity generating systems. These novel technologies are branded as SolarWindow™ and MotionPower™. Our proprietary, patent-pending technologies are the subject of fifty-nine (59) US and international Patent filings. Our SolarWindow™ Technology provides the ability to harvest light energy from the sun and artificial sources and generate electricity from a see-through, semi-transparent, coating of OPV solar cells. Our SolarWindow™ Technology is the subject of fourteen (14) patent filings. Our MotionPower™ Technology, harvests “kinetic” or “motion” energy from vehicles when they slow down before coming to a stop and converts this captured energy into electricity. Our MotionPower™ Technology is the subject of forty-five (45) patent filings.
 
We do not currently have any commercial products and there is no assurance that we will successfully be able to design, develop, manufacture, or sell any commercial products in the future.
 
Our 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 our contract engineers, scientists, and consultants.
 
Ultimately, we plan to market any SolarWindow™ Technology and/or MotionPower™ Technology products through co-marketing, co-promotion, licensing and distribution arrangements with third party collaborators. We believe that this approach could provide immediate access to pre-existing distribution channels, therefore potentially increasing market penetration and commercial acceptance of our products and enabling us to avoid expending significant funds for development of a large sales and marketing organization.
 
We cannot accurately predict the amount of funding or the time required to successfully commercialize either the SolarWindow™ Technology or the MotionPower™ Technology. The actual cost and time required to commercialize these technologies may vary significantly depending on, among other things, the results of our research and development efforts, the cost of developing, acquiring, or licensing various enabling technologies, changes in the focus and direction of our research and development programs, competitive and technological advances, the cost of filing, prosecuting, defending and enforcing claims with respect to patents, the regulatory approval process and manufacturing, marketing and other costs associated with commercialization of these technologies. Because of this uncertainty, even if financing is available to us, we may secure insufficient funding to effectuate our business plan.
 
As of February 28, 2013, we had working capital of $1,377,745. Based upon our current level of operations and expenditures, we believe that, absent any modification or expansion of our existing research, development and testing, cash on hand should be sufficient to enable us to continue operations through at least December, 2013. However, any significant expansion in scope or acceleration in time of our current research and development activities, or commencement of any marketing activities, and public and investor relations activities will require additional funds.

Research and Related Agreements

We are a party to certain agreements related to the development of our SolarWindow™ Technology and our MotionPower™ Technology.
 
Stevenson-Wydler Cooperative Research and Development Agreement with the Alliance for Sustainable Energy
 
Alliance for Sustainable Energy, LLC (“Alliance”) is the operator of The National Renewable Energy Laboratory (“NREL”) under its U.S. Department of Energy contract. In efforts to advance the commercial development of the SolarWindow™ Technology, on March 18, 2011, the Company entered into a Stevenson-Wydler Cooperative Research and Development Agreement (the “CRADA”) with Alliance. Under terms of the CRADA, NREL researchers will make use of the Company’s exclusive intellectual property (“IP”), newly developed IP, and NREL’s background IP in order to work towards specific product development goals. Under the terms of the CRADA, the Company agreed to reimburse the Alliance for filing fees associated with all documented, out-of-pocket costs directly related to Patent application preparation and filings, and maintenance of the Patent applications.
 
 
19

 

On January 16, 2013, the Company entered into a modification to the CRADA for the purpose of extending the date pursuant to which NREL’s researchers will make use of the Company’s exclusive intellectual property and NREL’s background intellectual property. As part of the extension, the Company advanced $150,000 to Alliance. The $150,000 is intended to remain as a retainer to Alliance. Alliance bills the Company monthly for R&D related costs. Once the development goals are met, Alliance will work against the retainer. However, until such time the retainer will remain in full and Alliance will bill monthly as R&D costs are incurred.

On March 6, 2013, the Company entered into Phase II of its CRADA with Alliance. Under the terms of the agreement, researchers will additionally work towards:

·  
Further improve SolarWindow™ efficiency and transparency;
·  
Optimize electrical power (current and voltage) output;
·  
Optimize the application of the active layer coatings which make it possible for SolarWindow™ to generate electricity on glass surfaces;
·  
Develop improved electricity-generating coatings by enhancing performance, processing, reliability, and durability;
·  
Optimize SolarWindow™ performance on flexible substrates; and
·  
Develop high speed and large area roll-to-roll (R2R) and sheet-to-sheet (S2S) coating methods required for commercial-scale BIPV and windows.

University of South Florida Research Foundation, Inc. License Agreement, Option Agreement and Sponsored Research Agreement

Through New Energy Solar, we are a party to a License Agreement, an Addendum to the License Agreement, an Option Agreement and a Sponsored Research Agreement with the University of South Florida Research Foundation, Inc. These agreements provide for the Company's support of a project relating to the development of the SolarWindow™ Technology and grant it an exclusive worldwide commercial license for patents relating to the SolarWindow™ Technology developed at the University of South Florida (“USF”).
 
On July 5, 2011, the Company entered into a letter agreement pursuant to which it agreed to reimburse the USF for Patent application preparation and filing fees associated with USF’s Patent Applications (the “Applications”) for certain identified technologies (the “Letter Agreement”). Pursuant to the terms of the Letter Agreement, the Company committed to reimburse USF for all documented, out-of-pocket costs directly related to the filing and maintenance of the Applications. In return, USF granted the Company the exclusive right to negotiate a definitive option or license agreement with USF for the technologies underlying the Applications for a period of time after USF files a Patent for an identified technology (the “Negotiation Period”). Should the Negotiation Period expire without us entering into an agreement with USF, the Company could extend the Negotiation Period for an additional period of time by paying USF a one-time payment of a specified sum. If after this additional time the Company fails to enter into an agreement with USF, USF is free to enter into negotiations and license the underlying technologies to a third-party. The USF Research Foundation, Inc. granted the lead USF research scientist authorization to enter into discussions with the Company to extend the date of the Sponsored Research Agreement. Sponsored Research was mutually agreed to be terminated on February 23, 2013 due to completion of the Sponsored Research Scope of Work.
 
Sigma Design Agreement
 
Through KEC, the Company continues to be a party to consulting agreements with Sigma Design Company, a Middlesex, New Jersey based engineering and design firm, pursuant to which Sigma Design provides ongoing engineering, product development and testing services primarily relating to the development of the MotionPower™ technology.
 
 
20

 
 
Results of Operations
 
Three and Six Months Ended February 28, 2013 Compared with the Three and Six Months Ended February 29, 2012
 
Operating Expenses
 
A summary of our operating expense for the three and six months ended February 28, 2013 and February 29, 2012 follows:

   
Three Months Ended
             
   
February 28,
2013
   
February 29,
2012
   
Increase / (Decrease)
   
Percentage Change
 
Operating expense
                       
Selling, general and administrative
  $ 482,603     $ 351,489     $ 131,114       37 %
Research and development
    36,451       185,556       (149,105 )     -80 %
Stock compensation
    1,259,463       62,238       1,197,225       1924 %
Total operating expense
  $ 1,778,517     $ 599,283     $ 1,179,234       197 %
 
   
Six Months Ended
             
   
February 28,
2013
   
February 29,
2012
   
Increase / (Decrease)
   
Percentage
Change
 
Operating expense
                       
Selling, general and administrative
  $ 760,992     $ 792,332     $ (31,340 )     -4 %
Research and development
    108,677       315,748       (207,071 )     -66 %
Stock compensation
    1,282,604       136,670       1,145,934       838 %
Total operating expense
  $ 2,152,273     $ 1,244,750     $ 907,523       73 %

Selling, General and Administrative

Selling, general and administrative (“SG&A”) costs include all expenditures incurred other than research and development related costs, including costs related to personnel, professional fees, travel and entertainment, public company costs, insurance and other office related costs. The six month decrease of $31,340 is due to a $120,006 decrease in patent related legal and filing fees, $88,716 decrease in legal, accounting and board fees, $7,240 decrease in other general and administrative costs offset by an increase of $62,897 for personnel, $54,349 increase in travel and meeting costs, and $67,376 increase in public company costs primarily related to fees paid to publicize our SolarWindow™ and MotionPower™ technologies within the industry and investor community.
 
Stock Compensation
 
Stock compensation represents the expense associated with the amortization of our stock options and other equity based payments. During the six months ended February 28, 2013, stock compensation expense increased $1,145,934 due primarily to $1,059,038 recognized upon the issuance of Series H Warrants granted as an inducement to convert the $1,000,000 bridge loan and accrued interest payable of $56,556 into shares of common stock. The remaining $86,896 increase is due to the grant of 177,500 stock options and related vesting.
 
Research and Development
 
Research and development (“R&D”) costs represent costs incurred to develop our SolarWindow™ and MotionPower™ technologies and are incurred pursuant to our research agreements and agreements with other third party providers and certain internal R&D cost allocations. Payments under these agreements include salaries and benefits for R&D personnel, allocated overhead and facility occupancy costs, contract services and other costs. R&D 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. See “Research and Related Agreements” above for disclosure regarding the terms and amounts incurred under our research agreements.
 
 
21

 

R&D costs decreased due to the phase of technology development associated with Cooperative Research and Development Agreement (CRADA) conducted at the Stevenson-Wydler with the Alliance for Sustainable Energy, LLC, which is the operator of The National Renewable Energy Laboratory under its U.S. Department of Energy contract, and the Sigma Design Company, LLC agreement.
 
Other Income (Expense)
 
A summary of our other income (expense) for the three months ended November 30, 2012 and 2011 follows:

   
Three Months Ended
         
Six Months Ended
       
   
February 28, 2013
   
February 29, 2012
    Three Month Change    
February 28, 2013
   
February 29, 2012
    Six Month Change  
                                     
Other income (expense)
                                   
Interest expense - other
  $ (12,415 )   $ -     $ (12,415 )   $ (30,325 )   $ -     $ (30,325 )
Interest expense - accretion of debt discount
    (983,689 )             (983,689 )     (999,485 )             (999,485 )
Foreign exchange loss
    -       (33 )     33       -       (65 )     65  
Change in fair value of warrant liability
    -       -       -       -       -       -  
Payable written off
    -       -       -       -       156,109       (156,109 )
Total other income (expense)
  $ (996,104 )   $ (33 )   $ (996,071 )   $ (1,029,810 )   $ 156,044     $ (1,185,854 )
Interest Expense

“Interest expense – other” relates to the 7% stated interest of the April 17, 2012, $1,000,000 Bridge Loan. “Interest expense - accretion of debt discount” also relates to the April 17, 2012, Bridge Loan and represents the accretion of the discount applied to the loan as a result of the issuance of 625,000 detachable warrants and the beneficial conversion feature contained in the Bridge Loan and is calculated according to the effective interest method.

Liquidity and Capital Resources
 
The accompanying financial statements have been prepared assuming we will continue as a going concern. We have an accumulated deficit of $15,963,440 as of February 28, 2013. Included in the deficit are non cash expenses totaling $4,435,114 relating to the issuance of stock for services, compensatory stock options, warrants granted for value and accretion of debt discount. Due to the “start-up” nature of our business, we expect to incur losses as we continue development of our photovoltaic and energy harvesting technologies and expand. These conditions raise substantial doubt about our ability to continue as a going concern. Management recognizes that in order for us to meet our capital requirements, and continue to operate, additional financing will likely be necessary. We expect to raise additional funds through private or public equity investment in order to expand the range and scope of business operations. We will seek access to private or public equity but there is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, if at all. If we are unable to raise additional capital or generate positive cash flow, it is unlikely that we will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Our principal source of liquidity is cash in the bank. At February 28, 2013, we had a cash and cash equivalent balance of $1,301,118. We have financed our operations primarily pursuant to a securities purchase agreement in which we received net proceeds of $3,395,955 in February 2008, from the exercise of warrants and stock options, $1,000,000 of proceeds from a bridge loan on April 17, 2012 and most recently $1,200,000 from the consummation of a registered offering of shares and warrants on February 1, 2013.
 
 
22

 

Net cash used in operating activities was $945,800 for the six months ended February 28, 2013, compared to net cash used in operating activities of $1,320,647 for the six months ended February 29, 2012. The decrease in cash used in operating activities, excluding the loss from discontinued operations of $239,210, substantially reflects decreases in amounts paid for research and selling, general and administrative costs offset by a higher accounts payable balance at February 28, 2013.
 
Net cash used by investing activities was $0 and $24,458 for the six months ended February 28, 2013 and February 29, 2012, respectively.
 
Net cash provided by financing activities was $1,200,000 and $0 for the six months ended February 28, 2013 and February 29, 2012, respectively.
 
Other Contractual Obligations
 
In addition to our contractual obligations under the research agreements, as of February 28, 2013, we have future minimum lease payments of $1,341 each month under our corporate and other office operating leases. In addition, we have future minimum payments totaling $13,000 pursuant to agreements with third party providers that we utilize for investor and public relations and marketing and business development.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
 
Recently Issued Accounting Pronouncements
 
We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any standards that we believe merit further discussion. We believe that none of the new standards will have a significant impact on our consolidated financial statements.
 
Item 4. Controls and Procedures
 
Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this quarterly report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of February 28, 2013 that our disclosure controls and procedures were effective such that the information required to be disclosed in our United States Securities and Exchange Commission (the “SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
23

 

PART II – OTHER INFORMATION
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
On February 1, 2013, the Company and 1420524 Alberta Ltd. (the “Creditor”) entered into a Loan Conversion Agreement ("LCA") whereby the Creditor agreed to convert the entire balance of their convertible loan outstanding, including $1,000,000 of principal and $56,556 of accrued interest payable into 1,650,869 shares of restricted common stock. In order to induce the Creditor to convert the Loan into shares of common stock, and eliminate the Company’s obligation to repay the Loan in cash, the effective conversion price was reduced to $0.64 from the initial conversion price of $1.60. In addition, as an inducement to convert, the Company issued to the Creditor 825,435 Series H Warrants with an exercise price of $0.83 and three-year term, and reduced the exercise price of the Series G Warrants originally issued in conjunction with the convertible note to $0.64. The Company intends to use the proceeds of the Loan Conversion, and any funds received from the exercise of the Series G Warrants and/or Series H Warrants for general working purposes. The shares were issued in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act.

Item 6. Exhibits
 
Exhibit No.     Description of Exhibit
     
10.1
 
Redacted Modification to the Cooperative Research and Development Agreement entered into between the National Renewable Energy Laboratory and New Energy Technologies, Inc., dated January 16, 2013(1)
     
10.2
 
Loan Conversion Agreement dated February 1, 2013, by and between New Energy Technologies, Inc. and 1420524 Alberta Ltd.(2)
     
10.3
 
Redacted Letter of Commitment between New Energy Solar Corporation and University of South Florida(3)
     
31.1
 
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
     
32.1
 
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
 
101.INS **
 
XBRL Instance Document
     
101.SCH **
 
XBRL Taxonomy Extension Schema Document
     
101.CAL **
 
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF **
 
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB **
 
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE **
 
XBRL Taxonomy Extension Presentation Linkbase Document
__________________
*Filed herewith

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
(1) Incorporated by reference to the Current Report on Form 8-K filed by New Energy Technologies, Inc. on January 22, 2013.

(1) Incorporated by reference to the Current Report on Form 8-K filed by New Energy Technologies, Inc. on February 7, 2013.

(3) Incorporated by reference to the Current Report on Form 8-K filed by New Energy Technologies, Inc. on March 18, 2013.
 
 
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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
New Energy Technologies, Inc.
 
(Registrant)
 
       
April 15, 2013 
By:
/s/ John A. Conklin  
    John A. Conklin  
    President and Chief Executive Officer, Chief Financial Officer and Director (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)  
 
 
 
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