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EX-23.1 - CONSENT OF PETERSON SULLIVAN, LLP - SolarWindow Technologies, Inc.nene_ex231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended August 31, 2014

 

¨      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.)

 

 

 

10632 Little Patuxent Parkway, Suite 406

Columbia, Maryland

 

21044

(Address of principal executive offices)

 

(Zip Code)

 

(800) 213-0689

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

 

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 ¨

 

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 ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

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

¨

Accelerated filer

¨

       

Non-accelerated filer

(Do not check if a smaller reporting company)

¨

Smaller reporting company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes ¨ No x

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price of the registrant’s common stock on February 28, 2014, as reported on the OTC Markets Group, Inc. QBTTM tier (the “OTCQB”) was $37,580,053.

 

As of November 10, 2014 there were 24,310,518 shares of the registrant’s common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

 

 

TABLE OF CONTENTS

 

NEW ENERGY TECHNOLOGIES, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED AUGUST 31, 2014

 

PART I   PAGE  
     
Item 1. Business   3  
       
Item 2. Properties     14  
       
Item 3. Legal Proceedings     14  
       
PART II        
       
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     15  
       
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations     18  
       
Item 8. Financial Statements     23  
       
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     42  
       
Item 9A. Controls and Procedures     42  
       
Item 9B. Other Information     43  
       
PART III        
       
Item 10. Directors, Executive Officers, and Corporate Governance     44  
       
Item 11. Executive Compensation     47  
       
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     52  
       
Item 13. Certain Relationships and Related Transactions, and Director Independence     53  
       
Item 14. Principal Accounting Fees and Services     54  
       
PART IV        
       
Item 15. Exhibits, Financial Statement Schedules     56  
       
SIGNATURES     57  
       
EXHIBIT INDEX     58  
       
CERTIFICATIONS        

 

 
2

 

PART I

 

Forward-Looking Statements

 

  This Annual Report on Form 10-K contains forward looking statements. Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements contained in this Report speak only as of the date of this report, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

  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 at various places throughout this report including, but not limited to the discussions under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” 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-K 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 factors that may cause actual results to be materially different from those discussed in these forward-looking statements. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Accordingly, you 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.

 

  All references to “we,” “us,” or “our” refer to New Energy Technologies, Inc. and its consolidated subsidiaries.

 

ITEM 1. BUSINESS

 

Background

 

  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, Kinetic Energy Corporation (“KEC”), and New Energy Solar Corporation (“New Energy Solar”).

 

  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 agreements with the University of South Florida (together with the University of South Florida Research Foundation, Inc. “USF”) related to the SolarWindow™ technology.

 

  We are a 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 one hundred and one (101) U.S. and international patent filings.

 

 
3

 

SolarWindow™

 

  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 organic photovoltaic (“OPV”) solar cells. Our SolarWindow™ technology is the subject of forty-two (42) patent filings. Initially being developed for application on glass surfaces, SolarWindow™ could potentially be used on any of the more than 85 million commercial and residential buildings in the United States alone.

 

  The development of our SolarWindow™ technology has advanced through our Sponsored Research Agreement with USF and Stevenson-Wydler Cooperative Research and Development Agreement (“CRADA”) with the Alliance for Sustainable Energy, LLC, which is the operator of The National Renewable Energy Laboratory (“NREL”). For a description of these agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

  We have achieved numerous important milestones and overcome major technical challenges in the development of our SolarWindow™ technology, including the ability to generate electricity on glass while remaining see-through. We have also successfully scaled-up our technology from a single solar cell – only one-quarter the size of a grain of rice – to a working array of solar cells which form a one-foot by one-foot early working prototype – our largest-ever SolarWindow™. A pane of glass coated with our SolarWindow™ technology is fabricated by applying our see-through, electricity-generating coatings onto glass surfaces at room temperature and pressure, a significant technical achievement which may provide a manufacturing advantage over expensive and cumbersome high temperature and high positive or negative pressure-sensitive manufacturing methods common to conventional solar photovoltaic (“PV”) manufacturing.

 

  In order to advance the technical development and subsequent commercialization of our SolarWindow™ products, we are actively seeking technology and product licensing arrangements with research institutions, commercial partners, and organizations with established technical competencies, market reach, and mature distribution networks in the solar PV, building-integrated PV, and alternative and renewable energy market industries.

 

MotionPower™

 

  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 fifty-nine (59) patent filings.

 

  We have initially developed and may commercialize three (3) MotionPower™ systems:

 

 

·

MotionPower™-Heavy ― A fluid-driven, system with limited moving mechanical components for installation at sites where big rigs, such as tractor trailers, buses, and large commercial vehicles are traveling at below 15mph and are in the process of slowing down;

 

·

MotionPower™-Auto ― A fluid-driven, system similar to MotionPower™-Heavy for installation at sites where cars and light-duty trucks, such as sport utility vehicles and automobiles, are traveling at below 15mph and are in the process of slowing down; and

 

·

MotionPower™-Express ― A mechanical system for installation at sites where all cars, light-duty trucks, motor homes, buses, big rigs, and large commercial vehicles are traveling faster than 15mph and are in the process of slowing down.

 

 
4

 

  MotionPower™-Express can be designed for a range of speeds based on traffic pattern and the amount of energy required for a specific application. Installation sites could potentially include sport and entertainment venues, warehousing and distribution centers, fleet vehicle maintenance facilities, transportation depots, airports (passenger arrival and departure areas), parking lots, border crossings, exit ramps, neighborhoods with traffic calming zones, rest areas, toll booths, and travel plazas.

 

  With respect to our MotionPower™ technology, our focus is the development and deployment of all three MotionPower™ systems. Our development efforts have already produced early working prototypes. If successfully developed, our MotionPower™ technology could potentially be used to harvest kinetic energy generated by any of the estimated 250 million vehicles registered in America, which drive approximately 6 billion miles on our nation’s roadways every day.

 

  We have advanced product development of our MotionPower™ technology through agreements with Veryst Engineering LLC and Sigma Design Company. These firms have experience in energy capture technologies and alternative and renewable energy, respectively. For a description of these agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

  We have achieved numerous important milestones in the development of our MotionPower™ technology. For example, following the development of a first-generation MotionPower™-Express prototype, we conducted early durability and user-experience testing at Burger King®, Four Seasons Hotel®, the Holiday Inn Express®, and the City of Roanoke (VA). Data collected and analyzed from these tests have produced important advancements to MotionPower™-Express, including the ability of the system to capture and convert kinetic energy into electrical energy by improving system treadle design and response to vehicle weight and speed.

 

  We are also working to partner with established commercial companies that specialize in energy conservation, and green building practice and performance where our technologies can be field tested and performance validated. Such commercial partnerships could evolve into potential customer sales pipelines.

 

  Important next steps in the development of MotionPower™ include: performance testing, durability, and design improvements that focus on energy capture and conversion, all of which will involve further research and development efforts and the commitment of significant capital and intellectual resources to support the extensive invention, design, engineering, testing, prototyping, and intellectual property initiatives.

 

Our Key Milestones

 

SolarWindow™ Milestones

 

  We have been working to invent, design, test, and prototype our SolarWindow™ technology for application to commercial flat glass in tall towers since November 2006. We have achieved the following important milestones in our development efforts:

 

·

There are currently forty-two (42) patent filings related to SolarWindow™ technology.

·

We are negotiating an exclusive worldwide commercial license for patents relating to the electricity-generating coating and SolarWindow™ technology developed at USF.

·

Entered into a CRADA with Alliance for Sustainable Energy, LLC, the operator of NREL under its U.S. Department of Energy contract.

·

Filed fourteen (14) patent applications for our own electricity-generating coating and SolarWindow™ technology development efforts that are independent of USF sponsored research and NREL CRADA research.

·

Announced that we have expanded the use of our SolarWindow™ coatings to include two (2) new product lines for commercial and military aircraft, and the safety and security of military pilots.

·

Determined the correct combination of compounds to create a single solar cell smaller than one-quarter the size of a grain of rice, which can successfully generate electricity on glass while remaining stable and see-through.

·

Scaled-up from a single solar cell to a one-inch by one-inch “array”. An “array” is an arrangement of multiple solar cells rather than an individual single solar cell.

 

 
5

 

·

Developed a method for spraying our see-through electricity-generating coatings onto glass surfaces at room temperature and pressure, a significant technical achievement which may provide a manufacturing advantage over expensive and cumbersome high temperature-specific and high positive or negative pressure-sensitive manufacturing methods common to conventional solar PV manufacturing.

·

Invented and fabricated novel contacts that conduct electricity on SolarWindow™, yet remain see-through. Conventional contacts for conducting electricity use materials which generally block visibility and inhibit transparency.

·

Engineered new methods for absorbing light energy to improve the flow of electrons (negatively charged particles), a process fundamental to generating electricity necessary for power appliances and fixtures.

·

Discovered new, solution-based compounds that successfully mobilize the electrons necessary for generating electricity on SolarWindow™ and eliminate the use of other materials that could be prone to breakdown. We have been able to produce these compounds without the use of expensive starting materials, and have discovered methods that allow for reproducibility.

·

Created methods for increasing power output by maximizing the number of solar-cells present in our SolarWindow™ array for a defined surface area.

·

Successfully scaled-up SolarWindow™ prototypes from a one-inch square to a twelve (12)-inch square (144 square inches in surface area).

·

Generate electricity on flexible plastic using novel see-through SolarWindow™ coatings.

·

Developed new SolarWindow™ coatings with increased transparency and improved color.

·

Successfully fabricated its latest working window prototype using a faster, rapid scale-up process for applying solution-based coatings.

·

Produced the largest OPV device ever fabricated at NREL in the institute’s history.

·

Successfully collected and transported electricity using a virtually ‘invisible’ conductive wiring system developed for SolarWindow™.

 

MotionPower™ Milestones

 

  We have been working to invent, design, test and prototype our MotionPower™ technology since July 2008. We have achieved the following important milestones in the development of our MotionPower™ technology and potential products:

 

·

There are currently fifty-nine (59) patent filings related to MotionPower™ technology.

·

Invented methods for harvesting the kinetic energy from vehicles of varying sizes, ranging from small cars to large trucks.

·

Fabricated systems able to adapt to the unique characteristics of different vehicles weight and speed in order to optimize the amount of kinetic energy captured and converted to electricity, including MotionPower™-Express, MotionPower™-Auto and MotionPower™-Heavy.

·

Developed systems able to accommodate passage of small vehicles, bicyclists and pedestrians over the device.

·

Designed tamper-resistant systems, accompanied by a suite of sensors that allow systems to operate and be tracked for extended periods of time without supervision, essential to conducting meaningful tests at field-installation sites and commercial installation.

·

Reduced the number of moving or mechanical parts and arranged moving mechanical components into a single housing unit for ease of manufacturing, greater operating reliability, and lower maintenance and production costs.

·

Invented a novel storage system that helps better utilize the power of each vehicle axle to improve the capture and conversion of kinetic energy to electricity.

·

Addressed system durability, resistance to damage from vehicles, road debris and weather.

·

Engineered MotionPowerTM mechanical components and height actuation to maintain driver control and minimize disruption; and control rolling resistance and forces to reduce, if not eliminate, potential jerking motion.

·

Configured systems for flexibility of installation for both above-grade and in-road (embedded) applications.

·

Developed MotionPowerTM to be “scalable” to accommodate site-specific roadway entry and egress, and electrical power demands.

·

Successfully demonstrated our brand new roadway technology at the Roanoke Civic Center in Virginia, a high-traffic volume entertainment, convention, and cultural complex.

 

 
6

 

Products Derived from our Technologies

 

SolarWindowTM

 

  We are developing our SolarWindow™ technology as the world’s first-of-their-kind systems able to generate electricity on glass windows and flexible plastic while remaining see-through.

 

  On September 16, 2010, we publicly unveiled a working four-inch by four-inch prototype of our proprietary SolarWindow™ technology at USF. Scientists at the event powered lights on a scale-model house by exposing our see-through SolarWindow™ to artificial light from fluorescent lamps, mimicking lighting typically installed inside offices. In artificial light, SolarWindow™ technology outperforms today’s commercial solar and thin-films by as much as tenfold under low-intensity irradiance.

 

  Researchers also repeatedly opened and closed window shades, successfully powering LED lights each time SolarWindow™ was exposed to natural light. This demonstration mimicked outdoor exposure such as sunlight on the exterior façade of commercial buildings – our initial target market and, we believe, a promising early application of the technology.

 

  Scientists at the debut event not only demonstrated the ability to generate “voltage” to power lighting, but also revealed SolarWindowTM capacity to produce “current” necessary for powering mechanical devices and appliances. Researchers successfully powered the mechanical rotor blades of a small helicopter using only a single, small-scale SolarWindow™ prototype exposed to a solar simulator.

 

  In February 2012, we successfully developed the largest OPV device fabricated at NREL, measuring 170cm2, approximately 14 times larger than previous devices produced at NREL. In March 2012, we, together with NREL researchers, successfully collected and transported electricity using a virtually ‘invisible’ conductive wiring system developed for SolarWindow™. The ability to transport electricity on glass windows while remaining see-through is especially important to the eventual deployment of an aesthetically pleasing commercial product.

 

  SolarWindow™ generates electricity by harnessing the energy of the sun in order to create a “photovoltaic” effect. Photovoltaics are best known as a method for generating electric power by using solar cells to convert energy from the sun into a flow of electrons. Typically, conventional PV power is generated by making use of solar modules composed of a number of cells containing PV and electricity-conducting materials. These materials are usually opaque (i.e., not see-through). Our researchers have replaced these materials with compounds that allow our SolarWindow™ technology to remain see-through, while generating electricity.

 

  We are currently developing six (6) products (collectively, the “SolarWindow™ Products”) derived from our SolarWindow™ technology:

 

·

SolarWindow™ – Commercial – A flat glass product for installation in new commercial towers under construction and replacement windows;

·

SolarWindowTM – Structural Glass – Structural glass walls and curtains for tall structures;

·

SolarWindowTM – Architectural Glass – Textured and decorative interior glass walls, room dividers, etc.;

·

SolarWindow™ – Residential – A window glass for installation in new residential homes under construction and replacement windows;

·

SolarWindow™ – Flex – Flexible films which may be applied directly onto glass, similar to aftermarket window tint films, for retrofit to existing commercial towers, buildings, and residential homes; and

·

SolarWindow™ – BIPV – Components associated with BIPV applications in homes, buildings, and office towers.

 

 
7

 

  Our focus is first on the development and deployment of SolarWindow™-Commercial, Structural, and Architectural products. Our product development efforts have already produced early working prototypes for these applications. Commercialization of the SolarWindowTM technology will require significant further research, development and testing, and we must ascertain whether the SolarWindowTM technology can actually form the basis for a commercially viable technology or product.

 

MotionPower™

 

  Our MotionPower™ products in development are systems that generate clean electricity by capturing and making use of the kinetic energy of moving vehicles.

 

  All vehicles in motion possess kinetic energy. Kinetic energy refers to the energy of motion, and is best described as the energy an object possesses due to its motion, such as the energy observed when a ball is thrown or kicked or when a cyclist no longer needs to pedal a bike in order to continue forward motion.

 

  The amount of kinetic energy a vehicle possesses is based upon the vehicle’s speed and weight, and inherent design and operational characteristics. The faster the vehicle is moving and the heavier it is, the more kinetic energy it possesses. When a moving vehicle slows down, it wastes some of its kinetic energy in the process of braking. It is this available kinetic energy which our MotionPower™ technology seeks to capture and convert into electricity.

 

  For our MotionPower™ products to effectively harvest a vehicle’s kinetic energy, they must be installed at sites where vehicles are moving, or are in the process of slowing down before stopping. Our MotionPower™ technology functions as an energy harvester. Because the MotionPower™ technology is designed to be installed in locations where cars and light trucks are moving, or are required to reduce their speed, our systems only make use of vehicle energy that is required to slow down and do not “rob” vehicles of energy they would otherwise use.

 

  We have conducted early durability and user-experience testing of our MotionPower™-Express system for cars and light trucks, such as sport utility vehicles, at Burger King®, Four Seasons Hotel®, the Holiday Inn Express®, and the City of Roanoke (VA).

 

  Our MotionPower™ technologies could potentially be installed at high traffic locations, wherever vehicles are required to slow down or stop, including exit ramps, toll booths, traffic intersections, rest areas, travel plazas, border crossings, neighborhoods with traffic calming zones, parking sites, drive-thrus and other roadway points.

 

  There are three MotionPower™ products in development:

 

·

MotionPower™-Heavy ― A fluid-driven, system with limited moving mechanical components for installation at sites where big rigs, such as tractor trailers, buses, and large commercial vehicles are traveling at below 15mph and are in the process of slowing down;

·

MotionPower™-Auto ― A fluid-driven, system similar to MotionPowerTM-Heavy for installation at sites where cars and light-duty trucks, such as sport utility vehicles and automobiles, are traveling at below 15mph and are in the process of slowing down; and

·

MotionPower™-Express ― A mechanical system for installation at sites where all cars, light-duty trucks, motor homes, buses, big rigs, and large commercial vehicles are traveling faster than 15mph and are in the process of slowing down.

 

  Commercialization of the MotionPowerTM technology will require significant further research, development and testing, and we must ascertain whether the MotionPowerTM technology can actually form the basis for a commercially viable technology or product.

 

 
8

 

Our Industry and Market Opportunity

 

Overview

 

  We believe our products uniquely address a growing market opportunity for technologies able to generate sustainable electricity. Rising energy costs, increasing electricity consumption, and the need for a cleaner alternative to today’s non-renewable energy sources, all contribute to the growing demand for clean, renewable alternative energy sources.

 

  Global energy consumption is expected to increase 53% from 2008 to 2035, according to the Energy Information Administration, and domestic electricity prices have been rising as a consequence of the cost of conventional fuels for electricity generation and looser pricing caps in some states.

 

  America is the world’s largest consumer of electricity, according to the U.S. Energy Information Administration, with nearly 70% of the nation’s electricity generated by coal and natural gas. The environmental impact and rising costs of these non-renewable fuels, along with the potential doubling of global electricity consumption in the coming years, illustrate the need for more creative, sustainable methods for generating electrical power.

 

The Market Opportunity for our SolarWindow™ Technology and Products

 

  There are no commercially marketed OPV see-through glass windows capable of generating electricity available for sale in the United States. We believe our SolarWindow™ technology and products could be uniquely positioned as first-to-market, if commercially launched. The year 2010 saw the completion of more skyscrapers than any previous year in history, according to a January 2011 report from the Council on Tall Buildings and Urban Habitat at the Illinois Institute of Technology, Chicago. Our early target market for SolarWindow™ Products is tall towers and commercial skyscrapers, including increasingly popular “green buildings.”

 

  The U.S. market for new, non-residential “green buildings,” such as offices and factories, is forecast to more than double to as much as $135 billion by 2015, according to a 2010 industry report by McGraw-Hill Construction. The same report states that, a third of all new nonresidential construction today is green. The amount of green building area has been growing at about 50% compounded annually, since 2000. Green building growth is approximately 25 times greater than commercial real estate overall in this country, which averages almost 2% annually, according to the United Nations Environment Programme Finance Initiative.

 

  Unprecedented levels of government initiatives, heightened residential demand for green construction, and improvements in sustainable materials are driving green building. Because buildings account for almost 50% of the energy consumed in developed countries, governments are putting increased focus on legislation and policies to improve their energy efficiency, according to the United States Environmental Protection Agency. In North America, initiatives such as the environmental building rating system (LEED) run by the U.S. Green Building Council are helping to transform the market for added-value glazing, and this trend is expected to continue. We anticipate similar opportunities in Europe, through the development of a European Union-wide energy labeling system for windows.

 

  Our SolarWindow™ Products are under development for application to glass surfaces in such buildings, often referred to as “architectural flat glass.” In the United States, the country’s ten largest cities have more than 444 million square feet of architectural glass, as estimated in a 2010 industry report on flat glass by Pilkington, a major global glass manufacturer. This market is growing in volume, with global growth of around 4-5% annually, with Europe, China and North America accounting for over 70% of global demand, according to the same report.

 

 
9

 

The Market Opportunity for our MotionPower™ Technology and Products

 

  With no commercially marketed vehicle energy harvesting devices available for sale in the United States and no formally recognized vehicle energy harvesting industry, we believe our MotionPower™ technology and products, consisting of MotionPower™-Express, MotionPower™-Auto and MotionPower™-Heavy, could be uniquely positioned as first-to-market if commercially launched.

 

  The U.S. boasts the world’s largest roadway transportation system. In 2006, Americans traveled 5.2 trillion person-miles in vehicles and moved 4.6 trillion ton-miles of freight, according to the Bureau of Transportation Statistics. The U.S. population and economy are expected to grow, increasing both freight and personal travel. For example, the Energy Information Administration’s 2010 Annual Energy Outlook projects population to grow by 85 million persons by 2035 compared to 2008.

 

  There is also a worldwide rise in roadway vehicles. Globally, the world auto fleet has increased from about 50 million vehicles to 1.015 billion vehicles between 1950 and 2010 according to research from Wards Auto and the Pew Center on Global Climate Change.

 

  All three MotionPower™ products could potentially have applications at our nation’s border crossings and ports of entry. In 2009, according to the Bureau of Transportation Statistics, American border crossings reported nearly 195 million personal vehicle passengers traveling in more than 97 million cars. Over 9.3 million trucks entered the United States through our border crossings, with the top 20 sites accounting for approximately 87% of such traffic. An estimated 4.9 million bus passengers in more than 344,000 buses crossed our borders.

 

  High-traffic venues such as theme parks, shopping malls, drive-thrus and sports venues represent potential sites for our MotionPower™ products. These sites remain strong prospects, with theme parks growing to 341 million attendees and $12 billion in revenue in 2007, according to the International Association of Amusement Parks and Attractions. Nearly 90 million attendees visited America’s top ten theme parks in 2009, estimates a report by the Themed Entertainment Association. Among sports venues, the National Football League alone accounts for roughly 2.47 million vehicles per year and approximately 330,000 parking spaces.

 

Our Competitive Strengths

 

  We believe that the following strengths enable us to compete successfully in the alternative energy industry:

 

·

Our products are first-of-their-kind solutions for generating sustainable electricity.There are no commercially-available products for sale in competition to our technologies and products, and therefore, our SolarWindow™ and MotionPower™ products may be positioned as ‘first-to-market.’

·

Our products have unique characteristics, not readily-achievable by other technologies. Our SolarWindow™ products generate electricity while remaining see-through, and are able to produce electricity from both natural and artificial light. These traits are unique to our products and technologies, and have not been replicated by any commercially-available technology. Our MotionPower™ systems can be engineered as either discreet or disruptive products, depending upon customer specifications. These systems are also designed to function independently of daily management, and do not require the presence of wind, sunlight, or other natural environmental influences in order to function.

·

Our SolarWindow™ products are designed for application on the vast glass facades of commercial skyscrapers and are not confined to installation on limited rooftop space. The installation of typical roof-rack PV modules is often constrained by limited roof-top areas on commercial skyscrapers. In contrast, our SolarWindowTMProducts may be applied to the entire vertical glass façades of skyscrapers.

·

The electricity generated by our technologies is compatible for use with existing energy infrastructure.Our SolarWindow™ and MotionPower™ products are under development for seamless applications in order to avoid burdening potential customers with special utility management systems.

 

 
10

 

Our Business Strategy

 

  Our goal is to complete the product development phase for our SolarWindow™ and MotionPower™ technologies and then, to the extent warranted, work towards commercial launch of the SolarWindow™ and MotionPower™ products. Key elements of our business strategy include:

 

·

Partner with research institutions, product development firms, and others with proven technology expertise.We are currently working with scientists at NREL for the ongoing development of our SolarWindow™ Products. We will seek to engage additional firms and institutions with important technical and product development competencies as needed.

·

Identify partnerships for technology out-licensing and in-licensing opportunities.We are actively engaged in identifying potential industry or commercial partnerships for the out-licensing of our technologies, or, if warranted, the in-licensing of certain enabling technologies that could help accelerate our product development programs by reducing our need for internal research and development.

·

Foster commercial partnerships with industry partners.Work to develop commercial partnerships with third-parties, which we believe could help us accelerate the development of our sales and distribution pipeline for any products we are able to develop.

·

Develop pricing models that capitalize on available energy subsidies in order to make our products affordable and attractive to end-users.In developing pricing strategies for any products we are able to develop, we would seek to provide our potential customers with access to various subsidies, government incentives, tax credits, and other related financial mechanisms.

·

Develop cost-effective and efficient supply-chain management and manufacturing processes.Both our SolarWindow™ and MotionPower™ technologies and products would require manufacturing systems and supply-chain management expertise. We have begun to strategize and work towards addressing these needs in a cost-effective and efficient manner.

·

Identify and potentially acquire strategic and/or complementary technologies.We are actively engaged in identifying technologies which may be strategic and/or complementary to our SolarWindow™ and/or MotionPower™ technologies for potential acquisition.

 

Competition for SolarWindow™ Technology and Products

 

  Competition in the solar PV industry is growing. Although we are not aware of other products utilizing technology substantially similar to our SolarWindow™ technology, numerous solar cell technologies have been developed, or are being developed, by a number of companies.

 

  Such technologies include, but are not necessarily limited to, the use of organic materials, advanced crystalline silicon thin film concepts, amorphous silicon, cadmium telluride, copper-indium-gallium-selenide, titanium dioxide, and copper indium diselenide, and others to generate electricity from the sun’s light. Given the time, investment and advances in manufacturing technologies, any of these competing technologies may achieve lower manufacturing costs, superior performance, or greater market acceptance than our SolarWindow™ technology product, currently under development.

 

  We face competition from many companies, major universities and research institutions in the United States and abroad. Many of our competitors have substantially greater resources, experience in conducting research, experience in obtaining regulatory approvals for their products, operating experience, research and development and marketing capabilities name recognition and production capabilities. We will face competition from companies marketing existing products or developing new products which may render our technologies (and products) obsolete. The descriptions of the products and technologies being developed or marketed by our competitors listed below have been taken from publicly available documents or reports filed by these companies:

 

·

BELECTRIC Solarkraftwerke GmbH (through the acquisition of Konarka Technologies, Inc. and its assets) - is focused on the development and advancement of nano-enabled polymer PV materials that are lightweight, flexible and more versatile than traditional solar materials. Following Belectric’s takeover of Konarka Technologies, the company plans to set up OPV production facilities in Germany in the coming months (Ref: October 24, 2012). Belectric has subsidiaries in seventeen (17) countries.

·

Pythagoras Solar – the company’s Photovoltaic Glass Unit (“PVGU”) uses patented optical technology, high-efficiency silicon, and advanced materials to provide the industry’s first highest-transparency and highest-density PV power generation in a standard double-pane window form factor, known in the industry as an insulating glass unit (“IGU”). The PVGU leverages the modularity and ease of installation of the IGU while controlling direct solar radiation and providing greater transparency to further increase the energy efficiency gains through reduced heating/cooling and lighting costs.

·

XsunX, Inc. - develops and markets proprietary Thin Film Photovoltaic (“TFPV”) solar cell designs and core solar cell manufacturing systems, enabling licensees to manufacture TFPV solar devices on various substrates.

 

 
11

 

  Sharp Corporation - has developed mass-production technology for stacked triple-junction thin-film solar cells by turning a conventional two-active-layer structure (amorphous silicon plus microcrystalline silicon) into a triple-junction structure with amorphous silicon (two active layers) and microcrystalline silicon (single active layer).

 

  These companies may have numerous competitive advantages, including:

 

·

significantly greater name recognition;

·

established distribution networks;

·

more advanced technologies and product development;

·

additional lines of products, and the ability to offer rebates, higher discounts or incentives to gain a competitive advantage;

·

greater experience in conducting research and development, manufacturing, obtaining regulatory approval for products, and marketing approved products; and

·

greater financial and human resources for product development, sales and marketing, and patent litigation.

 

  Our commercial success will depend on our ability and the ability of our sublicensees, if any, to compete effectively in product development areas such as, but not limited to, safety, price, marketing and distribution.

 

  There can be no assurance that competitors will not succeed in developing products that are more effective than our SolarWindow™ technology, therefore rendering our products obsolete and non-competitive. Accordingly, in addition to our research and development efforts, we have undertaken a public relations/advertising program designed to establish our “brand” name recognition early on in our corporate development; we intend to continue to develop and market our brand name pending commercialization of products, if any, we may derive from our research and development efforts. We believe our strategy ultimately will facilitate the marketing, distribution and public acceptance of any products we may derive from our research and development efforts if and when regulatory approval is received.

 

  Competition with respect to our technologies is and will be based, among other things, on safety, reliability, availability, price, marketing, distribution and patent position. Another important factor will be the timing of market introduction of any SolarWindowTM products we develop. Accordingly, the speed with which we can develop our SolarWindow™ products, complete safety approvals processes and ultimately supply commercial quantities of any products we develop to the market is expected to be an important competitive factor. Our competitive position will also depend upon our ability to attract and retain qualified personnel, to obtain patent protection or otherwise develop proprietary products or processes, and to secure sufficient capital resources for the often substantial period between technological conception and commercial sales.

 

Competition for MotionPower™ Technology and Products

 

  Currently, there are no commercially marketed vehicle energy harvesting devices available for sale in the U.S. and there is no formally recognized vehicle energy harvesting industry. Therefore, to the best of our knowledge, our MotionPower™ technology does not currently face any substantive, direct competition from any commercially available vehicle energy harvester.

 

  Other than our efforts, to our knowledge there are only three small, privately-held companies developing vehicle energy harvesters. Unlike our MotionPower™ technology for cars, light trucks, and heavy long-haul vehicles, these other technologies appear primarily directed to heavy trucks only.

 

·

AEST Incorporated – is purportedly developing its “Dragon Power Station” technology for installation where heavy trucks drive over a series of plates embedded in the roadway. The motion of the plates creates a pumping action of hydraulic fluids which subsequently turn a generator, ultimately producing electricity. To date, there is only one publicly-disclosed Dragon Power Station installation of which we are aware.

·

KinergyPowerUSA – is purportedly developing its “Energy Carpet” technology for installation where heavy trucks drive over a series of slats. A number of underlying, interconnected micro- sized pistons pump hydraulic fluids to turn a generator, ultimately producing electricity. To date, there are no publicly-disclosed Energy Carpet installations of which we are aware.

·

Highway Energy Systems Ltd. – a UK based company is purportedly developing an energy-harvesting device.

 

 
12

 

  The foregoing information regarding each of AEST Incorporated and KinergyPower USA was obtained from their respective web sites. The foregoing information regarding Highway Energy Systems Ltd. was obtained from an article published in The Wall Street Journal dated February 28, 2011.

 

  These companies’ systems rely on vehicle weight to depress elaborate piston configurations situated beneath slats or plates which hydraulically pump fluids to electrical generators. We believe these methods are substantially different from our MotionPower™ technology which makes use of otherwise wasted kinetic energy when cars and trucks slow down. Unlike these other systems, our MotionPower™ technology does not require many moving mechanical parts, which we believe make it less vulnerable to mechanical failure.

 

  We also anticipate that competition could grow if first-generation energy harvesting technologies designed to capture human kinetic energy and other such small-scale devices begin to gain commercial acceptance. Such devices could potentially be re-engineered to capture the kinetic energy of moving vehicles.

 

  There can be no assurance new competitors will not succeed in developing products that are more effective than our MotionPower™ technology, therefore rendering our products, if any, obsolete and non-competitive. In addition to our research and development efforts, we have undertaken a public relations/advertising program designed to establish our “brand” name recognition early on in our corporate development, as described under “—Competition for Solar Window™ Technology and Products.” We intend to continue to develop and market our brand name pending commercialization of our MotionPower™ products, if ever successfully developed. We believe our strategy ultimately will assist the marketing, distribution and public acceptance of any MotionPower™ Technology products we develop.

 

  Competition with respect to our technologies is and will be based, among other things, on safety, reliability, availability, price, marketing, distribution and patent position. Our competitive position will also depend upon our ability to attract and retain qualified personnel, to obtain patent protection or otherwise develop proprietary products or processes, and to secure sufficient capital resources for the often substantial period between technology development and commercial sales.

 

Proprietary Assets

 

SolarWindowTM

 

  Our SolarWindow™ technology is the subject of forty-two (42) patent filings.

 

MotionPowerTM

 

  Our MotionPower™ technology is the subject of fifty-nine (59) patent filings.

 

Government Regulation

 

SolarWindow™

 

  Our SolarWindow™ technology may be subject to certain government regulations. Our ability to remain viable will depend on favorable government decisions at various stages of the technology’s development by various agencies. From time to time, legislation is introduced that could significantly change the statutory provisions governing our research and development processes, as well as approval of the manufacturing and marketing of any products derived from such research and development activities.

 

  The production and marketing of SolarWindow™ technology derived products would be subject to existing safety regulations and may be subject to yet unknown regulations.

 

 
13

 

  Current safety requirements for electrical products can include, but may not be limited to, Occupational Safety and Health Administration regulations, National Electrical Code as approved as an American National Standard by the American National Standards Institute or ANSI/NFPA-70, certification by Underwriters Laboratories and the Society of Automotive Engineers, and compliance with local building codes. These regulations are subject to change, and our ability to remain viable is contingent upon successfully satisfying regulatory requirements as stipulated by these agencies and/or others as the development of our SolarWindow™ technology evolves.

 

MotionPower™

 

  Our MotionPower™ technology may be subject to certain government regulations. Our ability to remain viable will depend on favorable government decisions at various stages of the technology’s development by various agencies. From time to time, legislation is introduced that could significantly change the statutory provisions governing our research and development processes, as well as approval, manufacture and marketing of any products derived from such research and development activities.

 

  The production, marketing, and installation of our MotionPower™ technology products may be construed by regulatory agencies as a new technology for roadway implementation, which could be subject to existing safety regulations and may be subject to yet unknown regulations.

 

  Current safety requirements for electrical products can include, but may not be limited to, Occupational Safety and Health Administration regulations, National Electrical Code as approved as an American National Standard by the American National Standards Institute or ANSI/NFPA-70, certification by Underwriters Laboratories and the Society of Automotive Engineers, and compliance with local roadway safety legislation. These regulations are subject to change, and our ability to remain viable is contingent upon successfully satisfying regulatory requirements as stipulated by these agencies and/or others as the development of our MotionPower™ technology evolves.

 

Employees

 

  As of August 31, 2014, we had three full time employees, Mr. John A. Conklin, President, Chief Executive Officer and Chief Financial Officer; Dr. Scott Hammond, Principal Scientist and Briana Erickson, Manager of Business Operations & Communication.

 

ITEM 2. PROPERTIES

 

  Our corporate office is located at 10632 Little Patuxent Parkway, Suite 406, Columbia, Maryland 21044. On December 1, 2010, we renewed our sublease agreement on a month-to-month basis with MVP Law Group, P.A., of which our former Chief Executive Officer and President is a founder and former managing attorney. Rent for this office space is $1,100 per month.

 

ITEM 3. LEGAL PROCEEDINGS

 

  We are not party to nor are we aware of any material pending lawsuit, litigation or proceeding.

 

 
14

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

  Our common stock is quoted on the OTCQB under the symbol “NENE”. Our warrants to purchase common stock are not currently traded on any market.

 

  The following table sets forth the high and low bid quotations of our common stock for each quarter during the past two fiscal years as reported by the OTCQB:

 

               

  High     Low  
         

Fiscal Year Ended August 31, 2014

       

First Quarter 2014 (September 1 – November 30, 2013)       

 

$

3.31

   

$

1.85

 

Second Quarter 2014 (December 1, 2013 – February 28, 2014)     

 

$

2.95

   

$

2.30

 

Third Quarter 2014 (March 1 – May 31, 2014)       

 

$

2.56

   

$

1.94

 

Fourth Quarter 2014 (June 1 – August 31, 2014)     

 

$

2.04

   

$

1.50

 
               

Fiscal Year Ended August 31, 2013

               

First Quarter 2013 (September 1 – November 30, 2012)       

 

$

1.30

   

$

0.80

 

Second Quarter 2013 (December 1, 2012 – February 28, 2013)     

 

$

1.68

   

$

0.76

 

Third Quarter 2013 (March 1 – May 31, 2013)     

 

$

2.57

   

$

1.22

 

Fourth Quarter 2013 (June 1 – August 31, 2013)     

 

$

2.17

   

$

1.67

 

 

  As of November 5, 2014, there were approximately 38 stockholders of record of our common stock. A portion of our common stock is held in “street name” or by beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions.

 

Dividend Policy

 

  We have not paid any dividends on our common stock and our Board of Directors (the “Board”) presently intends to continue a policy of retaining earnings, if any, for use in our operations. The declaration and payment of dividends in the future, of which there can be no assurance, will be determined by the Board in light of conditions then existing, including earnings, financial condition, capital requirements and other factors. The Nevada Revised Statutes prohibit us from declaring dividends where, if after giving effect to the distribution of the dividend:

 

 

·

We would not be able to pay our debts as they become due in the usual course of business; or

 

·

Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.

 

  Except as set forth above, there are no restrictions that currently materially limit our ability to pay dividends or which we reasonably believe are likely to limit materially the future payment of dividends on common stock.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

  The following sets forth certain information regarding the common stock that may be issued upon the exercise of options, warrants and other rights that have been or may be granted to employees, directors or consultants under all of our existing equity compensation plans. The 2006 Incentive Stock Option Plan (see below) is our only equity based compensation plan as of August 31, 2014.

 

 
15

 

2006 Incentive Stock Option Plan (Equity Compensation Plan Approved by Security Holders)

 

  On October 10, 2006, our Board adopted and approved, and on February 7, 2011, a majority of our shareholders approved, our 2006 Incentive Stock Option Plan (the “2006 Plan”) that provides for the grant of stock options to employees, directors, officers and consultants. The 2006 Plan provides for the granting of options to purchase a maximum of 5,000,000 shares of our common stock. Stock options granted to employees under the 2006 Plan generally vest over two to five years or as otherwise determined by the plan administrator. Stock options to purchase shares of our common stock expire no later than ten years after the date of grant.

 

  The per share exercise price for each stock option is determined by the Board and may not be below the closing price of our common stock on the date of grant, or, if our common stock is not traded on the date of grant, the first day of active trading following the date of grant.

 

  We measure all stock-based compensation awards using a fair value method on the date of grant and recognize such expense in our consolidated financial statements over the requisite service period. We use the Black-Scholes option pricing model to calculate the fair value of stock option grants. The Black-Scholes option pricing model requires management to make assumptions regarding the option lives, expected volatility, and risk-free interest rates, all of which impact the fair value of the option and, ultimately, the expense that will be recognized over the life 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. We do not anticipate declaring dividends in the foreseeable future. Volatility is calculated based on the historical weekly closing stock prices for the same period as the expected life of the option. We use the “simplified” method for determining the expected term of our “plain vanilla” stock options. We recognize compensation expense for only the portion of stock options that are expected to vest. Therefore, we apply 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 us, additional adjustments to compensation expense may be required in future periods.

 

Plan Category

  Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
    Weighted-average exercise price of outstanding options, warrants and rights
(b)
    Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
 

Equity compensation plans approved by security holders (1)

 

1,325,837 (2)

 

 

$

2.68

   

3,347,496

 

Equity compensation plans not approved by security holders

   

--

     

--

     

--

 

Total

   

1,325,837

   

$

2.68

     

3,347,496

 

________________

(1) Consists of grants under the 2006 Plan.

 

(2) Please refer to ITEM 8, Financial Statements “NOTE 4 - STOCK OPTIONS,” “ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE,” and “ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.”

 

Recent Sales of Unregistered Securities

 

  All funds received from the sale of our shares were used for working capital purposes. All shares bear a legend restricting their disposition. The foregoing securities may not be offered or sold in the United States unless registered under the Act, or pursuant to an exemption from registration.

 

 
16

 

  The shares were issued in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). Each investor took his securities for investment purposes without a view to distribution and had access to information concerning us and our business prospects, as required by the Securities Act. In addition, there was no general solicitation or advertising for the purchase of our shares. Our securities were sold only to an accredited investor and a limited number of sophisticated investors, as defined in the Securities Act with whom we had a direct personal preexisting relationship, and after a thorough discussion. Finally, our stock transfer agent has been instructed not to transfer any of such shares, unless such shares are registered for resale or there is an exemption with respect to their transfer.

 

  Each purchaser was provided with access to our filings with the United States Securities and Exchange Commission (the “SEC”), including the following:

 

 

·

Our annual report to stockholders for the most recent fiscal year, the definitive proxy statement filed in connection with that annual report, and, if requested by the purchaser in writing, a copy of our most recent Form 10-K under the Exchange Act of 1934, as amended (the “Exchange Act”).

 

·

The information contained in an annual report on Form 10-K under the Exchange Act.

 

·

The information contained in any reports or documents required to be filed by New Energy Technologies, Inc. under sections 13(a), 14(a), 14(c), and 15(d) of the Exchange Act since the distribution or filing of the reports specified above.

 

·

A brief description of the securities being offered, the use of the proceeds from the offering, and any material changes in our affairs that are not disclosed in the documents furnished.

 

During the year ended August 31, 2014, we entered into the following securities related transactions:

 

 

1.

In connection with the October 7, 2013 Bridge Loan Agreement we issued a Series I Stock Purchase Warrant (the “Series I Warrant”) to purchase up to 921,875 shares of our common stock, which is exercisable through October 6, 2018.(2)

  2.

Mr. Conklin, Chief Executive Officer received 81,899 shares of common stock upon the cashless exercise of 190,000 vested options.(1)

 

3.

Each director was issued 10,000 shares for a total issuance of 30,000 shares of common stock valued at $2.90 per share, the fair market value of the Company’s common stock on the date of issuance. (1)

 

  During the year ended August 31, 2013, we entered into the following securities related transactions:

 

 

1.

We completed a self-directed registered offering of 1,875,000 units at a price of $0.64 per unit for $1,200,000 in aggregate proceeds. Each unit consisted of one share of our common stock and one-half Series H Stock Purchase Warrant (the “Series H Warrants”) 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 Company issued Series H Warrants to purchase up to 937,503 shares of common stock as part of the registered offering.(1)

 

2.

Investors in our registered offering received 7,812 shares of common stock upon the exercise of 7,812 Series H Warrants for aggregate gross proceeds of $6,484.(1)

 

3.

We issued 1,650,869 shares of restricted common stock upon the conversion of $1,000,000 of principal and $56,556 of accrued interest related to the April 17, 2012, Bridge Loan (the “2012 Bridge Loan”).(2)

 

4.

We issued a Series H Warrant to purchase up to 825,435 shares of our common stock to 1420524 Alberta Ltd. as part of the conversion of the 2012 Bridge Loan.(2)

 

5.

Mr. Conklin, our Chief Executive Officer received 22,672 shares of common stock upon the cashless exercise of 63,333 vested options.

 

  During the year ended August 31, 2012, in connection with the 2012 Bridge Loan Agreement, we issued a Series G Stock Purchase Warrant (the “Series G Warrant”) to purchase up to 625,000 shares of our common stock, which is exercisable through April 17, 2015.(2)

_________________

(1) See “Note 3 – Common Stock and Warrants” under ITEM 8, Financial Statements, for additional information.

 

(2) See “Note 2 - Convertible Promissory Notes” under ITEM 8, Financial Statements, for additional information.

 

 
17

 

Additional Information

 

  Copies of our annual reports, quarterly reports, current reports, and any amendments to those reports, are available free of charge on the internet at www.sec.gov. All statements made in any of our filings, including all forward-looking statements, are made as of the date of the document(s) in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

  The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the consolidated results of operations and financial condition of New Energy Technologies, Inc. and its subsidiaries. The MD&A is provided as a supplement to, and should be read in conjunction with financial statements and the accompanying notes to the financial statements included in this Form 10-K.

 

  Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

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 change our name to New Energy Technologies, Inc. Our wholly owned subsidiaries include: Kinetic Energy Corporation, which was incorporated on June 19, 2008, in the State of Nevada and holds the patents related to our MotionPower™ technology and New Energy Solar Corporation, which was incorporated on February 9, 2009, in the State of Florida and has entered into agreements with USF to sponsor research related to our SolarWindow™ technology.

 

  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 collectively the subject of one hundred and one (101) 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 applied to glass and plastics. Our SolarWindow™ technology is the subject of forty-two (42) 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 fifty-nine (59) 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™ 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.

 

 
18

 

  We cannot accurately predict the amount of funding or the time required to successfully commercialize either the SolarWindow™ 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 August 31, 2014, we had negative working capital of $74,216 and cash of $785,237. Based upon our current level of operations and expenditures, we believe that cash on hand should be sufficient to enable us to continue operations through December 31, 2014. Management recognizes that in order for us to meet our capital requirements, and continue to operate, additional financing will be necessary. We expect to raise additional funds through private or public equity investment in order to expand the range and scope of its 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.

 

Research and Related Agreements

 

  We are a party to certain agreements related to the development of our SolarWindow™ and MotionPower™ technology.

 

SolarWindow™ Technology

 

Stevenson-Wydler Cooperative Research and Development Agreement with the Alliance for Sustainable Energy

 

  In efforts to advance the commercial development of the SolarWindow™ technology, on March 18, 2011, we entered into a CRADA with Alliance for Sustainable Energy, LLC (“Alliance”), the operator of NREL under its U.S. Department of Energy contract. Under terms of the CRADA, NREL researchers will make use of our 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, we agreed to reimburse 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.

 

  On January 16, 2013, we entered into a modification to the CRADA for the purpose of extending the date pursuant to which NREL’s researchers will make use of our exclusive IP and NREL’s background IP. As part of the extension, we advanced $150,000 to Alliance as a retainer, which will be used once the development goals are met. Until such time, however, Alliance bills us monthly for R&D related costs as they are incurred.

 

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

 

 

·

Further improving SolarWindow™’s efficiency and transparency;

 

·

Optimizing electrical power (current and voltage) output;

 

·

Optimizing the application of the active layer coatings which make it possible for SolarWindow™ to generate electricity on glass surfaces;

 

·

Developing improved electricity-generating coatings by enhancing performance, processing, reliability, and durability;

 

·

Optimizing SolarWindow™ performance on flexible substrates; and

 

·

Developing high speed and large area roll-to-roll (R2R) and sheet-to-sheet (S2S) coating methods required for commercial-scale BIPV and windows.

 

 
19

 

University of South Florida Research Foundation, Inc. License Agreement, Option Agreement, 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 USF. These agreements provide for our support of a project relating to the development of the SolarWindow™ technology and grant us an exclusive worldwide commercial license under certain patents relating to the SolarWindow™ technology developed at USF.

 

  On July 5, 2011, we entered into a letter agreement pursuant to which we agreed to reimburse USF for 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, we 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 us 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, we 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 we fail 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 us to extend the date of the Sponsored Research Agreement. We mutually agreed with USF to terminate the sponsored research on February 23, 2013, as the scope of work of the sponsored research had been substantially completed. We are in the process of negotiating terms to a new world-wide licensing agreement for completed research and related patent filings.

 

MotionPower™ Technology

 

Sigma Design Agreement

 

  Through KEC, we were party to consulting agreements with Sigma Design Company, LLC (“Sigma”) a Middlesex, New Jersey based engineering and design firm, pursuant to which Sigma was contracted to provide engineering, product development and testing services primarily relating to the development of the MotionPower™ technologies. On, or about July 15, 2013, Sigma completed its MotionPower™ development and testing services.

 

Results of Operations

 

Year Ended August 31, 2014 Compared with the Year Ended August 31, 2013

 

Operating Expenses

 

  A summary of our operating expense for the years ended August 31, 2014 and 2013 follows:

 

    Year ended August 31,     Increase /     Percentage  
    2014     2013     (Decrease)     Change  

Operating expense

               

Selling, general and administrative

 

$

1,960,854

   

$

1,502,581

   

$

458,273

   

30

 

Research and development

   

620,634

     

356,877

     

263,757

     

74

 

Stock compensation

   

431,422

     

1,383,264

   

(951,842

)

 

(69

)

Total operating expense

 

$

3,012,910

   

$

3,242,722

   

$

(229,812

)

 

(7

)

 

Selling, General and Administrative

 

  Selling, general and administrative 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 increase is due to an increase in professional fees and public company costs primarily related to fees paid to publicize our SolarWindow™ and MotionPower™ technologies within the industry and investor community offset by decreased expenses related to personnel and travel.

 

 
20

 

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, contract services and other costs. R&D costs are expensed when incurred, except for non-refundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed.   R&D costs increased during 2014 as a result of increasing SolarWindow™ research and development activities.

 

Stock Compensation

 

  Expense associated with equity based transactions is calculated and expensed in our financial statements as required pursuant to various accounting rules and is non-cash in nature. Stock compensation represents the expense associated with the amortization of our stock options, issuance of restricted common stock and issuance of warrants to purchase our common stock. Stock compensation expense decreased in 2014 primarily due to the current year reversal of $324,781 of expense associated with the forfeiture of Mr. Conklin’s stock options that were issued to him on August 9, 2010 pursuant to his previous employment agreement and the prior year inclusion of $1,059,038 recognized upon the issuance of Series H Warrants granted as an inducement to convert a $1,000,000 bridge loan into shares of common stock offset by the January 1, 2014 grant of stock options to Mr. Conklin.

 

Other Income (Expense)

 

  A summary of our other income (expense) for the years ended August 31, 2014 and 2013 follows:

 

    2014     2013     Change  

Other income (expense)

           

Interest expense

 

$

(193,151

)

 

$

(30,325

)

 

$

(162,826

)

Interest expense - accretion of debt discount

 

(686,320

)

 

(999,485

)

   

313,165

 

Total other income (expense)

 

$

(879,471

)

 

$

(1,029,810

)

 

$

150,339

 

 

Interest Expense

 

  “Interest expense” relates to the stated interest of our convertible promissory notes. “Interest expense - accretion of debt discount” represents the accretion of the discount applied to our notes as a result of the issuance of detachable warrants and the beneficial conversion feature contained our notes calculated according to the effective interest method. The amounts under the 2014 column relate to the $3 million Note and the amounts under the 2013 column relate to the 2012, $1 million bridge loan.

 

Liquidity and Capital Resources

 

  We have an accumulated deficit of $20,946,270 through August 31, 2014. Included in the deficit are non-cash expenses totaling $5,738,112 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 OPV 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 be necessary. We expect to raise additional funds through private or public equity investment in order to maintain and/or expand the range and scope of our business operations. However, there is no assurance that such additional funds will be available for us on acceptable terms, if at all. If we are unable to raise additional capital when needed 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.

 

 
21

 

 

  Our principal source of liquidity is cash in the bank. At August 31, 2014, we had a cash and cash equivalent balance of $785,237. We have financed our operations primarily from the sale of equity securities as follows:

 

 

·

$1,000,000 received in 2012 pursuant to the 2012 Bridge Loan;

 

·

$1,200,000 received in 2013 from the consummation of a self-directed registered offering of common stock and Series H Warrants on February 1, 2013; and

 

·

$3,000,000 received on October 7, 2013 from the issuance of an unsecured, convertible promissory note bearing an annual interest rate of 7% (the “2013 Note”) in that amount.

 

  Net cash used in operating activities was $2,545,379 for the year ended August 31, 2014, compared to net cash used in operating activities of $1,905,909 for the year ended August 31, 2013. The increase in cash used in operating activities of $639,470 substantially reflects increases in amounts paid for research and development and public company marketing expenses.

 

Net cash used in investing activities was $16,877 for the year ended August 31, 2014, compared to net cash used in investing activities of $0 for the year ended August 31, 2013. The increase in cash used in operating activities substantially reflects increases in amounts paid for research and development equipment.

 

  Net cash provided by financing activities was $3,000,000 for the year ended August 31, 2014, compared to $1,206,484 for the year ended August 31, 2013. Cash provided by financing activities in 2014 was from the 2013 Note and in 2013 from the February 1, 2013 self-directed registered offering of common stock and exercise of warrants.

 

Other Contractual Obligations

 

  In addition to our contractual obligations under the research agreements, as of August 31, 2014, we have lease payments of $1,100 each month under our month-to-month corporate and other office operating leases. In addition, we have future payments totaling $6,500 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

 

  See Note 1 to our Consolidated Financial Statements for more information regarding recent accounting pronouncements and their impact to our consolidated results of operations and financial position.

 

 
22

 

ITEM 8. FINANCIAL STATEMENTS

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

  Page  

 

   

Report of Independent Registered Public Accounting Firm

 

24

 
       

Consolidated Balance Sheets as of August 31, 2014 and 2013

   

25

 
       

Consolidated Statements of Operations for the Years Ended August 31, 2014 and 2013

   

26

 
       

Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended August 31, 2014 and 2013

   

27

 
       

Consolidated Statements of Cash Flows for the Years Ended August 31, 2014 and 2013

   

28

 
       

Notes to Consolidated Financial Statements

   

29

 

 

 
23

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

New Energy Technologies, Inc.

Columbia, Maryland

 

We have audited the accompanying consolidated balance sheets of New Energy Technologies, Inc. and Subsidiaries ("the Company") as of August 31, 2014 and 2013, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Energy Technologies, Inc. and Subsidiaries as of August 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company does not have positive cash flows from operating activities, and has a substantial accumulated deficit. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/S/ PETERSON SULLIVAN LLP

 

Seattle, Washington

November 14, 2014

 

 
24

 

NEW ENERGY TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2014 AND 2013

 

    August 31,  
    2014     2013  
ASSETS
Current assets        
Cash and cash equivalents   $ 785,237     $ 347,493  
Deferred research and development costs     150,000       150,000  
Prepaid expenses and other current assets     14,257       22,379  
Total current assets     949,494       519,872  
               
Equipment, net of accumulated depreciation of $18,128 and $12,025, respectively     24,597       13,823  
Total assets   $ 974,091     $ 533,695  
               
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
Current liabilities                
Accounts payable   $ 144,239     $ 122,356  
Interest payable     193,151       -  
Convertible promissory note, net of discount of $2,313,680 as of August 31, 2014     686,320       -  
Total current liabilities     1,023,710       122,356  
               
Commitments and contingencies                
               
Stockholders' equity (deficit)                
Preferred stock: $0.10 par value; 1,000,000 shares authorized, no shares issued and outstanding     -       -  
Common stock: $0.001 par value; 300,000,000 shares authorized, 24,306,612 and 24,194,713 shares issued and outstanding at August 31, 2014 and 2013, respectively     24,306       24,194  
Additional paid-in capital     20,872,345       17,441,034  
Retained earnings (deficit)   (20,946,270 )   (17,053,889 )
Total stockholders' equity (deficit)   (49,619 )     411,339  
Total liabilities and stockholders' equity (deficit)   $ 974,091     $ 533,695  

 

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

 

 
25

 

NEW ENERGY TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 2014 AND 2013

 

    Years Ended August 31,  
    2014     2013  
         
Revenue  

$

-    

$

-  
               
Operating expense                
Selling, general and administrative     2,392,276       2,885,845  
Research and development     620,634       356,877  
Total operating expense     3,012,910       3,242,722  
               
Loss from operations   (3,012,910 )   (3,242,722 )
               
Other income (expense)                
Interest expense   (193,151 )   (30,325 )
Interest expense - accretion of debt discount   (686,320 )   (999,485 )
Total other income (expense)   (879,471 )   (1,029,810 )
               
Net loss   $ (3,892,381 )   $ (4,272,532 )
               
Basic and Diluted Loss per Common Share   $ (0.16 )   $ (0.19 )
               
Weighted average number of common shares outstanding - basic and diluted     24,279,448       22,686,892  

 

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

 

 
26

 

NEW ENERGY TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED AUGUST 31, 2014 AND 2013

    Common Stock     Additional
Paid-in
    Retained Earnings     Total Stockholders' Equity  
    Shares     Amount     Capital     (Deficit)     (Deficit)  
Balance, August 31, 2012   20,638,360     $ 20,638     $ 13,798,282     $ (12,781,357 )   $ 1,037,563  
                                       
Stock based compensation due to common stock purchase options     -       -       334,305       -       334,305  
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  
Exercise of stock options     22,672       22     (22 )     -       -  
Issuance of common stock upon the exercise of Series H Warrants     7,812       8       6,476       -       6,484  
Expense related to issuance of Series H Warrants as inducement to convert the 2012 Promissory Note     -       -       1,059,038       -       1,059,038  
Net loss for the year ended August 31, 2013     -       -       -     (4,272,532 )   (4,272,532 )
Balance, August 31, 2013     24,194,713       24,194       17,441,034     (17,053,889 )     411,339  
                                       
Stock based compensation related to restricted stock issuance     30,000       30       86,970       -       87,000  
Stock based compensation due to common stock purchase options     -       -       701,396       -       701,396  
Reversal of stock based compensation due to forfeiture of stock options     -       -     (356,973 )     -     (356,973 )
Exercise of stock options     81,899       82     (82 )     -       -  
Discount on convertible promissory note due to detachable warrants     -       -       1,137,149       -       1,137,149  
Discount on convertible promissory note due to beneficial conversion feature     -       -       1,862,851       -       1,862,851  
Net loss for the year ended August 31, 2014     -       -       -     (3,892,381 )   (3,892,381 )
Balance, August 31, 2014     24,306,612     $ 24,306     $ 20,872,345     $ (20,946,270 )   $ (49,619 )

 

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

 

 
27

 

NEW ENERGY TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2014 AND 2013

 

    Years Ended August 31,  
    2014     2013  
Cash flows from operating activities        
Net loss   $ (3,892,381 )   $ (4,272,532 )
Adjustments to reconcile net loss to net cash used in operating activities                
Depreciation     6,103       6,143  
Stock based compensation expense     788,396       334,305  
Reversal of stock based compensation expense due to forfeiture of stock options   (356,973 )   (10,075 )
Warrants issued to note holder     -       1,059,038  
Accretion of debt discount     686,320       999,485  
Changes in operating assets and liabilities:                
Decrease (increase) in deferred research and development costs     -     (117,405 )
Decrease (increase) in prepaid expenses and other current assets     8,122       5,854  
Increase (decrease) in accounts payable     21,883       58,953  
Increase (decrease) in accrued liabilities     193,151       30,325  
Net cash used in operating activities   (2,545,379 )   (1,905,909 )
               
Cash flows from investing activity                
Purchase of equipment   (16,877 )     -  
Net cash used in investing activity   (16,877 )     -  
               
Cash flows from financing activities                
Proceeds from the issuance of common stock, exercise of warrants and stock options, net     -       1,206,484  
Proceeds from promissory notes     3,000,000       -  
Net cash provided by financing activities     3,000,000       1,206,484  
               
Increase (decrease) in cash and cash equivalents     437,744     (699,425 )
               
Cash and cash equivalents at beginning of period     347,493       1,046,918  
               
Cash and cash equivalents at end of period   $ 785,237     $ 347,493  
               
Supplemental disclosure of cash flow information:                
Interest paid in cash  

$

-    

$

-  
Income taxes paid in cash  

$

-    

$

-  
               
Supplemental disclosure of non-cash transactions:                
Debt discount recorded for value of warrants issued   $ 1,137,149    

$

-  
Debt discount recorded for beneficial conversion feature   $ 1,862,851    

$

-  
Common stock issued for conversion of note payable  

$

-     $ 1,056,556  

 

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

 

 
28

 

NEW ENERGY TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014 AND 2013

 

NOTE 1 - Organization, Recent Accounting Pronouncements, Going Concern and Summary of Significant Accounting Policies

 

Organization

 

New Energy Technologies, Inc. (the “Company”, “we”, “us”, “our”) 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, Kinetic Energy Corporation (“KEC”), and New Energy Solar Corporation (“New Energy Solar”).

 

KEC was incorporated on June 19, 2008, in the State of Nevada and holds the patents related to the Company’s MotionPower™ technology. The Company’s business activities related to the MotionPower™ technology are conducted through KEC.

 

New Energy Solar was incorporated on February 9, 2009, in the State of Florida and has entered into agreements with USF to sponsor research related to the Company’s SolarWindow™ technology.

 

On March 16, 2011, pursuant to a consent signed by the Company’s shareholders owning a majority of the Company’s then issued and outstanding shares of common stock, 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.

 

We are a renewable and alternative energy company developing two (2) sustainable electricity generating systems. These novel technologies are branded as SolarWindow™ and MotionPower™. The Company’s proprietary, patent-pending technologies and products are the subjects of one hundred and one (101) patent-filings, and have been invented, designed, engineered, and prototyped in preparation for further field testing, product development and eventual commercial deployment.

 

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 organic photovoltaic solar cells. Our SolarWindow™ technology is the subject of forty-two (42) patent filings. Initially being developed for application on glass surfaces, SolarWindow™ could potentially be used on any of the more than 85 million commercial and residential buildings in the United States alone.

 

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 fifty-nine (59) patent filings.

 

The Company’s product development programs involve ongoing research and development efforts, and the commitment of significant resources to support the extensive invention, design, engineering, testing, prototyping, and intellectual property initiatives carried-out by its contract engineers, scientists, and consultants.

 

The Company continues to assess the ongoing development and value propositions of its novel SolarWindow™ and MotionPower™ technologies. This assessment helps us strategically focus on specific technology development which best delivers significant long-term commercial competitive advantages.

 

 
29

 

Recent Accounting Pronouncements

 

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 to the Company, it has not identified any standards that it believes merit further discussion or will have a significant impact on its financial statements except as described below.

 

On June 10, 2014, accounting principles generally accepted in the United States were amended to remove the definition of a development stage entity thereby removing the financial reporting distinction between development stage entities and other reporting entities. In addition, the amendments eliminate the requirements for the Company to present inception-to-date information and to label the consolidated financial statements as those of a development stage entity. The amendments are effective for the Company’s consolidated financial statements as of August 31, 2016, and interim periods therein; however, early application of each of the amendments is permitted for any reporting period. The Company has adopted the amendments and no longer presents inception-to-date information in the statements of operations, statement of changes in stockholders’ deficit and statements of cash flows. In addition, the financial statements will no longer be labeled as those of a development stage entity.

 

Going Concern

 

The Company does not have any commercialized products and has not generated any revenue since inception. The Company has an accumulated deficit of $20,946,270 as of August 31, 2014, and does not have positive cash flows from operating activities. Included in the deficit are non-cash expenses totaling $5,738,112 relating to the issuance of stock for services, compensatory stock options, warrants granted for value and accretion of debt discounts. 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, 2014, 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. Currently, the Company is seeking additional financing but has no commitments to obtain any such financing, and there can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all.

 

As of August 31, 2014, the Company had cash of $785,237. Based upon its current and near term anticipated level of operations and expenditures, the Company believes that cash on hand should be sufficient to enable it to continue operations through December 31, 2014.

 

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.

 

 
30

 

Summary of Significant Accounting Policies

 

Principles of Consolidation

 

These consolidated financial statements presented are those of the Company and its wholly owned subsidiaries, KEC, and New Energy Solar. All significant intercompany balances and transactions have been eliminated.

 

Estimates

 

The preparation of the Company’s consolidated financial statements requires management to make estimates and use assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. On an on-going basis, the Company evaluates its estimates. Actual results and outcomes may differ materially from these estimates and assumptions.

 

Cash and Cash Equivalents

 

Cash and cash equivalents includes highly liquid investments with original maturities of three months or less. The Company has amounts deposited with financial institutions in excess of federally insured limits.

 

Fair Value Measurement

 

The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy which prioritizes the inputs used in the valuation methodologies in measuring fair value:

 

Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company has no assets or liabilities valued with Level 1 inputs.

 

Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company has no assets or liabilities valued with Level 2 inputs.

 

Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no assets or liabilities valued with Level 3 inputs.

 

Fair Value of Financial Instruments

 

The carrying value of cash and cash equivalents, accounts payable and accrued liabilities 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 our notes payable due to the complex terms. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

 

Research and Development

 

Research and development costs represent costs incurred to develop the Company’s technology, including salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, supplies, equipment purchase and repair and other costs. Research and development costs are expensed when incurred, except for nonrefundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed.

 

 
31

 

Stock-Based Compensation

 

The Company measures all employee stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite service period. The Company uses the Black-Scholes-Merton formula to determine the fair value of stock-based compensation awards on the date of grant. The Black-Scholes-Merton formula requires management to make assumptions regarding the option lives, expected volatility, and risk free interest rates. See “NOTE 3 – Common Stock and Warrants” and “NOTE 4 - Stock Options” for additional information on the Company’s stock-based compensation plans.

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized. The Company reports a liability for unrecognized tax benefits resulting from uncertain income tax positions, if any, taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest expense or other expense, respectively.

 

Segment Reporting

 

The Company’s business is considered to be operating in one segment based upon the Company’s organizational structure, the way in which the operations are managed and evaluated, the availability of separate financial results and materiality considerations.

 

Net Income (Loss) Per Share

 

The computation of basic earnings per share (“EPS”) is based on the weighted average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. The computation of diluted net income per share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on earnings per share. Therefore, when calculating EPS if the Company experienced a loss, there is no inclusion of dilutive securities as their inclusion in the EPS calculation is antidilutive. Furthermore, options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants (they are in the money). See “NOTE 5 - Net Loss Per Share” for further discussion.

 

NOTE 2 - Convertible Promissory Notes

 

April 17, 2012 $1,000,000 Bridge Loan

 

On April 17, 2012, the Company entered into a Bridge Loan Agreement (the “2012 Loan Agreement”) with 1420524 Alberta Ltd. (the “Creditor”), pursuant to which the Company borrowed $1,000,000 at an annual interest rate of 7% (the “2012 Loan”). As a condition to the Creditor’s entry into the 2012 Loan Agreement, the Company issued the Creditor a Series G Stock Purchase Warrant to purchase 625,000 shares of the Company’s common stock (the “Series G Warrant”), which is 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 OTC Markets Group Inc. QB tier (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. According to the original terms of the 2012 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 the Company’s 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 2012 Loan using the effective interest method.

 

 
32

 

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 2012 Loan into shares of common stock, and eliminate the Company’s obligation to repay the 2012 Loan in cash, the effective conversion price was reduced to $0.64 (the price at which the Company sold shares pursuant to its self-directed registered offering; see “NOTE 3 – Common Stock and Warrants” below) from the initial conversion price of $1.60. In addition, as part of the conversion, the Company issued to the Creditor a Series H Warrant to purchase 825,435 shares of the Company’s common stock (See “NOTE 3 – Common Stock and Warrants” 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 Warrant, and the conversion of the 2012 Loan, because the transaction did not meet the requirements for an inducement under accounting principles generally accepted in the United States. As such, the 2012 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 Warrant to the Creditor, representing additional financing costs associated with the 2012 Loan.

 

During the year ended August 31, 2013, the Company recognized $30,325 of interest expense related to the 2012 Loan and $999,485 of accretion related to the debt discount. As a result of the 2012 Loan conversion, the debt discount was fully amortized by February 1, 2013, the date of the LCA.

 

October 7, 2013 $3,000,000 Bridge Loan

 

On October 7, 2013 (the “Closing Date”), the Company entered into a Bridge Loan Agreement (the “2013 Loan Agreement”) with Kalen Capital Corporation (the “Investor”), a private corporation owning in excess of 10% of the Company’s issued and outstanding shares of common stock. Pursuant to the 2013 Loan Agreement, the Company received proceeds of $3,000,000 and issued a 7% unsecured Convertible Promissory Note (the “2013 Note”) due on October 6, 2014 (the 2013 Note has been amended, See “NOTE 8 – Subsequent Events”), with interest compounded quarterly and issued a Series I Stock Purchase Warrant (the “Series I Warrant”) allowing the holder to purchase up to 921,875 shares of the Company’s common stock at an initial exercise price of $1.37 for a period on five (5) years. The Series I Warrant is exercisable on a “cashless basis.” According to the original terms of the 2013 Loan Agreement, the Investor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the 2013 Note, and any or all accrued and unpaid interest thereon into units (collectively, the “Units”), with each Unit consisting of (a) one share of common stock; (b) one Series J Stock Purchase Warrant for the purchase of one share of common stock (the “Series J Warrant”); and (c) one Series K Stock Purchase Warrant for the purchase of one share of common stock (the “Series K Warrant”). The conversion price for each Unit is the lesser of (i) $1.37, with the exercise price of each Series J Warrant set at $1.47 and the exercise price of each Series K Warrant set at $1.57; or (ii) 70% of the 20 day average closing price of the Company’s common stock prior to conversion, subject to a floor of $1.00 with the exercise price of each Series J Warrant included in the Units issued upon conversion being equal to 107.3% of the unit exercise price and the exercise price of each Series K Warrant included in the Units issued upon conversion being equal to 114.6% of the unit exercise price.

 

Together with the 2013 Loan Agreement, the Company entered into (a) a Lock-Up Agreement whereby the Investor agreed not to sell any shares of common stock owned by the Investor, including any shares issued upon conversion of the Note or upon exercise of any warrants held by Investor, whether issued pursuant to this 2013 Loan Agreement or otherwise, for a period of one (1) year from the Closing Date (as defined in the 2013 Loan Agreement) and (b) a Registration Rights Agreement that requires the Company to prepare and file a registration statement on Form S-1 no later than the 90th day prior to the expiration of the Lock-Up Agreement covering the resale of all shares of common stock issuable upon conversion of any portion of the 2013 Note and the shares of common stock issuable upon exercise of the Series I, Series J and Series K Warrants.

 

The Company calculated the debt discount related to the 2013 Note and Series I Warrants by first allocating the respective fair value of the 2013 Loan and the Series I Warrants based upon their relative fair values to the total 2013 Note proceeds. The fair value of the Series I Warrants issued with the Note was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $2.12 per share; estimated volatility - 165.67%; risk free interest rate - 1.41%; expected dividend rate - 0% and expected life - 5.0 years. The resulting fair value of $1,137,149 was allocated to the Series I Warrants.

 

 
33

 

The intrinsic value of the beneficial conversion feature amounted to $1,862,851. The resulting $3,000,000 discount to the 2013 Note is being accreted over the one year term of the 2013 Note using the effective interest method.

 

During the year ended August 31, 2014, the Company recognized $193,151 of interest expense related to this 2013 Note and $686,320 of accretion related to the debt discount. The remaining debt discount of $2,313,680 will be amortized during the quarter ended November 30, 2014.

 

NOTE 3 – Common Stock and Warrants

 

Common Stock

 

At August 31, 2014, the Company had 300,000,000 authorized shares of common stock with a par value of $0.001 per share, with 24,306,612 shares of common stock outstanding and 3,347,496 shares reserved for issuance under the Company’s 2006 Long-Term Incentive Plan (the “2006 Plan”) (See “NOTE 4 - Stock Options”).

 

During the year ended August 31, 2014, the Company had the following common stock related transactions:

 

 

·

On November 11, 2013 and November 13, 2013, the Company issued a total of 81,899 shares of unrestricted common stock as a result of the cashless exercise of 190,000 stock options.

 

 

 
 

·

On January 28, 2014, the Company issued 10,000 shares of common stock to each of the Company’s three directors (30,000 shares total) valued at $2.90 per share, the closing price of the Company’s common stock on the day the stock was issued (See “NOTE 6 - Related Party Transactions” below for additional information).

 

During the year ended August 31, 2013, the Company had the following common stock related transactions:

 

 

·

On February 1, 2013, in full satisfaction of the 2012 Loan, the Company issued to the Creditor 1,650,869 shares of restricted common stock upon the conversion of the 2012 Loan, as adjusted in accordance with the terms of the LCA. Additionally, pursuant to the terms of the LCA, the Company issued to the Creditor 825,435 Series H Warrants and reduced the exercise price of the Series G Warrant to $0.64 (See “Note 2 - Convertible Promissory Notes” above for additional information).

 

 

 
 

·

On February 1, 2013, the Company completed a self-directed registered offering of 1,875,000 units at a price of $0.64 per unit for $1,200,000 in aggregate proceeds (the “Registered Offering”). Each unit consisted 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 Company issued 937,503 Series H Warrants as part of the Registered Offering. 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 Series H 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.

 

 

 
 

·

On March 21, 2013, the Company issued 7,812 shares of common stock upon the exercise of an equal number of Series H Warrants and received proceeds of $6,484.

 

 

 
 

·

On May 7, 2013, the Company issued 22,672 shares of unrestricted common stock as a result of the cashless exercise of 63,333 stock options

 

 
34

 

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 August 31, 2014 and 2013 is as follows:

 

 

  Shares of Common Stock Issuable from Warrants Outstanding as of      

 

Description

  August 31, 2014   August 31, 2013     Exercise Price  

Expiration

Series G

 

625,000

   

625,000

   

$

0.64

 

April 17, 2015

Series H

   

1,755,126

     

1,755,126

   

$

0.83

 

February 1, 2016

Series I

   

921,875

     

-

   

$

1.37

 

October 7, 2018

Total

   

3,302,001

     

2,380,126

           

 

The Series G Warrant was issued on April 17, 2012, as a condition to the Creditor entering into the 2012 Loan Agreement. 825,435 of the Series H Warrants were issued in connection with the 2012 Loan conversion. 929,691 of the Series H Warrants were issued on February 1, 2013, in connection with the self-directed registered offering of 1,875,000 units. The Series I Warrant was issued on October 7, 2013, in connection with the 2013 Loan Agreement. In addition, there are a total of 5,249,303 Series J Warrants and Series K Warrants issuable as described above. Additional disclosure related to the warrants is more fully described above under “NOTE 2 - Convertible Promissory Notes.”

 

During the year ended August 31, 2014 and 2013, the Company received $0 and $6,484, respectively, upon the exercise of 7,812 Series H Warrants by two warrant holders.

 

NOTE 4 - Stock Options

 

On October 10, 2006, the Company’s Board of Directors (the “Board”) adopted and approved the 2006 Incentive Stock Option Plan (the “2006 Plan”) that provides for the grant of stock options to employees, directors, officers and consultants. Stock option grants vest either immediately or over one to five years and expire ten years after the date of grant. Stockholders previously approved 5,000,000 shares for grant under the 2006 Plan, of which 3,347,496 remain available for grant and 326,667 options have been exercised as of August 31, 2014. All shares approved for grant and subsequently forfeited are available for future grant. The Company does not repurchase shares to fulfill the requirements of options that are exercised. The Company issues new shares when options are exercised.

 

The Company employs the following key weighted-average assumptions in determining the fair value of stock options, using the Black-Scholes option pricing model and the simplified method to estimate the expected term of “plain vanilla” options:

 

   

Years Ended August 31,

 
   

2014

   

2013

 

Expected dividend yield

 

   

 

Expected stock price volatility

 

154.0% – 154.5%

   

160.1% – 161.1%

 

Risk-free interest rate

 

2.21% – 2.41%

   

1.14% – 1.24%

 

Expected term (in years)

 

7.67

   

7.67

 

Exercise price

 

$

2.90

   

0.80 – $2.25

 

Weighted-average grant date fair-value

 

$

2.68

   

$

1.54

 

 

 
35

 

A summary of the Company’s stock option activity for the year ended August 31, 2014 and 2013 and related information follows:

 

    Number of Options     Weighted Average Exercise Price ($)     Weighted Average Remaining Contractual Term     Aggregate Intrinsic Value ($)  

Outstanding at August 31, 2012

 

861,671

   

2.10

         

Grants

   

177,500

     

1.59

                 

Exercises

 

(63,333

)

   

1.65

                 

Forfeitures

 

(5,000

)

   

3.27

                 

Outstanding at August 31, 2013

   

970,838

     

2.03

                 

Grants

   

805,000

     

2.90

                 

Exercises

 

(190,000

)

   

1.65

                 

Forfeitures

 

(260,001

)

   

1.69

                 

Outstanding at August 31, 2014

   

1,325,837

     

2.68

     

8.05 years

   

$

19,500

 

Exercisable at August 31, 2014

   

621,337

     

2.43

     

6.41 years

   

$

19,500

 

Available for grant at August 31, 2014

   

3,347,496

                         

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value for all “in-the-money” options (i.e. the difference between the Company’s closing stock price on the last trading day of the period covered by this report and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all in-the-money option holders exercised their vested options on August 31, 2014. The intrinsic value of the option changes based upon the fair market value of the Company’s common stock. Since the closing stock price was $1.50 on August 31, 2014 and 65,001 outstanding options have an exercise price below $1.50 per share, as of August 31, 2014, there is intrinsic value to the Company’s outstanding, in-the-money stock options.

 

The following table sets forth the share-based compensation cost resulting from stock option grants, including hose previously granted and vesting over time, that were recorded in the Company’s Consolidated Statements of Operations for the years ended August 31, 2014 and 2013 (excludes $87,000 of stock based compensation for restricted stock grants during the year ended August 31, 2014 described in “NOTE 3 - Common Stock and Warrants”):

 

    Years Ended August 31,  
    2014     2013  

Stock Compensation Expense:

       

Selling general and administrative expense

 

$

344,423

   

$

324,230

 

 

As of August 31, 2014, the Company had $699,763 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 3.5 years.

 

The following table summarizes information about stock options outstanding and exercisable at August 31, 2014:

 

 

 

 

Stock Options Outstanding

   

Stock Options Exercisable

 
Range of Exercise Prices     Number of Options Outstanding     Weighted Average Contractual Life (years)     Weighted Average Exercise Price     Number of Options Exercisable     Weighted Average Remaining Contractual Life (Years)     Weighted Average Exercise Price  

$

0.80

   

15,000

   

8.39

   

$

0.80

   

15,000

   

8.39

   

$

0.80

 
 

1.32

     

50,001

     

0.38

     

1.32

     

50,001

     

0.38

     

1.32

 
 

1.65

     

320,000

     

5.70

     

1.65

     

320,000

     

7.97

     

1.65

 
 

2.30

     

2,500

     

7.75

     

2.30

     

2,500

     

7.75

     

2.30

 
 

2.50

     

10,000

     

6.68

     

2.50

     

8,000

     

6.68

     

2.50

 
 

2.55

     

33,334

     

4.11

     

2.55

     

33,334

     

4.11

     

2.55

 
 

2.90

     

805,000

     

9.49

     

2.90

     

102,500

     

9.47

     

2.90

 
 

3.27

     

11,667

     

0.36

     

3.27

     

11,667

     

0.36

     

3.27

 
 

4.98

     

16,667

     

3.61

     

4.98

     

16,667

     

3.61

     

4.98

 
 

5.94

     

50,001

     

6.40

     

5.94

     

50,001

     

6.40

     

5.94

 
 

6.51

     

11,667

     

0.17

     

6.51

     

11,667

     

0.17

     

6.51

 
 

Total

     

1,325,837

     

8.05

   

$

2.68

     

621,337

     

6.14

   

$

2.43

 

 

 
36

 

NOTE 5 - Net Loss Per Share

 

During the years ended August 31, 2014 and 2013, the Company recorded a net loss. Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company has not included the effects of warrants, stock options and convertible debt on net loss per share for the past two fiscal years because to do so would be antidilutive.

 

Following is the computation of basic and diluted net loss per share for the years ended August 31, 2014 and 2013:

 

    Years Ended August 31,  
    2014     2013  
Basic and Diluted EPS Computation        
Numerator:        
Loss available to common stockholders'   $ (3,892,381 )   $ (4,272,532 )
Denominator:                
Weighted average number of common shares outstanding     24,279,448       22,686,892  
Basic and diluted EPS   $ (0.16 )   $ (0.19 )

 

The shares listed below were not included in the computation of diluted losses per share because to do so would have been antidilutive for the periods presented:

 

Convertible debt   2,624,651     -  
Warrants issuable upon conversion of debt (See "NOTE 2 - Convertible Promissory Notes" above)     5,249,303       -  
Warrants     3,302,001       2,380,126  
Stock options     1,325,837       970,838  

 

NOTE 6 - Related Party Transactions

 

A related party with respect to the Company is generally defined as any person (i) (and, if a natural person, inclusive of his or her immediate family) that holds 10% or more of the Company’s securities, (ii) that is part of the Company’s management, (iii) that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

 

For services rendered in the capacity of a Board member, non-employee Board members received $4,250 per quarter. New Board member compensation is pro rated in their first quarter. During the years ended August 31, 2014 and 2013, the Company incurred $38,250 and $59,618, respectively in cash based Board compensation.

 

 
37

 

The Company grants stock options and common stock for services rendered by certain individuals, including the Company’s non-employee directors and sole officer, Mr. Conklin. During the year ended August 31, 2014, the Company's three directors each received a grant of 30,000 stock options, Mr. Conklin received a grant of 700,000 stock options and each director was issued 10,000 shares of common stock (See “NOTE 3 – Common Stock and Warrants”) described as follows:

 

 

·

On January 27, 2014, pursuant to his employment agreement executed on January 1, 2014, John Conklin, CEO received a grant of 700,000 stock options. The 700,000 stock options granted on January 27, 2014 are exercisable at $2.90 per share, expire ten years from the date of grant, on January 27, 2024 and vest at the rate of 50,000 shares every six months beginning on June 30, 2014 through December 31, 2017 (4 years) for 400,000 options with the remaining 300,000 options vesting at such time as the Company shall have generated cumulative revenues of no less than $1,000,000 from the sale of a commercial product (“Performance Stock Options”). The stock option is further subject to the terms and conditions of a stock option agreement between the Company and Mr. Conklin. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that employee ceases to be one of the Company’s employees. Upon termination of such service, the employee will have 120 days to exercise vested stock options, if any. The grant date fair value of the stock option granted was $1,862,000, or $2.66 per share, with $1,064,000 related to the ratable vesting over 4 years of 400,000 stock options and $798,000 related to the 300,000 Performance Stock Options. The grant date fair value of the stock option was estimated using a Black-Scholes model containing the following assumptions: Exercise price of $2.90, Spot price of $2.75, dividend yield of 0%, volatility of 154.0%, risk-free rate of 2.21%, and term of 7.67 years. During the year ended August 31, 2014, the Company recognized $414,099 of expense related to this grant. Also, during 2014, the Company reversed compensation expense of $324,781 associated with 233,334 unvested performance based stock options originally granted to Mr. Conklin on August 9, 2010. The reversal was recorded when the Company determined it was no longer probable that the performance condition associated with the options would be achieved. The 233,334 performance based stock options were cancelled.

 

 

·

On January 9, 2014, the Board approved, and the Company granted, a stock option to each of the Company’s three directors to purchase 30,000 shares of its common stock at an exercise price of $2.90 per share, the fair market value of the Company’s common stock on the date of grant. Each stock option expires ten years from the date of grant, on January 9, 2024, and vests as follows: (a) 15,000 shares immediately on the date of grant, and (b) 15,000 shares on December 31, 2014. The stock options are further subject to the terms and conditions of a stock option agreement between the Company and each director. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that the director ceases to be one of the Company’s directors. Upon termination of such service, the director will have two years to exercise vested stock options, if any. The grant date fair value of each of the stock options granted to each of the Company’s directors was $84,300, or $2.81 per share, estimated using a Black-Scholes model containing the following assumptions: Exercise price / spot price of $2.90 per share, dividend yield of 0%, volatility of 154.5%, risk-free rate of 2.41%, and a term of 7.67 years. During the year ended August 31, 2014, the Company recognized $210,750 of expense related to this issuance.

 

 

 

·

On each of November 11, 2013 and November 13, 2013, 95,000 stock options (190,000 in the aggregate) were exercised by Mr. Conklin on a cashless basis resulting in the issuance of an aggregate of 81,899 shares of unrestricted common stock. Said shares were registered under Form S-8 filed with the Securities and Exchange Commission on February 28, 2013.

 

 

·

On October 31, 2013, Jatinder Bhogal resigned from the Board. As a result of his resignation, Mr. Bhogal forfeited 20,000 unvested stock options originally granted on January 23, 2013, and had vested 20,000 stock options with an exercise price of $1.65 per share. The Company recorded costs relating to stock based compensation totaling $64,386 related to the amortization of the fair value of this stock option grant, including the recognition of $8,049 and $56,337 of expense for the year ended August 31, 2014 and 2013, respectively. Since the stock option was forfeited prior to 20,000 options vesting, $32,192 previously recognized for stock based compensation was reversed in 2014, resulting in total stock based compensation expense related to Mr. Bhogal’s January 23, 2013, stock option grant of $32,194. In total, Mr. Bhogal has 70,001 of vested stock options which will be forfeited if not exercised prior to October 31, 2015.

 

 
38

 

During the year ended August 31, 2013, the following stock purchase option activity occurred with related parties:

 

 

·

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, its 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 year ended August 31, 2013, the Company recognized $225,349 of expense related to these four issuances.

 

 

 
 

·

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.

 

 

 
 

·

On May 7, 2013, 63,333 stock options were exercised by Mr. Conklin on a cashless basis resulting in the issuance of 22,672 shares of unrestricted common stock. Said shares were registered under Form S-8 filed with the Securities and Exchange Commission on February 28, 2013.

 

In total, during the years ended August 31, 2014 and 2013 the Company recognized net compensation expense related to stock options and restricted stock issued to the Company’s non-employee directors and executive of $392,743 and $304,249, respectively. These amounts include the reversal of compensation expense due to pre-vesting forfeitures.

 

The law firm of Sierchio & Company, LLP, of which Joseph Sierchio, one of the Company’s directors, is a principal, has provided counsel to the Company since its inception. In July 2008, the Company asked Mr. Sierchio to join the Company’s Board. During the years ended August 31, 2014 and 2013, the law firm of Sierchio & Company, LLP provided $137,814 and $128,924, respectively, of legal services. At August 31, 2014, the Company owed Sierchio & Company, LLP approximately $24,692 which is included in accounts payable.

 

On February 1, 2013, Kalen Capital Holdings LLC, a wholly owned subsidiary of Kalen Capital Corporation, a shareholder owning in excess of 10% of the Company’s issued and outstanding stock, purchased 1,843,750 shares of the Company’s common stock and a Series H Warrant to purchase 921,875 shares of the Company’s common stock for an aggregate purchase price of $1,180,000 pursuant to the registered public offering conducted by the Company (See “NOTE 3 – Common Stock and Warrants” above).

 

On October 7, 2013, the Company entered into the Loan Agreement with Kalen Capital Corporation, a private corporation owning in excess of 10% of the Company’s issued and outstanding shares of common stock. In connection with the Loan Agreement, the Company issued a $3,000,000 Note and Series I Warrants (see “NOTE 2 - Convertible Promissory Notes” 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.

 

 
39

 

NOTE 7 - Income Taxes

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets at August 31, 2014 and 2013 are as follows:

 

    2014     2013  

Deferred tax assets:

       

Net operating loss carryforwards

 

$

4,421,974

   

$

3,404,418

 

Capitalized research and development

   

993,062

     

836,568

 

Depreciation

 

(2,625

)

 

(4,700

)

Stock based compensation

   

1,276,788

     

1,130,104

 

Research and development credit carry forward

   

256,417

     

206,715

 

Total deferred tax assets

   

6,945,616

     

5,573,105

 

Less: valuation allowance

 

(6,945,616

)

 

(5,573,105

)

Net deferred tax asset

 

$

-

   

$

-

 

 

The net increase in the valuation allowance for deferred tax assets was $1,372,511 and $1,482,268 for the years ended August 31, 2014 and 2013, respectively. The Company evaluates its valuation allowance requirements on an annual basis based on projected future operations. When circumstances change and this causes a change in management’s judgment about the realizability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current operations.

 

For federal income tax purposes, the Company has net U.S. operating loss carry forwards at August 31, 2014 available to offset future federal taxable income, if any, of $13,005,807, which will fully expire by the fiscal year ended August 31, 2034. Accordingly, there is no current tax expense for the years ended August 31, 2014 and 2013. In addition, the Company has research and development tax credit carry forwards of $256,417 at August 31, 2014, which are available to offset federal income taxes and begin to expire during the fiscal year ending August 31, 2027.

 

The utilization of the tax net operating loss carry forwards may be limited due to ownership changes that have occurred as a result of sales of common stock.

 

The effects of state income taxes were insignificant for the years ended August 31, 2014 and 2013.

 

The following is a reconciliation between expected income tax benefit and actual, using the applicable statutory income tax rate of 34% for the years ended August 31, 2014 and 2013:

 

    2014     2013  

Income tax benefit at statutory rate

 

$

1,323,410

   

$

1,452,66

 

Non-deductible meals and entertainment

 

(601

)

 

(2,550

)

Research and development credit

   

49,702

     

32,157

 

Change in valuation allowance

 

(1,372,511

)

 

(1,482,268

)

 

$

-

   

$

-

 

 

The fiscal years 2012 through 2014 remain open to examination by federal authorities and other jurisdictions in which the Company operates.

 

 
40

 

NOTE 8 - Subsequent Events

 

On October 17, 2014, 3,906 Series H Warrants were exercised and 3,906 shares of common stock were issued in exchange for $3,242.

 

On November 10, 2014, the Company entered into an Amended Bridge Loan Agreement (the “2015 Loan Agreement”) with Kalen Capital Corporation (“Investor”) pursuant to which the Company and Investor amended the 2013 Loan Agreement by amending the 2013 Note to extend the maturity date to December 31, 2015 (the “Amended Note”). According to the terms of the 2015 Loan Agreement, the Investor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Amended Note, and any or all accrued and unpaid interest thereon into units of the Company’s equity securities (collectively, the “Units”), with each Unit consisting of (a) one share of common stock; and (b) one Series L Stock Purchase Warrant for the purchase of one share of common stock (the “Series L Warrant”). 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 Series L Warrant included in the Units issued upon conversion being equal to sixty percent (60%) of the 20 day average closing price of the Company’s common stock prior to conversion. The Series L Warrant will be exercisable for a period of five years from the date of issuance and will be exercisable on a cashless basis.

 

In order to induce Investor to enter into the 2015 Loan Agreement and extend the maturity date of the 2013 Note, the Company issued a Series J Warrant to purchase 3,110,378 shares of its common stock at an exercise price of $1.12 and a Series K Warrant to purchase 3,110,378 shares of its common stock at an exercise price of $1.20. Each of the Series J Warrant and Series K Warrant is exercisable through November 9, 2019 and contains a provision allowing the Investor to exercise the warrant on a cashless basis as further set forth therein. The number of shares issuable upon the exercise of the Series J Warrant and Series K Warrant is equal to the number of shares underlying the warrants issuable pursuant to the terms of the 2013 Loan Agreement whereby the conversion price for each unit (a unit consists of (a) one share of common stock; (b) one Series J Stock Purchase Warrant for the purchase of one share of common stock; and (c) one Series K Stock Purchase Warrant for the purchase of one share of common stock) is equal to $1.04, 70% of the 20 day average closing price of the Company’s common stock prior to conversion, subject to a floor of $1.00 with the exercise price of each Series J Warrant being equal to 107.3% of the unit exercise price and the exercise price of each Series K Warrant being equal to 114.6% of the unit exercise price.

 

 
41

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

(a) Evaluation of 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 Exchange Act, as of the end of the period covered by this annual report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of August 31, 2014, that our disclosure controls and procedures were effective such that the information required to be disclosed in our reports filed under the Exchange Act 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.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

  Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). 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 our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of August 31, 2014.

 

  This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permanently exempts non-accelerated filers (generally issuers with a public float under $75 million) from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002.

 

(c) Changes in 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.

 

 
42

  

ITEM 9B. OTHER INFORMATION

 

  On November 10, 2014, we entered into an Amended Bridge Loan Agreement (the “2015 Loan Agreement”) with Kalen Capital Corporation (“Investor”) pursuant to which we and Investor amended the 2013 Loan Agreement by amending the 2013 Note to extend the maturity date to December 31, 2015 (the “Amended Note”). According to the terms of the 2015 Loan Agreement, the Investor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Amended Note, and any or all accrued and unpaid interest thereon into units of the Company’s equity securities (collectively, the “Units”), with each Unit consisting of (a) one share of common stock; and (b) one Series L Stock Purchase Warrant for the purchase of one share of common stock (the “Series L Warrant”). The conversion price for each Unit is the lesser of (i) $1.37; or (ii) 70% of the 20 day average closing price of our common stock prior to conversion, subject to a floor of $1.00 with the exercise price of each Series L Warrant included in the Units issued upon conversion being equal to sixty percent (60%) of the 20 day average closing price of the Company’s common stock prior to conversion. The Series L Warrant will be exercisable for a period of five years from the date of issuance and will be exercisable on a cashless basis.

 

  In order to induce Investor to enter into the 2015 Loan Agreement and extend the maturity date of the 2013 Note, we issued a Series J Warrant to purchase 3,110,378 shares of its common stock at an exercise price of $1.12 and a Series K Warrant to purchase 3,110,378 shares of its common stock at an exercise price of $1.20. Each of the Series J Warrant and Series K Warrant is exercisable through November 9, 2019 and contains a provision allowing the Investor to exercise the warrant on a cashless basis as further set forth therein. The number of shares issuable upon the exercise of the Series J Warrant and Series K Warrant is equal to the number of shares underlying the warrants issuable pursuant to the terms of the 2013 Loan Agreement whereby the conversion price for each unit (a unit consists of (a) one share of common stock; (b) one Series J Stock Purchase Warrant for the purchase of one share of common stock; and (c) one Series K Stock Purchase Warrant for the purchase of one share of common stock) is equal to $1.04, 70% of the 20 day average closing price of our common stock prior to conversion, subject to a floor of $1.00 with the exercise price of each Series J Warrant being equal to 107.3% of the unit exercise price and the exercise price of each Series K Warrant being equal to 114.6% of the unit exercise price.

 

 
43

  

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

DIRECTORS AND EXECUTIVE OFFICERS

 

  The following table sets forth the names and ages of all of our directors and executive officers. We have a Board comprised of three members. Each director holds office until a successor is duly elected or appointed. Executive officers serve at the discretion of the Board and are appointed by the Board. Also provided herein are brief descriptions of the business experience of each of the directors and officers during the past five years, and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities law.

 

Name

 

Age

 

Current Position With Us

 

Director or Officer Since

John A. Conklin

 

55

 

President, Chief Executive Officer and Chief Financial Officer, Director

 

August 9, 2010

Alastair Livesey

 

57

 

Director

 

September 19, 2007

Joseph Sierchio

 

65

 

Director

 

July 24, 2008

 

Biographical Information

 

  Set forth below are the names of all of our directors and executive officers, all positions and offices held by each person, the period during which each has served as such, and the principal occupations and employment of such persons during at least the last five years, and other director positions held currently or during the last five years:

 

Current Directors and Officers

 

  John A. Conklin. Mr. Conklin is founder of Tellurium Associates, LLC, an industrial and environmental process design and operations consulting company, and founder of National Solar Systems, LLC, a New York based renewable energy firm. Mr. Conklin has studied chemical engineering, chemical technology, and numerous industrial, safety and renewable energy programs. With 26 years of industrial process and renewable and alternative energy experience, Mr. Conklin has consulted regarding and overseen the technical and business requirements of over 50 technology, manufacturing and industrial companies, ranging from start-ups to Fortune 500 companies, including industry leaders such as Lockheed Martin and TDI Power, a global manufacturer of power systems. Mr. Conklin serves as our President and Chief Executive Officer and brings a combination of technical, business and hands-on alternative and renewable energy experience.

 

  Alastair Livesey. Dr. Livesey earned his B.A. in Science from the University of Cambridge in 1979, followed by an M.A. and Ph.D. in materials science from the Cavendish Physics Laboratory at the University of Cambridge in 1982 and 1984, respectively. From May 2001 to July 2007, Dr. Livesey was employed by Energy Conversion Devices, Inc. During his tenure at Energy Conversion Devices, Dr. Livesey held several positions, including Director of Integrated Hydrogen Energy Systems, Head of New Business Development and Strategic Planning, and Director, Cognitive Computer Business Development and Architecture Design. In these roles, he led projects involving product development and commercialization, strategic and business planning, new business development, joint venture partnerships, financing, human resources, information technology, and public relations across a diverse range of technologies including hydrogen storage, thin-film solar cells, advanced batteries, and fuel cells. From August 2007 to the present, Dr. Livesey has worked as an independent consultant in the alternative and renewable energy field. In April 2010, Dr. Livesey was appointed as the Managing Director of Diverse Energy Ltd, a UK firm developing and assembling fuel cell power plants to replace diesel generators. Dr. Livesey has subsequently left Diverse Energy and started a new company, Africa Power Ltd., to sell low-carbon and renewable power in Africa. Dr. Livesey was invited to join the Board due to, and we continue to benefit from, his experience with scientific research, and product and business development.

 

 
44

 

  Joseph Sierchio. Mr. Sierchio earned his J.D. at Cornell University Law School in 1974, and a B.A., with Highest Distinction in Economics from Rutgers College at Rutgers University in 1971. Mr. Sierchio has been engaged in the practice of law as a member of Sierchio & Company, LLP, our counsel, since May of 2007. Mr. Sierchio was engaged in the practice of law as a member of Sierchio Greco & Greco, LLP from January 2003 through May 2007. Prior thereto Mr. Sierchio was a partner at Eiseman Levine Learhaupt and Kakoyannis, PC. Since 1975, Mr. Sierchio has continuously practiced corporate and securities law in New York City, representing domestic and foreign corporations, investors, brokerage firms, entrepreneurs, and public and private companies in the U.S., Canada, United Kingdom, Germany, Italy, Switzerland, Australia, and Hong Kong. Mr. Sierchio is admitted in all New York state courts and federal courts in the Eastern, Northern, and Southern Districts of the State of New York as well as the federal Court of Appeals for the Second Circuit. Mr. Sierchio is also a director of the following reporting companies: Ceres Ventures, Inc., which is developing an internet based financial services platform linking entrepreneurs with potential investors and Janus Resources, Inc., which is engaged in the research and development of an organ regenerating technology. Mr. Sierchio was invited to join the Board due to his experience representing corporations (public and private) and individuals in numerous and various organizational, compliance, administrative, governance, finance (equity and debt private and public offerings), regulatory and legal matters.

 

  All of our directors are elected annually to serve for one year or until their successors are duly elected and qualified.

 

Family Relationships and Other Matters

 

  There are no family relationships among or between any of our officers and directors.

 

Legal Proceedings

 

  None of or directors or officers are involved in any legal proceedings as described in Regulation S-K (§229.401(f)).

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

  Because we do not have a class of equity securities registered pursuant to section 12 of the Exchange Act we are not required to make the disclosures required by Item 405 of Regulation SK.

 

CODE OF ETHICS

 

  We have adopted a Code of Ethics that applies to all of our officers, directors and employees, including our Chief Executive Officer and Chief Financial Officer. The Code of Ethics is designed to deter wrongdoing, and to promote, among other things, honest and ethical conduct, full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to the SEC, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations of the Code of Ethics, and accountability for adherence to the Code of Ethics. Our Code of Ethics is available on our website at http://www.newenergytechnologiesinc.com. To access our Code of Ethics, click on “Investors”, and then click on “Code of Ethics” located under “Corporate Governance.”

 

  A copy of our Code of Ethics may be obtained at no charge by sending a written request to our President and Chief Executive Officer, John A. Conklin, 10632 Little Patuxent Parkway, Suite 406, Columbia, Maryland 21044.

 

CORPORATE GOVERNANCE

 

  We have adopted Corporate Governance Guidelines applicable to our Board. Our Corporate Governance Guidelines are available on our website at http://www.newenergytechnologiesinc.com. To access our Corporate Governance Guidelines, click on “Investors,” and then click on “Corporate Governance Principles” located under “Corporate Governance.”

 

 
45

 

Director Independence

 

  We are not listed on a major U.S. securities exchange and, therefore, are not subject to the corporate governance requirements of any such exchange, including those related to the independence of directors. However, at this time, after considering all of the relevant facts and circumstances, our Board has determined that Mr. Livesey is independent from our management and qualifies as an “independent director” under the standards of independence of the FINRA listing standards. We do not currently have a majority of independent directors as required by the FINRA listing standards. Upon our listing on any national securities exchange or any inter-dealer quotation system, we will elect such independent directors as is necessary under the rules of any such securities exchange.

 

Board Leadership Structure

 

  We currently have only one executive officer and three directors. Our Board has reviewed our current Board leadership structure — which consists of a Chief Executive Officer and no Chairman of the Board — in light of the composition of the Board, our size, the nature of our business, the regulatory framework under which we operate, our stockholder base, our peer group and other relevant factors, and has determined that this structure is currently the most appropriate Board leadership structure for our company. Nevertheless, the Board intends to carefully evaluate from time to time whether our Chief Executive Officer and Chairman positions should be combined based on what the Board believes is best for us and our stockholders.

 

Board Role in Risk Oversight

 

  Risk is inherent in every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including strategic risks, enterprise risks, financial risks, and regulatory risks. While our management is responsible for day to day management of various risks we face, the Board, as a whole, is responsible for evaluating our exposure to risk and to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The Board reviews and discusses policies with respect to risk assessment and risk management. The Board also has oversight responsibility with respect to the integrity of our financial reporting process and systems of internal control regarding finance and accounting, as well as its financial statements.

 

Board of Directors Meetings, Committees of the Board of Directors, and Annual Meeting Attendance

 

  During the fiscal year ended August 31, 2014, the Board held a total of ten meetings. All members of the Board attended at least 90% of all meetings of the Board. We do not maintain a policy regarding director attendance at annual meetings and we did not have an annual meeting during the fiscal year ended August 31, 2014.

 

  We do not currently have any standing committees of the Board. The full Board is responsible for performing the functions of: (i) the Audit Committee, (ii) the Compensation Committee and (iii) the Nominating Committee.

 

Audit Committee

 

  The Board does not currently have a standing Audit Committee. The full Board performs the principal functions of the Audit Committee. The full Board monitors our financial reporting process and internal control system and reviews and appraises the audit efforts of our independent accountants.

 

Compensation Committee

 

  The Board does not currently have a standing Compensation Committee. The full Board establishes our overall compensation policies and reviews recommendations submitted by our management.

 

 
46

 

Nominating Committee

 

  The Board does not currently have a standing Nominating Committee. We do not maintain a policy for considering nominees. Our Bylaws provide that the number of Directors shall be fixed from time to time by the Board, but in no event shall be less than the minimum required by law. The Board should be large enough to maintain our required expertise but not too large to function efficiently. Director nominees are recommended, reviewed and approved by the entire Board. The Board believes that this process is appropriate due to the relatively small number of directors on the Board and the opportunity to benefit from a variety of opinions and perspectives in determining director nominees by involving the full Board.

 

  While the Board is solely responsible for the selection and nomination of directors, the Board may consider nominees recommended by stockholders as it deems appropriate. The Board evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although we do not have a policy regarding diversity, the Board does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. Stockholders who wish to recommend a nominee should send nominations to our Chief Executive Officer, John A. Conklin, 10632 Little Patuxent Parkway, Suite 406, Columbia, Maryland 21044, that include all information relating to such person that is required to be disclosed in solicitations of proxies for the election of directors. The recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected.

 

Compensation Consultants

 

  We have not historically relied upon the advice of compensation consultants in determining Named Executive Officer compensation. Instead, the full Board reviews compensation levels and makes adjustments based on their personal knowledge of competition in the market place, publicly available information and informal surveys of human resource professionals.

 

Stockholder Communications

 

  Stockholders who wish to communicate with the Board may do so by addressing their correspondence to the Board at New Energy Technologies, Inc., Attention: John A. Conklin, 10632 Little Patuxent Parkway, Suite 406, Columbia, Maryland 21044. The Board will review and respond to all correspondence received, as appropriate.

 

ITEM 11. EXECUTIVE COMPENSATION

 

  Our Board is responsible for establishing the compensation and benefits for our executive officers. The Board reviews the performance and total compensation package for our executive officers, and considers the modification of existing compensation and the adoption of new compensation plans. The board has not retained any compensation consultants.

 

  The goals of our executive compensation program are to attract, motivate and retain individuals with the skills and qualities necessary to support and develop our business within the framework of our small size and available resources. We designed our executive compensation program to achieve the following objectives:

 

 

·

attract and retain executives experienced in developing and delivering products such as our own;

 

·

motivate and reward executives whose experience and skills are critical to our success;

 

·

reward performance; and

 

·

align the interests of our executive officers and stockholders by motivating executive officers to increase stockholder value.

 

 
47

 

Summary Compensation Table

 

  The following table and descriptive materials set forth information concerning compensation earned for services rendered to us by: the Chief Executive Officer (the “CEO”); the Chief Financial Officer (the “CFO”); the Chief Operating Officer (the “COO”) and the other most highly-compensated executive officers other than the CEO and CFO who were serving as executive officers during the fiscal year ended August 31, 2014 and 2013 (the “Named Executive Officers”).

 

Name and Principal Position

  Year Ended August 31,     Salary ($)     Bonus ($)     Stock Awards ($) (1)     Option Awards ($) (2)     All Other Compensation($) (3)     Total ($)  

John A. Conklin (4)

 

2014

   

$

214,325

   

-

   

$

29,000

   

$

1,862,000

   

$

25,702

   

$

2,137,245

 

President, Chief Executive Officer, Chief Financial Officer and Director

   

2013

   

$

197,083

   

$

10,000

     

-

   

$

64,400

   

$

22,655

   

$

229,738

 

 

(1) Represents the issuance of 10,000 shares of restricted common stock, see “NOTE 3 – Common Stock and Warrants” to the New Energy Technologies, Inc. Consolidated Financial Statements contained in this Form 10-K.

 

(2) The amounts reported in the Option Awards column represent the aggregate grant date fair values, computed in accordance with FASB ASC Topic 718 and do not include decreases for forfeited stock options. For information regarding significant factors, assumptions and methodologies used in calculating the fair value of stock options, see “Note 4 - Stock Options” to the New Energy Technologies, Inc. Consolidated Financial Statements contained in this Form 10-K.

 

(3) Our employees generally maintain private insurance coverage and are reimbursed an agreed upon amount each month to offset their out-of-pocket medical insurance premiums.

 

(4) Effective August 9, 2010, we appointed Mr. Conklin to serve as our President, Chief Executive Officer, and Chief Financial Officer and entered into an Employment Agreement with him on such date. Pursuant to Mr. Conklin’s Employment Agreement, he is entitled to an annual salary and a stipend to cover medical insurance premiums. Effective January 1, 2012, Mr. Conklin’s medical stipend was increased to $1,778 per month. Effective April 1, 2012, Mr. Conklin's annual salary was increased to $190,000 and Mr. Conklin was also awarded bonuses totaling $45,000 during 2012. Effective December 15, 2012, Mr. Conklin’s medical stipend was increased to $1,925 per month and his annual salary was increased to $200,000. Mr. Conklin was awarded bonuses totaling $10,000 during 2013. On January 1, 2014, the Company and Mr. Conklin entered into a new employment agreement (the “2014 Employment Agreement”) pursuant to which Mr. Conklin is paid an annual salary of $221,500 and a stipend of $2,214. Additionally, on January 27, 2014, pursuant to the 2014 Employment Agreement, Mr. Conklin received a grant of 700,000 stock options and forfeited 233,334 unvested performance based stock options originally granted on August 9, 2010, see “NOTE 6 – Related Party Transactions” to the New Energy Technologies, Inc. Consolidated Financial Statements contained in this Form 10-K.

 

On January 9, 2014, the Company granted a stock option to purchase 30,000 shares of its common stock at an exercise price of $2.90 per share, see “NOTE 6 – Related Party Transactions” to the New Energy Technologies, Inc. Consolidated Financial Statements contained in this Form 10-K.

 

On January 23, 2013, The Company granted Mr. Conklin a stock option to purchase 40,000 shares of our common stock at an exercise price of $1.65 per share, see “NOTE 6 – Related Party Transactions” to the New Energy Technologies, Inc. Consolidated Financial Statements contained in this Form 10-K.

 

 
48

 

Outstanding Equity Awards at Fiscal-Year End

 

  The following table sets forth information regarding equity awards that have been previously awarded to each of the Named Executives and which remained outstanding as of August 31, 2014.

 

Option Awards

Name

  # of Securities Underlying Unexercised Options Exercisable     # of Securities Underlying Unexercised Options Unexercisable     Option Exercise Price ($)  

Option Expiration Date

John A. Conklin (1)

 

180,000

   

-

   

$

1.65

 

8/9/2020

 

   

40,000

     

-

   

$

1.65

 

1/23/2023

 

   

15,000

     

15,000

   

$

2.90

 

1/9/2024

 

   

50,000

     

650,000

   

$

2.90

 

1/27/2024

 

(1) On August 9, 2010, we entered into an employment agreement with Mr. John A. Conklin, our President, Chief Executive Officer, and Chief Financial Officer. On January 23, 2013, we granted Mr. Conklin a stock option to purchase 40,000 shares of our common. For the terms of the employment agreement between us and Mr. Conklin, please refer to footnote (1) to the Summary Compensation table in “ITEM 11. EXECUTIVE COMPENSATION.”

 

  Employee directors are eligible to receive stock option compensation but do not receive cash compensation in addition to their monthly salary for services rendered as a director.

 

Option Exercises and Stock Vested at Fiscal-Year End

 

  The following table shows the number of shares acquired by each of the Named Executive Officers during fiscal 2014 through stock option exercises and vesting of restricted stock. The table also presents the value realized upon such exercises and vesting, as calculated, in the case of stock options, based on the difference between the market price of New Energy’s common stock at exercise and the option exercise price, and as calculated, in the case of restricted stock, based on the closing share price of New Energy’s common stock on the vesting date.

 

  Option Awards     Stock Awards  

Name

  Number of Shares Acquired on Exercise (#)     Value Realized on Exercise ($)     Number of Shares Acquired on Vesting (#)     Value Realized on Vesting ($)  

John A. Conklin

 

190,000

   

$

239,400

   

10,000

   

$

29,000

 

 

 
49

 

Potential Payments upon Termination or Change in Control

 

  There are no understandings or agreements known by management at this time which would result in a change in control.

 

  On January 1, 2014, we entered into the 2014 Employment Agreement with Mr. John A. Conklin. Pursuant to the terms of the 2014 Employment Agreement, Mr. Conklin will receive an annual salary of $221,500, medical insurance reimbursement stipend of $2,214 and a grant to purchase 700,000 stock options. Additionally, in the event that Mr. Conklin’s employment is terminated without cause or a result of disability, he will be entitled to receive monthly salary payments as follows: 1) eight (8) monthly payments as in effect on the date of termination if terminated on or prior to December 31, 2014; 2) ten (10) monthly payments as in effect on the date of termination if terminated after December 31, 2014 but prior to December 31, 2015; 3) twelve (12) monthly payments as in effect on the date of termination if terminated after December 31, 2015 but prior to December 31, 2016; or 4) the lesser of (y) twelve (12) monthly payments as in effect on the date of termination, or (z) the remaining number of monthly payments as in effect on the date of termination due to the Executive through the Expiration Date if this Agreement is terminated after December 31, 2016. Upon termination of the 2014 Employment Agreement no further stock options will vest and the maximum number of option shares that Mr. Conklin may purchase is limited to the number of options that were vested as of the termination date and Mr. Conklin has the right to exercise the vested options within 120 days from the termination date, after which all unexercised vested options will terminate.

 

COMPENSATION OF DIRECTORS

 

  We do not pay director compensation to directors who are also our employees. Our Board determines the non-employee directors’ compensation for serving on the Board and its committees. In establishing director compensation, the Board is guided by the following goals:

 

 

·

compensation should consist of a combination of cash and equity awards that are designed to fairly pay the directors for work required for a company of our size and scope;

 

·

compensation should align the directors’ interests with the long-term interests of stockholders; and

 

·

compensation should assist with attracting and retaining qualified directors.

 

  For their services as directors and actual expenses incurred to attend meetings of the Board, non-employee directors received $4,250 per quarter. Directors are entitled to participate in, and have been issued options under, our 2006 Plan.

 

 
50

  

  The following table provides information as to compensation for services of the non-employee directors during the fiscal years ended August 31, 2014 and 2013.

 

Name

  Fees Earned or Paid in Cash ($)     Stock Awards ($) (1)     Option Awards ($) (2)     Total ($)  

Alastair Livesey (3)

 

17,000

   

29,000

   

84,300

   

130,300

 

Joseph Sierchio (3)

   

17,000

     

29,000

     

84,300

     

130,300

 

Total 2014 director compensation

   

34,000

     

58,000

     

168,600

     

260,600

 
                       

Alastair Livesey (4)

   

16,000

     

-

     

64,386

     

80,386

 

Jatinder Bhogal (4)(5)

   

16,000

     

-

     

64,386

     

80,386

 

Joseph Sierchio (4)

   

16,000

     

-

     

64,386

     

80,386

 

Javier Jimenez (6)

   

3,750

     

-

     

-

     

3,750

 

Peter Fusaro (7)

   

7,500

     

-

     

-

     

7,500

 

Total 2013 director compensation

   

59,250

     

-

     

193,158

     

252,408

 

 

(1) Represents the issuance of 10,000 shares of common stock, see “NOTE 3 – Common Stock and Warrants” to the New Energy Technologies, Inc. Consolidated Financial Statements contained in this Form 10-K.

 

(2) This column reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. For information regarding significant factors, assumptions and methodologies used in determining the fair value of our stock options, see “Note 4 - Stock Options” in the consolidated notes to the financial statements included in this Form 10-K.

 

(3) On January 9, 2014, the Board approved, and we granted, a stock option to each of our directors to purchase 30,000 shares of our common stock at an exercise price of $2.90 per share, the fair market value of our 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 9, 2024, and vests as follows: (a) 15,000 shares vest immediately on the date of grant and (b) 15,000 shares on December 31, 2014. The stock options are further subject to the terms and conditions of a stock option agreement between us 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 our directors. Upon termination of such service, the director will have a specified period of time to exercise vested stock options, if any.

 

(4) On January 23, 2013, the Board approved, and we granted, a stock option to each of our directors to purchase 40,000 shares of our common stock at an exercise price of $1.65 per share, the fair market value of our 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 us 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 our directors. Upon termination of such service, the director will have a specified period of time to exercise vested stock options, if any.

 

(5) Mr. Bhogal resigned as a director effective as of October 31, 2013.

 

(6) Mr. Jimenz resigned as a director effective as of September 30, 2012.

 

(7) Mr. Fusaro resigned as a director effective as of December 11, 2012.

 

 
51

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

  The following table sets forth certain information as of November 10, 2014 by (i) all persons who are known by us to beneficially own more than 5% of our outstanding shares of common stock, (ii) each director, director nominee, and Named Executive Officer; and (iii) all executive officers and directors as a group:

 

Name and Address of Beneficial Owner (1)

Number of shares Beneficially Owned (2)

% of Class Owned (2)

Directors and Officers

       

John A. Conklin (3)

 

310,000

   

1.26

 

Alastair Livesey (4)

   

130,001

     

*

 

Joseph Sierchio (5)

   

138,335

     

*

 

All Directors and Officers as a Group (3 people)

   

578,336

     

2.33

 

 

5% Shareholders

       

Kalen Capital Corporation (6)

The Kalen Capital Building

688 West Hastings St.

7th Floor

Vancouver, BC V6B 1P1

 

24,052,201

   

62.3

 

1420524 Alberta Ltd. (7)

4979 Edendale Court

West Vancouver, BC

   

4,401,304

     

17.1

 

 

* less than 1%

 

(1) Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock and except as indicated the address of each beneficial owner is 10632 Little Patuxent Parkway, Suite 406, Columbia, Maryland 21044.

 

(2) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Beneficial ownership is calculated based on 24,310,518 shares of common stock issued and outstanding on a fully diluted basis as of November 10, 2014. Under Rule 13d-3(d) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed.

 

(3) Represents 10,000 shares, stock options to purchase 235,000 shares of our common stock which have fully vested and stock options to purchase 65,000 of our common stock which vest on December 31, 2014.

 

(4) Represents 10,000 shares, stock options to purchase 105,001 shares of our common stock which have fully vested and stock options to purchase 15,000 of our common stock which vest on December 31, 2014.

 

(5) Represents 18,334 shares, stock options to purchase 105,001 shares of our common stock which have fully vested and stock options to purchase 15,000 of our common stock which vest on December 31, 2014.

 

(6) KCC is a private Alberta corporation wholly owned by Mr. Harmel S. Rayat (our former director and officer). In such capacity, Mr. Rayat may be deemed to have beneficial ownership of these shares. The number of shares reflected above is as of the date of this prospectus, based upon the review of our transfer records and information provided by KCC as of said date and includes: (a) 9,766,940 shares owned by KCC and its wholly owned subsidiaries; (b) 921,874 shares issuable upon exercise of a Series H Warrant; (c) 921,875 shares issuable upon exercise of a Series I Warrant; (d) 3,110,378 shares issuable upon exercise of a Series J Warrant; and (e) 3,110,378 shares issuable upon exercise of a Series K Warrant. Additionally, the above assumes exercise of the 2013 Note and all interest due as of November 10, 2014, at a conversion price of $1.04, resulting in the issuance of: (i) 3,110,378 shares of common stock and (ii) a Series L Warrant exercisable for up to 3,110,378 shares of common stock. As of the date of this filing we have not received notice of KCC’s intent to convert the 2013 Note. The number of shares does not include (1) 3,101,304 shares beneficially owned by 1420524 Alberta Ltd. for the benefit of Kalen Jai Rayat. Kalen Jai Rayat is Mr. Rayat’s son (see footnote 7 for additional information), or (2) the 933,334 shares beneficially owned by 1420468 Alberta Ltd., a private Alberta corporation, wholly owned by Jasbinder Chohan, as the trustee under the TJR Family Trust dated August 28, 2008, for the benefit of Talia Jevan Rayat, Mr. Rayat’s daughter. Mr. Rayat is not a beneficiary or trustee of the aforementioned trusts and disclaims beneficial ownership of all shares owned by each of his children’s trusts.

 

(7) Includes 625,000 shares issuable upon exercise of a Series G Warrant and 825,435 shares issuable upon exercise of a Series H Warrant issued to 1420524 Alberta Ltd. as part of the 2012 Bridge Loan entered into between us and 1420524 Alberta Ltd. and the conversion thereof. The Series G Warrant includes a provision prohibiting its exercise if the holder were would beneficially own more than 9.99% of our issued and outstanding shares of common stock.

 

 
52

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

  We do not have a formal written policy for the review and approval of transactions with related parties. However, our Code of Ethics and Corporate Governance Principles require actual or potential conflict of interest to be reported to the Board. Our employees are expected to disclose personal interests that may conflict with ours and they may not engage in personal activities that conflict with their responsibilities and obligations to us. Periodically, we inquire as to whether or not any of our Directors have entered into any transactions, arrangements or relationships that constitute related party transactions. If any actual or potential conflict of interest is reported, our entire Board and outside legal counsel review the transaction and relationship disclosed and the Board makes a formal determination regarding each Director's independence. If the transaction is deemed to present a conflict of interest, the Board will determine the appropriate action to be taken.

 

Transactions with Related Persons

 

  The Board is responsible for review, approval, or ratification of “related-person transactions” entered into between the Company and related persons. Under SEC rules (Section 404 (a) of Regulation S-K), a related person is a director, officer, nominee for director, or 5% stockholder of the company since the beginning of the previous fiscal year, and their immediate family members. We are required to report any transaction or series of transactions in which the company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest.

 

  The Board has determined that, barring additional facts or circumstances, a related person does not have a direct or indirect material interest in the following categories of transactions:

 

 

·

any transaction with another company for which a related person’s only relationship is as an employee (other than an executive officer), director, or beneficial owner of less than 10% of that company’s shares, if the amount involved does not exceed the greater of $1 million or 2% of that company’s total annual revenue;

 

·

compensation to executive officers determined by the Board;

 

·

compensation to directors determined by the Board;

 

·

transactions in which all security holders receive proportional benefits; and

 

·

banking-related services involving a bank depository of funds, transfer agent, registrar, trustee under a trust indenture, or similar service.

 

  The Board reviews transactions involving related persons who are not included in one of the above categories and makes a determination whether the related person has a material interest in a transaction and may approve, ratify, rescind, or take other action with respect to the transaction in its discretion. The Board reviews all material facts related to the transaction and takes into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent of the related person’s interest in the transaction; and, if applicable, the availability of other sources of comparable products or services.

 

  The following are related party transactions for the fiscal years ended August 31, 2014 and 2013:

 

  On October 7, 2013 (the “Closing Date”), we entered into a Bridge Loan Agreement (the “2013 Loan Agreement”) with Kalen Capital Corporation (the “Investor”), a private corporation owning in excess of 10% of the Company’s issued and outstanding shares of common stock. Pursuant to the 2013 Loan Agreement, the Company received proceeds of $3,000,000 and issued a 7% unsecured Convertible Promissory Note (the “2013 Note”) due on October 6, 2014, with interest compounded quarterly and issued a Series I Stock Purchase Warrant (the “Series I Warrant”) allowing the holder to purchase up to 921,875 shares of the Company’s common stock at an initial exercise price of $1.37 for a period on five (5) years. The Series I Warrant is exercisable on a “cashless basis.” According to the original terms of the 2013 Loan Agreement, the Investor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the 2013 Note, and any or all accrued and unpaid interest thereon into units (collectively, the “Units”), with each Unit consisting of (a) one share of common stock; (b) one Series J Stock Purchase Warrant for the purchase of one share of common stock (the “Series J Warrant”); and (c) one Series K Stock Purchase Warrant for the purchase of one share of common stock (the “Series K Warrant”). The conversion price for each Unit is the lesser of (i) $1.37, with the exercise price of each Series J Warrant set at $1.47 and the exercise price of each Series K Warrant set at $1.57; or (ii) 70% of the 20 day average closing price of the Company’s common stock prior to conversion, subject to a floor of $1.00 with the exercise price of each Series J Warrant included in the Units issued upon conversion being equal to 107.3% of the unit exercise price and the exercise price of each Series K Warrant included in the Units issued upon conversion being equal to 114.6% of the unit exercise price.

 

 
53

  

  The law firm of Sierchio & Company, LLP (“S&C”), of which Joseph Sierchio, one of our directors, is a principal, has provided counsel to us since our inception. In July 2008, we asked Mr. Sierchio to join our Board. During the years ended August 31, 2014 and 2013, S&C provided $137,814 and $128,924, respectively, of legal services. At August 31, 2014, we owed S&C approximately $24,692 which is included in accounts payable.

 

  For related party transactions that do not exceed $120,000 please see “Note 6 - Related Party Transactions” in the consolidated notes to the financial statements included in this Form 10-K.

 

Review, Approval or Ratification of Transactions with Related Persons

 

  Our unwritten policy with regard to transactions with related persons is that all material transactions are to be reviewed by the entire Board for any possible conflicts of interest. In the event of a potential conflict of interest, the Board will generally evaluate the transaction in terms of the following standards: (i) the benefits to us; (ii) the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer; (iii) the availability of other sources for comparable products or services; (iv) the terms and conditions of the transaction; and (v) the terms available to unrelated parties or the employees generally. The Board will then document its findings and conclusion in written minutes.

 

Director Independence

 

  Please refer to “Director Independence” under the section titled “CORPORATE GOVERNANCE” in “ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.”

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

INDEPENDENT PUBLIC ACCOUNTANTS

 

  Peterson Sullivan, LLP (“Peterson Sullivan”) currently serves as our independent registered public accounting firm to audit our financial statements for the fiscal year ended August 31, 2014. To the knowledge of management, neither such firm nor any of its members has any direct or material indirect financial interest in us or any connection with us in any capacity otherwise than as independent accountants.

 

  Our Board, in its discretion, may direct the appointment of different public accountants at any time during the year, if the Board believes that a change would be in the best interests of the stockholders. The Board has considered the audit fees, audit-related fees, tax fees and other fees paid to Peterson Sullivan, as disclosed below, and has determined that the payment of such fees is compatible with maintaining the independence of the accountants.

 

  We do not currently have an audit committee.

 

 
54

  

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

  The following table presents aggregate fees for professional services rendered by Peterson Sullivan during the years ended August 31, 2014 and 2013:

 

 

  Year Ended August 31,  

 

  2014     2013  

Audit fees

 

$

19,373

   

$

25,749

 

Audit-related fees

   

3,521

     

3,939

 

Tax fees

   

2,500

     

3,950

 

Total fees

 

$

25,394

   

$

33,638

 

 

Audit Fees

 

  Audit fees for the years ended August 31, 2014 and 2013, totaled $19,373 and $25,749, respectively, and consist of the aggregate fees billed by Peterson Sullivan for the audit of the financial statements included in our Annual Report on Form 10-K and review of interim financial statements included in the quarterly reports on Form 10-Q during the years ended August 31, 2014 and 2013.

 

Audit-Related Fees

 

  Audit-related fees for the years ended August 31, 2014 and 2013, totaled $3,521 and $3,939, respectively, and consist of the aggregate fees billed by Peterson Sullivan for the review and providing of consents for our Form S-1 and amendments thereto that were filed with the SEC.

 

Tax Fees

 

  Tax fees for the years ended August 31, 2014 and 2013, totaled $2,500 and $3,950, respectively, and consist of the aggregate fees billed by Peterson Sullivan for professional services rendered for tax compliance, tax advice and tax planning.

 

All Other Fees

 

  There were no other fees billed by Peterson Sullivan for the years ended August 31, 2014 and 2013.

 

 
55

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

(a) The following documents are filed as a part of this Form 10-K:

 

1. Financial Statements

 

The following financial statements are included in Part II, Item 8 of this Form 10-K:

 

 

·

Report of Independent Registered Public Accounting Firm;

 

·

Consolidated Balance Sheets as of August 31, 2014 and 2013;

 

·

Consolidated Statements of Operations for the years ended August 31, 2014 and 2013;

 

·

Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended August 31, 2014 and 2013;

 

·

Consolidated Statements of Cash Flows for the years ended August 31, 2014 and 2013; and

 

·

Notes to Consolidated Financial Statements

 

2. Exhibits

 

  The exhibits listed in the Exhibit Index, which appears immediately following the signature page, are incorporated herein by reference, and are filed as part of this Form 10-K.

 

3. Financial Statement Schedules

 

  Financial statement schedules are omitted because they are not required or are not applicable, or the required information is provided in the consolidated financial statements or notes described in Item 15(a)(1) above.

 

 
56

 

 

SIGNATURES

 

  Pursuant to the requirements of Sections 13 or 15(d) of the Securities and 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)

 
       
November 14, 2014 By: /s/ John A. Conklin  
    John A. Conklin  
    Chief Executive Officer, Chief Financial Officer and Director  
    (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)  

 

  Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated.

 

 

Signature   Title   Date
         
/s/ John A. Conklin  

Chief Executive Officer, Chief Financial Officer and Director

  November 14, 2014
John A. Conklin   (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)    
         
/s/ Alastair Livesey   Director   November 14, 2014
Alastair Livesey        
         
/s/ Joseph Sierchio   Director    November 14, 2014
Joseph Sierchio        

 

 
57

 

Exhibit Index

 

Exhibit No.

 

Description of Exhibit

 

 

 

3.1

 

Articles of Incorporation, as amended (Incorporated by reference to the exhibits filed as part of the report on Form 10-Q filed by New Energy Technologies, Inc. on April 16, 2010)

   

3.2

 

Certificate of Amendment to the Articles of Incorporation changing name to New Energy Technologies, Inc. (Incorporated by reference to the exhibits filed as part of the report on Form 10-Q filed by New Energy Technologies, Inc. on April 16, 2010)

   

3.3

 

Certificate of Amendment to the Articles of Incorporation increasing the authorized shares from 100,000,000 to 300,000,000 (Incorporated by reference to the Form 8-K filed by New Energy Technologies, Inc. on March 21, 2011)

   

3.4

 

Certificate of Change to the Articles of Incorporation relating to the one-for-three reverse stock split (Incorporated by reference to the Form 8-K filed by New Energy Technologies, Inc. on March 21, 2011)

   

3.5

 

By Laws. (Incorporated by reference to the exhibits filed as part of the report on Form 10-Q filed by New Energy Technologies, Inc. on April 16, 2010)

   

23.1

 

Consent of Peterson Sullivan, LLP*

   

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.

 

§ Management contract or compensatory plan.

 

** Furnished 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.

 

 

58