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, 2010

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

               OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________                

Commission file number 333-127953

NEW ENERGY TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

(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 o 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 o 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  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of the 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.  T

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.   

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

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 26, 2010 as reported on the OTC Bulletin Board was $18,411,800.

As of December 8, 2010, there were 61,791,052 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

PART I

Forward-Looking Statements

Except for the historical information presented in this document, the matters discussed in this Form 10-K for the fiscal year ended August 31, 2010 contain forward-looking statements which involve assumptions and our future plans, strategies, and expectations. These statements are generally identified by the use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished.

Such forward-looking statements include statements regarding, among other things, (a) the potential markets for our technologies, our potential profitability, and cash flows (b) our growth strategies (c) expectations from our ongoing research and development activities (d) anticipated trends in the technology industry (e) our future financing plans and (f) our anticipated needs for working capital. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in this Form 10-K generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the matters described in this Form 10-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 uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect our actual results may vary materially from those expected or projected.

Item 1.  Business

Description of Business

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 New Energy Technologies, Inc. and our wholly-owned subsidiaries, Sungen Energy, Inc. (“Sungen”), Kinetic Energy Corporation (“KEC”), Octillion Technologies Limited (“Octillion Technologies”) and New Energy Solar Corporation (“New Energy Solar”).

Sungen was incorporated on July 11, 2006 in the State of Nevada and has no assets and no liabilities.

KEC was incorporated on June 19, 2008 in the State of Nevada and has no assets and no liabilities.

Octillion Technologies was incorporated on April 11, 2007 in the Province of British Columbia, Canada for providing administrative services to the Canadian office. We ceased to conduct business in Canada on August 31, 2008 and closed this office. As a result, we dissolved Octillion Technologies and eliminated all intercompany balances, effective December 1, 2008.

New Energy Solar was incorporated on February 9, 2009 in the State of Florida and has no assets and no liabilities.

On August 22, 2007, we spun off our wholly-owned biotechnology subsidiary, MicroChannel Technologies Corporation (“MicroChannel”) with our shareholders. The net assets and results of operations of MicroChannel of the prior period have been reclassified as discontinued operations.

Since inception, we have been a technology incubator focused on the identification, acquisition, development and eventual commercialization of emerging technologies initially in the biotech and subsequently in the alternative and renewable energy sectors; however, commencing in August 2007 with the spinoff of our then wholly-owned subsidiary, MicroChannel Technologies Corporation, we elected to focus all of our resources on alternative and renewable energy technologies. Accordingly, effective December 2, 2008 we changed our name to “New Energy Technologies, Inc.” so as to more accurately reflect our focus on alternative and renewable energy technologies.

Our strategy is to develop new technologies and, where warranted, acquire rights to obtain licenses to technologies and products that are being developed by third parties, primarily universities and government agencies, through sponsored research and development agreements.

We conduct our current operations through our two wholly-owned subsidiaries:

·         KEC; and

·         New Energy Solar 

We are currently focusing our development efforts on two technologies, namely:

·         MotionPower™ Technology for capturing the kinetic energy of moving vehicles to generate electricity; and

·         SolarWindow™ Technology which enables see-thru windows to generate electricity by ‘spraying’ their glass surfaces with the Company’s electricity-generating coatings.

We have filed nine (9) patent applications for inventions related to our MotionPower™ Technology and one (1) for our SolarWindow™ Technology. Currently we have two active trademark registrations in progress: “MotionPower™” and “SolarWindow™”. Currently, all of our patent applications are pending. There is no assurance that our patent and trademark applications can or will be successfully prosecuted.

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 research and development activities include the development of a technology to adapt home and office glass windows, skylights, and building facades into products capable of generating electricity from solar energy without losing significant transparency or requiring major changes in manufacturing infrastructure, and technologies to harness the kinetic energy of vehicles to generate electricity.

Ultimately, we plan to market MotionPower™ Technology and/or SolarWindow™ Technology products, if any, subject to receiving any requisite regulatory approvals, through co-marketing, co-promotion, licensing and distribution arrangements with third party collaborators. The decision as to which method or methods of commercialization we will pursue will depend on various factors including, but not limited to, our financial resources at the time, manufacturing costs, market acceptance of the product(s), and competing technologies or products at the time.

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. Currently no such products or arrangements exist, nor can we currently project with any degree of accuracy when, if ever, such products or arrangements may exist.  If we do not ultimately commercialize products derived from our MotionPower™ Technology and/or SolarWindow™ Technology we will not generate revenues from our operations as currently conducted.

Our success will be dependent upon our ability to develop products that are superior to existing products and products introduced in the future, and which are cost effective. In addition, we may be required to continually enhance any products that are developed as well as introduce new products that keep pace with technological change and address the increasingly sophisticated needs of the marketplace. There can be no assurance that we will be able to keep pace with the technological demands of the marketplace or successfully develop products that will succeed in the marketplace.

We cannot currently estimate with any accuracy the amount of either the additional funds or time required to successfully commercialize either technology, because the actual cost and time may vary significantly depending on results of current basic research and development and product testing, cost of acquiring an exclusive license, changes in the focus and direction of our research and development programs, competitive and technological advances, the cost of filing, prosecuting, defending and enforcing patent claims, the regulatory approval process, manufacturing, marketing and other costs associated with commercialization of products following receipt of regulatory approvals and other factors.

Our MotionPower™ Technology

We are developing MotionPower™ as a device which captures the kinetic energy of moving vehicles and uses this captured energy to generate clean electricity.

All vehicles in motion possess kinetic energy. Kinetic energy refers to the energy of motion, and is best described as the extra 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. The faster the vehicle is moving and the heavier it is, the more kinetic energy it possesses. When a moving vehicle slows down, it loses some of its kinetic energy in the process of braking. It is this lost energy which we are seeking to recapture. Accordingly, for our MotionPower™ Technology device to effectively harvest a vehicle’s kinetic energy, the vehicle must be in the process of slowing down.

Our MotionPower™ Technology device functions as an energy harvester, and may be considered an “external regenerative brake” which helps a vehicle slow down. Our MotionPower™ Technology captures and converts the vehicle’s lost kinetic energy into useful electricity rather than allowing for that energy to be wasted as brake heat.

Engineers anticipate installing MotionPower™ devices, currently under development, at high traffic locations wherever vehicles are required to slow down or stop. Every day, millions of vehicles slow or come to a stop at toll booths, traffic intersections, rest areas, travel plazas, border crossings, neighborhoods with traffic calming zones, parking sites, and drive-thrus and other roadway points. We expect to target such locations as possible installation sites for its MotionPower ^TM devices.

To date, we have engineered, designed, and produced several MotionPower™ Technology prototype devices. We have conducted durability field tests of our MotionPower™-Auto technology for generating electricity from the kinetic energy of moving vehicles.  These field tests were conducted at a BurgerKing® franchise drive-thru in Hillside, New Jersey, the Four Seasons Hotel in Washington, DC, and the Holiday Inn Express® in Baltimore, Maryland.  These tests were undertaken as part of our ongoing research and development of our MotionPower™ Technology, and were conducted in order to evaluate the ‘real-world’ functionality of the design, user response, and durability of materials used in the tested prototype. We anticipate further field tests as development of our MotionPower™ technology is advanced.

Development of Our MotionPower™ Technology

We are developing our MotionPower™ Technology through KEC, our wholly-owned subsidiary; all of our research, development and design activities are conducted through contractual arrangements with third party providers. KEC has entered into a number of consulting agreements with third party engineering firms for the development of MotionPower™ Technology and the MotionPower™ Technology prototype devices, including the following:

On November 4, 2008, our wholly-owned subsidiary, KEC, entered into an agreement (the “Veryst Agreement”) with Veryst relating to the development of a car and truck energy harvester. The Veryst Agreement continues until terminated by either Veryst or Kinetic Energy. Pursuant to Rule 24b-2 we submitted a request for confidential treatment of certain portions of the Veryst Agreement, relating to the payment terms, scope of work and the milestone terms of the license agreement under the Veryst Agreement. Our request was granted on November 25, 2008.   

On September 9, 2009, we entered into two additional agreements with Veryst whereby Veryst performed: further testing of our vehicle energy harvester; advanced prototyping; and continued development of a commercial scale truck energy harvester. 

On July 6, 2010, we entered into another agreement with Veryst whereby Veryst performed services associated with improving system energy capture and conversion, and enhancing electrical power production.

On May 1, 2009, KEC entered into the Initial Sigma Consulting Agreement pursuant to which Sigma Design provided engineering and product development services relating to the development of technologies for generating electricity from the motion of cars and trucks. On August 25, 2009, KEC entered into Additional Sigma Consulting Agreement whereby Sigma Design continued to provide engineering services relating to the development of the MotionPower™ Technology. On June 25, 2010, KEC entered into another consulting agreement with Sigma Design whereby Sigma Design will develop a modified prototype for the MotionPower™ Technology, with the objective of improving specific performance outcomes.  Each of the Sigma Design Agreements may be terminated by either Sigma Design or us upon 30 days written notice to the other party.

In the course of our ordinary business operations, we anticipate engaging independent consultants as required to advance our research and development of the MotionPower™ Technology and the MotionPower™ Technology prototype devices.

Proprietary Assets

Through KEC we have filed nine (9) Provisional Utility Patent Applications in the U.S. Patent and Trademark Office related to our MotionPower™ technology.  These confidential applications are directed to devices and methods for capturing energy from moving vehicles.

Each of these applications has been filed in the name of the individual inventors.  Each of the inventors has assigned and transferred to KEC the full and exclusive right to these inventions in the United States of America, its territories, dependencies and possessions and the entire right, title and interest in and to any and all Letters Patent(s) which may be granted therefore in the United States of America, its territories, dependencies and possessions, and in any and all foreign countries, and to any and all divisions, reissues, continuations, conversions and extensions thereof for the full term or terms for which the same may be granted.

We also have an active trademark registration in progress, “MotionPower™” Technology.

In addition, under each of the Sigma Design Agreement and Veryst Agreement, all prototypes, technologies, intellectual property, and products developed are owned by KEC.  In connection therewith, we intend to file such patent and trademark applications as we deem appropriate.

Currently all of our patent applications are pending. There is no assurance that such patent applications can or will be successfully prosecuted.

How Our MotionPower™ Technology Works

We are developing two related but separate applications of our MotionPower™ Technology as follows:

Our MotionPower™-Auto and MotionPower^TM-Express technologies are designed to be installed in locations where cars and light trucks are required to reduce their speed, thus ensuring that the system only makes use of vehicle energy that would be required to slow down and does not ‘rob’ vehicles of energy they would otherwise use to accelerate.  Drivers pass over the MotionPower™-Auto device, and mechanically depress levers embedded in the device, which capture the energy of the slowing vehicle; drivers experience a sensation similar to the feeling of passing over a conventional speed bump, while the kinetic energy captured from the moving vehicle is creatively converted into electricity, using novel methods currently under ongoing development and refinement by engineers.

Our MotionPower™-Heavy technology is designed to generate electricity from the movement of heavy trucks, buses, and long haul rigs.  Engineers envision that the MotionPower™-Heavy device, once developed, could be installed at truck stops, weigh scales, commercial ports of entry, and shipping sites.  Our proprietary MotionPower™-Heavy technology is a fluid-based system, uniquely capable of drawing energy from vehicles without jarring their payload or creating passenger discomfort.  Drivers travel over the MotionPower™-Heavy device and depress fluid-based systems embedded in the device, which capture the energy of the slowing vehicle; while the kinetic energy captured from the moving vehicle is creatively converted into electricity, using novel methods currently under ongoing development and refinement by engineers.

Our MotionPower™-Auto, MotionPower^TM-Express, and MotionPower™-Heavy technologies generate electricity by creatively capturing and converting the vehicles’ kinetic rolling energy. Kinetic energy is present in a moving vehicle, much like the energy present in a bicycle, which may sometimes continue to ‘roll’ even though it’s no longer being pedaled by the rider.

Unlike our MotionPower™ Technology for cars, light trucks, and heavy long-haul vehicles, other efforts to harvest kinetic energy from vehicles to generate electricity appear primarily directed to heavy trucks only.  Additionally, these systems rely on vehicle weight to depress elaborate piston configurations which hydraulically pump fluids to electrical generators. We believe these methods are substantially different from our MotionPower™ Technology which makes use of otherwise lost kinetic energy when cars and trucks slow down.  Unlike these other systems, our MotionPower™ Technology does not make use of elaborate piston configurations which require many moving mechanical parts, typically situated beneath slats or plates and vulnerable to mechanical failure.  Accordingly, we do not consider other such technologies to pose a direct competitive threat to our MotionPower™ Technology.

Testing of Our MotionPower™ Technology

We have conducted durability field tests of our MotionPower™-Express Technology for generating electricity from the kinetic energy of moving vehicles.  These field tests were conducted at a BurgerKing® franchise drive-thru in Hillside, New Jersey, the Four Seasons Hotel in Washington, DC, and the Holiday Inn Express® in Baltimore, Maryland.  These tests were undertaken as part of our ongoing research and product development of our MotionPower™ Technology, and were conducted in order to evaluate the ‘real-world’ functionality of the design, user response, and durability of materials used in the tested prototype. We anticipate further field tests as development of our MotionPower™ technology is advanced.

Market Overview of Our MotionPower™ Technology

We believe that a market opportunity exists for our MotionPower™ Technology, capable of capturing the unused energy of moving cars to generate clean electricity. Rising energy costs, increasing electricity consumption, and the need for a cleaner alternative energy choice 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 double from 2003 to 2030, according to the Energy Information Administration (EIA), 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.

There are an estimated 251 million registered vehicles in the United States (US Bureau of Transportation Statistics) which, according to the Environmental Protection Agency, drive more than 6 billion miles every day. We are working towards the development of MotionPower™ Technology systems which can be installed at various roadway sites where they are able to harvest the kinetic energy produced by these moving vehicles and use that captured energy to generate clean electricity.

Currently, there are no commercially marketed vehicle energy harvesting devices available for sale in the United States and there is no formally recognized vehicle energy harvesting industry. It is, therefore, impossible to definitively quantify the commercial size of the vehicle energy harvesting market. Energy industry analyst, Raghu Das, CEO of IDTechEx, a technology industry analytics firm, has estimated that the global market for energy harvesting technologies will exceed $4 billion by 2019   (Source: Global Market For Energy Harvesting Technologies To Exceed $4B By 2019; Aerospace Online; July 17, 2009)  .

Government Regulation of Our MotionPower™ Technology

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, currently under development, may be construed by regulatory agencies as a new technology for roadway implementation, which, accordingly, 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 (OSHA) regulations, National Electrical Code (NEC) as approved as an American National Standard by the American National Standards Institute (ANSI) or ANSI/NFPA-70, certification by Underwriters Laboratories (UL) and the Society of Automotive Engineers (SAE), 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.

Sales and Marketing of Our MotionPower™ Technology

Ultimately, we plan to market MotionPower™ Technology products, if any, subject to receiving any requisite regulatory approvals, through co-marketing, co-promotion, licensing and distribution arrangements with third party collaborators. No such arrangements presently exist. We believe that this approach will both increase market penetration and commercial acceptance of our products and enable us to avoid expending significant funds to develop a large sales and marketing organization.  

Competition For Our MotionPower™ Technology

Currently, there are no commercially marketed vehicle energy harvesting devices available for sale in the United States and there is no formally recognized vehicle energy harvesting industry. To the best of our knowledge, at current, our MotionPower™ Technology does not face any substantive, direct competition from any commercially available vehicle energy harvester.

We anticipate, however, 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.

Other than our efforts, there are only two, 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; and

·               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.

The foregoing information regarding each of AEST Incorporated and KinergyPower USA was obtained from their respective web sites.

These companies’ systems rely on vehicle weight to depress elaborate piston configurations 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 make use of elaborate piston configurations which require many moving mechanical parts, typically situated beneath slats or plates and vulnerable to mechanical failure.  Accordingly, we do not consider either company poses a direct competitive threat to our MotionPower™ Technology.

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 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. Accordingly, in addition to our product 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 our MotionPower™ Technology products, if ever successfully developed. We believe our strategy ultimately will facilitate the marketing, distribution and public acceptance of our MotionPower™ Technology products, if and when safety approvals are received.

Competition with respect to our technologies is and will be based, among other things, on safety, reliability, availability, price and patent position. Another important factor will be the timing of market introduction of our competitive products. Accordingly, the speed with which we can develop our MotionPower™ Technology devices, complete regulatory approval processes and ultimately supply commercial quantities of products 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 technology development and commercial sales.

Our SolarWindow™ Technology

We are developing our SolarWindow™ Technology by spraying glass surfaces with the electricity-generating coatings to produce see-thru glass windows capable of generating electricity for application in homes, offices, and commercial buildings.

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.

Terminated Research Agreements

UIUC Sponsored Research Agreement

We initiated our efforts to develop a transparent glass window capable of generating electricity by layering silicon nanoparticles with photovoltaic properties onto glass substrates by entering on August 25, 2006,  through our wholly-owned subsidiary Sungen, into the UIUC Sponsored Research Agreement with UIUC; the goal of the UIUC Sponsored Research Agreement  was the development of a new patent-pending technology to integrate films of silicon nanoparticle material on glass substrates, acting as photovoltaic solar cells that have the potential to convert normal home and office glass windows into ones capable of converting solar energy into electricity, with limited loss of transparency and minimal changes in manufacturing infrastructure. The UIUC Sponsored Research Agreement was amended on July 23, 2007, so as to require us to  provide an additional $203,617 to the previously amount of $219,201 for a total of $422,818, to UIUC in order to accelerate the development of the UIUC Silicon Nanoparticle Energy Technology.

The UIUC Sponsored Research Agreement expired on August 22, 2008.  At that time we were of the view that the results of the research and development activities in connection with the UIUC Silicon Nanoparticle Energy Technology did not warrant further expenditure of funds.

Oakland Sponsored Research Agreement

On August 18, 2008, we entered into the Oakland Sponsored Research Agreement with Oakland University to continue our development of transparent solar glass windows capable of generating electricity.  The initial term of the Oakland Sponsored Research Agreement was two years with an option on our part to terminate the agreement on an earlier date. Researchers at Oakland University undertook efforts on our behalf to identify new and novel methods to apply silicon nanoparticles with photovoltaic properties onto glass substrates.

Pursuant to the terms of the Oakland Sponsored Research Agreement we agreed to advance a total of $348,066 to fund the research and development activities of which $140,519 was payable on or before September 1, 2008, $127,547 was payable on or before October 1, 2009 and $80,000 was payable on demand during the contract period for reimbursement of materials provided by Oakland University.  In August 2008, the Company advanced $140,519 to Oakland University pursuant to the Oakland Sponsored Research Agreement. In February 2009, we decided that it was in our best interest not to proceed forward with the Oakland Sponsored Research Agreement and exercised our right to terminate the Oakland Sponsored Research Agreement. As of the termination date of the Oakland Sponsored Research Agreement, $20,220 of the $140,519 initially advanced to Oakland University had been expended, all during the quarter ended February 28, 2009.  The remaining $120,299 was refunded to us in April 2009.

Current Research Agreements

Our SolarWindow™ Technology research and development efforts are currently now being conducted pursuant to the USF Sponsored Research Agreement entered into between our wholly-owned subsidiary New Energy Solar and USF on May 20, 2009.

Researchers at USF are working to develop our SolarWindow™ Technology which enables see-thru glass windows to generate electricity by spraying their glass surfaces with electricty-generating coatings. These solar coatings are less than 1/10th the thickness of conventional ‘thin’ films and make use of the world’s smallest functional solar cells, shown to successfully produce electricity in a published peer-reviewed study in the Journal of Renewable and

Sustainable Energy of the American Institute of Physics. J. Lewis, J. Zhang and X. Jiang, Journal of Renewable and Sustainable Energy, 1, 1301, January 2009.

Our SolarWindow™ Technology, currently under development, makes use of ultra-small solar cells which measure less than ¼ the size of a grain of rice and are fabricated using organic based compounds. These ultra-small solar cells allow for fabrication of solar arrays – a collection of multiple solar cells - on a broad range of substrate materials such as glass, plastic, and even paper. Made of natural polymers which can be dissolved into liquid for easy application, these ultra-small solar cells do not require expensive and complicated high-temperature or high-vacuum production techniques common to other solar coatings.

Currently available solar cells are largely made of silicon wafers, an expensive process that produces a brittle material that can limit their commercial usability. Other lower cost flexible thin film solar materials such as amorphous silicon, copper-indium-gallium-selenide, and cadmium telluride often require high-vacuum and high-temperature production techniques, and are many times thicker than the ultra-small and thin solar cells used in our SolarWindow™ Technology.

Our SolarWindow™ Technology, currently under development, uses an organic solar array which achieves transparency through the creative use of conductive polymers, naturally occurring materials which conduct electricity and have the same desirable electrical properties as the world’s most commercially popular semiconductor, silicon, yet have a better capacity to ‘optically absorb’ photons from light and generate electricity.

The optical absorption properties of our SolarWindow’s™ Technology ultra-small solar cells enables development of an ultra-thin film, only 1/1000^th the thickness of a human hair, or 1/10^th of a micrometer. Conventional thin films are exponentially thicker, measuring several micrometers thick and inhibiting transparency. In photovoltaic applications such as see-thru windows, where transparency is a primary concern, today’s thin film solar cells simply cannot be utilized to produce a transparent solar window for application in homes, offices, and commercial buildings.

Unlike other solar technologies, the ultra-small solar cells exclusive to our SolarWindow™ Technology generate electricity not only from the visible light spectrum found in sunlight but also by using the visible light found in artificial light, such as fluorescent lighting typically installed in offices and commercial buildings. Commercially, while the majority of today’s solar cells can only be installed where direct sunlight is available, researchers anticipate that our SolarWindow™ Technology ultra-small solar cells can be installed anywhere that direct sunlight or artificial lighting such as fluorescent systems emit visible light.

On June 24, 2009, we announced findings of USF researchers who, in a series of experiments repeatedly tested our SolarWindow’s™ Technology ultra-small solar cells on a 1”x 1” substrate against today’s popular solar materials for their capacity to produce electricity under varying artificial light conditions, mimicking the levels of light exposure in homes and commercial offices. In every case, these ultra-small solar cells have outperformed all of the conventional materials tested.

On September 16, 2010, we publicly unveiled working small-scale prototypes (measuring 4”x4”) of our SolarWindow™ Technology at USF.  USF researchers demonstrated SolarWindow’s ability to generate both ‘voltage’ to power lighting and ‘current’ to power mechanical devices. Researchers also demonstrated SolarWindow’s capacity to generate electricity from both natural and artificial fluorescent light.

We do not currently have a commercial product and there is no assurance that we will be able to successfully design, develop, manufacture, or sell any commercial product in the future.

Development of Our SolarWindow™ Technology

Under terms of the USF Sponsored Research Agreement, we have agreed to provide financial support for the project, “Semitransparent Flexible Power Foil (SFPF)” relating to the development of a prototype flexible semi-transparent organic power foil (1ft by 1ft dimension) for use as an energy-generating window glass in building-integrated photovoltaic products (the “USF Technology”). Pursuant to Rule 24b-2 we submitted a request for confidential treatment of certain portions of the USF Sponsored Research Agreement, relating to the payment terms,

scope of work under the USF Sponsored Research Agreement. Our request was granted on June 11, 2009. Accordingly, these terms of the USF Sponsored Research Agreement have not been disclosed.

On May 20, 2009, our wholly-owned subsidiary, New Energy Solar, entered into the USF Option Agreement with the University of South Florida Research Foundation, Inc., a not-for-profit corporation under Chapter 617 Florida Statutes, and a direct support organization of USF, pursuant to which New Energy Solar has the right to an exclusive option to obtain an exclusive worldwide commercial license under certain patents relating to the USF Technology. Pursuant to Rule 24b-2 we submitted a request for confidential treatment of certain portions of the USF Option Agreement, relating to the payment terms, scope of work under the USF Option Agreement. Our request was granted on June 11, 2009. Accordingly, these terms of the USF Option Agreement have not been disclosed.

On June 21, 2010, our wholly-owned subsidiary, New Energy Solar, entered into a license agreement (the “USF License Agreement”) with the University of South Florida Research Foundation. The USF License Agreement is related to our continuing development of a prototype flexible semi-transparent organic power foil (1ft by 1ft dimension) for an energy-generating window glass in building-integrated photovoltaic products.  Pursuant to Rule 24b-2 we submitted a request to the SEC for confidential treatment of certain portions of the USF License Agreement, relating to the payment terms under the USF License Agreement; our request was granted by the SEC on July 7, 2010. Accordingly, the terms of the USF License Agreement have not been disclosed.

Our USF SolarWindow™ Technology research is conducted in approximately 1,000 square feet of laboratory facilities (University of South Florida, Physics Department, SCA 421, 4202 E. Fowler Avenue, Tampa, Florida 33620-5700) provided by USF under the USF Sponsored Research Agreement. The cost of the facilities is included in the budget under our Sponsored Research Agreement.

Proprietary Assets

The SolarWindow™ Technology is subject to a patent application filed by USF (the “USF Patent Application”), licensed by us.  On June 21, 2010, our wholly-owned subsidiary, New Energy Solar, entered into a license agreement (the “USF License Agreement”) with the University of South Florida Research Foundation. The USF License Agreement is related to our continuing development of a prototype flexible semi-transparent organic power foil (1ft by 1ft dimension) for an energy-generating window glass in building-integrated photovoltaic products.  Pursuant to Rule 24b-2 we submitted a request to the SEC for confidential treatment of certain portions of the USF License Agreement, relating to the payment terms under the USF License Agreement; our request was granted by the SEC on July 7, 2010. Accordingly, certain terms and provisions of the USF License Agreement have not been disclosed.

Effective November 30, 2010, we entered into an addendum to the USF License Agreement, with USF expanding the scope of the USF License Agreement (the “Addendum”).  On December 3, 2010 we filed a confidential treatment request with the SEC regarding certain terms and provisions of the Addendum, which request is currently pending.

We may not be able to make required cash payments, if any, when due or achieve other requirements associated with the USF License Agreement. If we do not, we will risk the loss of our license and our right to develop and market products, if any, derived from the SolarWindow™ Technology, the loss of which will have a material adverse effect on the business and may require us to substantially curtail our operations.

We may not retain all rights to developments, inventions, patents and other proprietary information resulting from any collaborative arrangements, whether in effect as of the date hereof or which may be entered into at some future time with third parties. As a result, we may be required to license such developments, inventions, patents or other proprietary information from such third parties, possibly at significant cost to us. Our failure to obtain any such licenses could have a material adverse effect on the business, financial condition and results of our operations. In particular, the failure to obtain a license could prevent us from using or commercializing our technology.

Our ability to compete effectively depends in part, on our ability to maintain the proprietary nature of our technologies, which includes the ability to license patented technology or obtain, protect and enforce new patents on our technology and to protect our trade secrets.

If we cannot directly pursue others from infringing on the USF Patent Application, we will need to rely on USF, as the case may be, to do so.  USF, as the case may be, may not devote the resources that may be required in any such effort to preclude others from infringing on their respective patents or other proprietary rights which may be related to the SolarWindow™ Technology. Even though we have obtained an exclusive license to the SolarWindow™ Technology, we cannot rely on the USF Patent Application to provide us with a significant competitive advantage. Others may challenge the USF Patent Application and, as a result, the USF Patent Application could be narrowed, invalidated or rendered unenforceable. Competitors may develop competitive products that may be outside the scope of protection, if any, afforded by the USF Patent Application.

In addition, any future patent applications may not result in the issuance of patents in the United States or foreign countries. Further, it may take years to obtain the approval (or rejection) of patent applications. The validity or enforceability of a patent after its issuance by the Patent and Trademark Office can be challenged in litigation.  The patents protecting our products may be infringed or successfully avoided through design innovation.  The cost of patent litigation may be substantial. If the outcome of the litigation is adverse to the owner of the patent, third parties may then be able to use the invention covered by the patent without payment or permission of the patent owner.

Market Overview of Our SolarWindow™ Technology

We believe that a significant market opportunity exists for our SolarWindow™ Technology, which enables glass windows to generate electricity by coating their surfaces with see-thru electricity-generating coatings. 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 double from 2003 to 2030, according to the Energy Information Administration (EIA), 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.

We believe that the commercial opportunity to install see-thru glass windows capable of generating electricity in homes and commercial buildings is significant. There are nearly 5 million commercial buildings in America, according to the Energy Information Administration, and more than 80 million single detached homes.

Government Regulation of Our SolarWindow™ Technology

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 manufacture and marketing of any products derived from such research and development activities.

The production and marketing of our SolarWindow™ Technology products, currently under development, involves the development and implementation of new technologies which are 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 (OSHA) regulations, National Electrical Code (NEC) as approved as an American National Standard by the American National Standards Institute (ANSI) or ANSI/NFPA-70, certification by Underwriters Laboratories (UL) and the Society of Automotive Engineers (SAE), 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.

Testing and Demonstration of Our SolarWindow™ Technology

Researchers at USF set out to determine the performance of our SolarWindow™ Ttechnology, currently under development, against commercially available solar cells when operating under various artificial light conditions.  Under all three simulated, artificial lighting conditions in these test, our solar module outperformed the three commercially-available solar cells tested.

On September 16, 2010, we publicly unveiled working small-scale prototypes (measuring 4”x4”) of our SolarWindow™ Technology at USF.  USF researchers demonstrated SolarWindow’s ability to generate both ‘voltage’ to power lighting and ‘current’ to power mechanical devices. Researchers also demonstrated SolarWindow’s capacity to generate electricity from both natural and artificial fluorescent light.

Sales and Marketing of Our SolarWindow™ Technology

Ultimately, we plan to market SolarWindow™ products, if any, subject to obtaining regulatory approvals, through co-marketing, co-promotion, licensing and distribution arrangements with third party collaborators.

No such arrangements presently exist. We believe that this approach will both increase market penetration and commercial acceptance of our products and enable us to avoid expending significant funds to develop a large sales and marketing organization.

Competition For Our SolarWindow™ Technology

Competition in the solar-photovoltaic’s industry is growing. Although we are not aware of other products substantially similar to our SolarWindow™ Technology product under development, 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 (CIGS), titanium dioxide, and copper indium diselenide, and others. Given the benefit of 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, obtaining regulatory approvals for their products, operating experience, research and development and marketing capabilities and production capabilities. We will face competition from companies marketing existing products or developing new products which may render our technologies absolute. The description 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:

·     Konarka Technologies, Inc. - is focused on the development and advancement of nano-enabled polymer photovoltaic materials that are lightweight, flexible and more versatile than traditional solar materials;

·     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;  

·     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); and

·     DuPont - is a leading materials supplier to the Photovoltaic (PV) industry, with more than 20 years of experience in PV materials development, applications know- how, manufacturing expertise and global market access, and offers a broad and growing portfolio of films, resins for encapsulants, encapsulant films, and conductive pastes.

·         3M - has developed its 3M Ultra Barrier Solar Film for flexible copper indium gallium diselenide (CIGS), cadmium telluride (CdTe) and organic photovoltaic (OPV) solar modules.

            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 electrical power production, safety, reliability, availability, price and patent position. Another important factor will be the timing of market introduction of our competitive products. Accordingly, the speed with which we can develop our SolarWindow™ products, complete safety approvals processes and ultimately supply commercial quantities of the products 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.  

Research and Development

Research and development costs represent costs incurred to develop our SolarWindow™ and MotionPower™ technologies and were incurred pursuant to our sponsored research agreements with Oakland University and USF, a development agreement with Veryst Engineering LLC, and agreements with Sigma Design and other third party providers. These agreements include 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. 

Research and development expense for the years ended August 31, 2010 and 2009 were $685,549 and $323,848.

Employees

As of August 31, 2010, we had one employee, Mr. John A. Conklin, our President, Chief Executive Officer, and Chief Financial Officer. 

Item 2.  Properties

Our corporate office is located at 9192 Red Branch Road, Suite 110, Columbia, Maryland 21045. On December 1, 2009, we entered into a one year sublease agreement with MVP Law Group, P.A., of which our former Chief Executive Officer and President is a founder and managing attorney. Rent for this office space is $900 per month through November 30, 2010. Our sublease with MVP Law Group, P.A., will renew effective December 1, 2010 for an additional twelve months, at which time our monthly rent will increase to $1,100 per month.

We also maintain an office at 1050 Connecticut Ave NW, 10th Floor, Washington, DC 20036. We have a one year lease, which began September 22, 2008 and automatically renewed on the anniversary date for another year.  On March 31, 2010, we provided written notice to our landlord, terminating this lease, effective September 30, 2010.  The rent for the office in Washington, DC is $275 per month plus tax and variable charges. Pursuant to the lease terms, we are provided with a bundle of services, including, but not limited to, reception, phone and mail service for one gross price.

We also maintain an office at 8875 Hidden River Parkway, Suite 300, Tampa, FL 33637. We have a one year lease, which began on February 16, 2009 and automatically renewed on the anniversary date for another year.  We may terminate this lease agreement by giving written notice to the landlord not less than sixty (60) days prior to the expiration of the term of the lease.  The rent for the office in Tampa, FL is $225 per month plus tax and variable charges. Pursuant to the lease terms, we are provided with a bundle of services, including, but not limited to, reception, phone and mail service for one gross price.

Item 3.  LEGAL PROCEEDINGS

As of the date of this report, we are not a party to any material pending legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, management is not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Should any liabilities incur in the future, they will be accrued based on management’s best estimate of the potential loss. As such, there is no adverse effect on our financial position, results of operations or cash flow at this time. Furthermore, we do not believe that there are any proceedings to which any of our directors, officers, or affiliates, any owner of record of the beneficially or more than five percent of our common stock, or any associate of any such director, officer, affiliate, or security holder is a party adverse or has a material interest adverse to us.

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 traded on the Over the Counter Bulletin Board (the “OTCBB”) under the symbol “NENE”. 

The following table sets forth the high and low bid quotations for our common stock for each quarter during the past two fiscal years as reported by the OTCBB.  The below quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:

As of December 8, 2010, there were approximately 45 stockholders of record of the Company's Common Stock.

Dividend Policy

We have not paid any dividends on our common stock and our board of directors 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 of directors 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 table 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, as of August 31, 2010.

Equity Compensation Plan Not Approved by Security Holders

On October 10, 2006, our Board of Directors (the “Board”) adopted and approved the 2006 Incentive Stock Option Plan (the “2006 Stock Plan”) that provides for the grant of stock options to employees, directors, officers and

consultants. The 2006 Stock Plan provides for the granting of options to purchase a maximum of 15,000,000 shares of our common stock

The 2006 Stock Plan is administered by the Board, provided however, that the Board may delegate such administration to a Committee (the “Committee”).

The per share exercise price for each stock option is determined by the Board and may not be below fair market value on the date of grant.  The fair market value of our common stock is the closing price of the common stock as listed on the OTCBB 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.

If at the time a stock option is granted, the optionee owns more than 10% of the voting power of all classes of our stock or any Parent or Subsidiary (the “Ten Percent Holder”), the per share exercise price for the stock option must be at least 110% of the fair market value per share on the date of grant.

Any stock option granted to an employee becomes exercisable over a period of no longer than five (5) years, and no less than twenty percent (20%) of the shares covered thereby shall become exercisable annually. No stock option is exercisable, in whole or in part, prior to one (1) year from the date it is granted unless the Board specifically determines otherwise. In no event will any stock option be exercisable after the expiration of ten (10) years from the date it is granted, and no stock option granted to a Ten Percent Holder will be exercisable after the expiration of five (5) years from the date of grant.

The period within which the stock option may be exercised and the conditions which must be satisfied before the stock option may be exercised is determined by the Board.  The Board shall also fix the number of shares granted under the stock option. 

No shares of common stock will be issued or delivered to an optionee until we receive full payment of the option exercise price.  The number of shares of common stock deliverable with respect to each payment of the option exercise price is subject to appropriate adjustment upon any stock split or combination of shares, or upon any stock dividend.

Upon the occurrence of any corporate merger, consolidation, sale of all or substantially all of our assets, or other reorganization, or a liquidation, unless otherwise provided by the Board, the stock option terminates immediately prior to such date as is determined by the Board.  In such event, if the entity is the surviving entity and does not tender to optionee an offer to substitute for any unexercised stock option, a stock option or capital stock of such surviving entity, as applicable, which on an equitable basis shall provide the optionee with substantially the same economic benefit as such unexercised stock option, then the Board may grant to such optionee, in its sole and absolute discretion and without obligation, the right for a period commencing thirty (30) days prior to and ending immediately prior to the date determined by the Board pursuant hereto for termination of the option or during the remaining term of the option, whichever is the lesser, to exercise any unexpired option or options; provided, that any such right granted shall be granted to all optionees not receiving an offer to receive substitute options on a consistent basis, and provided further, that any such exercise shall be subject to the consummation of such reorganization.

Subject to any required action of shareholders, if we are the surviving entity in any merger or consolidation, each outstanding option thereafter shall pertain to and apply to the securities to which a holder of shares of common stock equal to the shares subject to the option would have been entitled by reason of such merger or consolidation.

⁽¹⁾             Consists of grants under our 2006 Stock Plan. 

⁽²⁾                   Consists of:

                                (A) 50,000 stock options at an exercise price of $1.66 per share granted to a Board member on March 10, 2008, expiring on March 10, 2018,

                                (B) 50,000 stock options at an exercise price of $0.85 per share granted to each of two Board members (total of 100,000 stock options) on September 9, 2008, expiring on September 9, 2018,

                                (C) 250,000 stock options at an exercise price of $0.44 per share, granted to Mr. Meetesh Patel, our former President, Chief Executive Officer, Chief Financial Officer, and former director. On August 9, 2010, Mr. Patel tendered his resignation from all executive officer positions held with us and as one of our directors.  Pursuant to the terms of the stock option agreement, Mr. Patel had 90 days following the date he ceased to be an officer or one of our directors to exercise these fully vested stock options.  On November 1, 2010, Mr. Patel exercised 70,000 of these stock options. Accordingly, we received proceeds of $30,800 and issued 70,000 shares of our common stock.  The remaining 180,000 stock options were forfeited, unexercised, effective November 7, 2010.

                                (D) 50,000 stock options at an exercise price of $0.44 per share granted to each of three Board members (total of 150,000 stock options) on December 15, 2009, expiring on December 15, 2014,

(E) 150,000 stock options at an exercise price of $0.58 per share granted to Mr. Patel on April 6, 2010.  Pursuant to the stock option agreement between us and Mr. Patel, the vesting of this stock option was accelerated when we mutually terminated the Employment Agreement between us and Mr. Patel on August 9, 2010. Pursuant to the terms of the stock option agreement, Mr. Patel had the right at any time within the then remaining exercise period of such vested options to exercise this stock option.  On November 1, 2010, Mr. Patel exercised all 150,000 of these stock options via the cashless exercise option set forth in the option agreement and we issued 80,952 shares of our common stock in full settlement of this of this stock option exercise.

                                (F) 2,000,000 stock options at an exercise price of $0.55 per share, granted to Mr. John A. Conklin, our President, Chief Executive Officer, and Chief Financial Officer, pursuant to the terms of an Employment Agreement dated August 9, 2010 between us and Mr. Conklin. The stock options are subject to certain vesting provisions and expire on August 9, 2020.

                                Please refer to “ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE,” and “ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.”

Item 7.   Management's Discussion and Analysis of Financial condition and results of operations

Overview

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 Profile Technologies, Inc. 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.

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 New Energy Technologies, Inc. and our wholly-owned subsidiaries, Sungen Energy, Inc. (“Sungen”), Kinetic Energy Corporation (“KEC”), Octillion Technologies Limited (“Octillion Technologies”) and New Energy Solar Corporation (“New Energy Solar”).

Sungen was incorporated on July 11, 2006 in the State of Nevada and has no assets and no liabilities.

KEC was incorporated on June 19, 2008 in the State of Nevada and has no assets and no liabilities.

Octillion Technologies was incorporated on April 11, 2007 in the Province of British Columbia, Canada for providing administrative services to the Canadian office. We ceased to conduct business in Canada on August 31, 2008 and closed this office. As a result, we dissolved Octillion Technologies and eliminated all intercompany balances, effective December 1, 2008.

New Energy Solar was incorporated on February 9, 2009 in the State of Florida and has no assets and no liabilities.

Our research and development activities include the development of a technology to adapt home and office glass windows into products capable of generating electricity from solar energy without losing significant transparency or requiring major changes in manufacturing infrastructure, and technologies to harness the kinetic energy of vehicles to generate electricity.

Ultimately, we plan to market MotionPower™ Technology and/or SolarWindow™ Technology products, if any, subject to receiving any requisite regulatory approvals, through co-marketing, co-promotion, licensing and distribution arrangements with third party collaborators. The decision as to which method or methods of

commercialization we will pursue will depend on various factors including, but not limited to, our financial resources at the time, manufacturing costs, market acceptance of the product(s), and competing technologies or products at the time.

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. Currently no such products or arrangements exist, nor can we currently project with any degree of accuracy when, if ever, such products or arrangements may exist.  If we do not ultimately commercialize products derived from our MotionPower™ Technology and/or SolarWindow™ Technology we will not generate revenues from our operations as currently conducted.

Our success will be dependent upon our ability to develop products that are superior to existing products and products introduced in the future, and which are cost effective. In addition, we may be required to continually enhance any products that are developed as well as introduce new products that keep pace with technological change and address the increasingly sophisticated needs of the marketplace. There can be no assurance that we will be able to keep pace with the technological demands of the marketplace or successfully develop products that will succeed in the marketplace.

We cannot currently estimate with any accuracy the amount of either the additional funds or time required to successfully commercialize either technology, because the actual cost and time may vary significantly depending on results of current basic research and development and product testing, cost of acquiring an exclusive license, changes in the focus and direction of our research and development programs, competitive and technological advances, the cost of filing, prosecuting, defending and enforcing patent claims, the regulatory approval process, manufacturing, marketing and other costs associated with commercialization of products following receipt of regulatory approvals and other factors.

SolarWindow™ Technology

Current Research Agreements

USF Sponsored Research Agreement, Option Agreement, and License Agreement

On May 20, 2009, our wholly-owned subsidiary, New Energy Solar, entered into the USF Sponsored Research Agreement with USF, for support to the project entitled “Semitransparent Flexible Power Foil (SFPF)” relating to the development of a prototype flexible semi-transparent organic power foil (1ft by 1ft dimension) for use as an energy-generating window glass in building-integrated photovoltaic products (the “SolarWindow™ Technology”).  Pursuant to Rule 24b-2 we submitted a request to the SEC for confidential treatment of certain portions of the USF Sponsored Research Agreement, relating to the payment terms and scope of work under the USF Sponsored Research Agreement; our request was granted by the SEC on June 11, 2009. Accordingly, the terms of the USF Sponsored Research Agreement have not been disclosed.

On May 20, 2009, our wholly-owned subsidiary, New Energy Solar, also entered into an Option Agreement (the “USF Option Agreement”) with the University of South Florida Research Foundation, Inc., a not for profit corporation under Chapter 617 Florida Statutes, and a direct support organization of USF, pursuant to which New Energy Solar has the right to an exclusive option to obtain an exclusive worldwide commercial license under certain patents relating to the SolarWindow™ Technology. Pursuant to Rule 24b-2 we submitted a request to the SEC for confidential treatment of certain portions of the USF Option Agreement, relating to the payment terms and scope of work under the USF Option Agreement; our request was granted by the SEC on June 11, 2009. Accordingly, these terms of the USF Option Agreement have not been disclosed.

On June 21, 2010, our wholly-owned subsidiary, New Energy Solar, entered into a license agreement (the “USF License Agreement”) with the University of South Florida Research Foundation. The USF License Agreement is related to our continuing development of a prototype flexible semi-transparent organic power foil (1ft by 1ft dimension) for an energy-generating window glass in building-integrated photovoltaic products.  Pursuant to Rule 24b-2 we submitted a request to the SEC for confidential treatment of certain portions of the USF License

Agreement, relating to the payment terms under the USF License Agreement; our request was granted by the SEC on July 7, 2010. Accordingly, the terms of the USF License Agreement have not been disclosed.

Effective November 30, 2010, we entered into an addendum to the USF License Agreement, with USF expanding the scope of the USF License Agreement (the “Addendum”).  On December 3, 2010 we filed a confidential treatment request with the SEC regarding certain terms and provisions of the Addendum, which request is currently pending.

Terminated Research Agreements

UIUC Sponsored Research Agreement

On August 25, 2006, through our wholly owned subsidiary, Sungen, we entered into a Sponsored Research Agreement (“UIUC Sponsored Research Agreement”) with the University of Illinois at Urbana-Champaign (“UIUC”) for the development of a new patent-pending technology to integrate films of silicon nanoparticle material on glass substrates, acting as photovoltaic solar cells that have the potential to convert normal home and office glass windows into ones capable of converting solar energy into electricity, with limited loss of transparency and minimal changes in manufacturing infrastructure (the “UIUC Silicon Nanoparticle Energy Technology”). On July 23, 2007, Sungen, amended its Sponsored Research Agreement with UIUC. Pursuant to this amended Sponsored Research Agreement, we agreed to provide an additional $203,617 to the previously awarded amount of $219,201 for a total of $422,818, to the University of Illinois in order to accelerate the development of films of silicon nanoparticle material composed of nanosilicon photovoltaic solar cells that have the potential to convert solar radiation to electrical energy.

The UIUC Sponsored Research Agreement expired on August 22, 2008. As of this date, we had advanced a total of $266,709 to the University of Illinois pursuant to the terms of the UIUC Sponsored Research Agreement. Pursuant to the terms of the UIUC Sponsored Research Agreement, we were to advance an additional $156,109 to the University of Illinois, which is included in other accrued liabilities at August 31, 2010 and 2009. However, we have not made the advance pending determination as to whether funds previously paid to UIUC under the terms of the UIUC Sponsored Research Agreement have been fully expended. We are of the opinion that to the extent these funds were not expended they are refundable to us.

During both of the years ended August 31, 2010 and 2009 we did not record any research and development expense pursuant to the UIUC Sponsored Research Agreement. During the period from inception (May 5, 1998) to August 31, 2010, we recorded $422,818 as research and development expense pursuant to the UIUC Sponsored Research Agreement.

Oakland Sponsored Research Agreement

On August 18, 2008, we entered into a two-year Sponsored Research Agreement (“Oakland Sponsored Research Agreement”) with scientists at Oakland University to further the development of our photovoltaic technology for generating electricity on transparent glass windows.

Pursuant to the terms of the Oakland Sponsored Research Agreement we agreed to advance a total of $348,066 to fund the research and development activities of which $140,519 was payable on or before September 1, 2008, $127,547 was payable on or before October 1, 2009 and $80,000 was payable on demand during the contract period for reimbursement of materials provided by Oakland University.  In August 2008, we advanced $140,519 to Oakland University pursuant to the Oakland Sponsored Research Agreement.  In February 2009, in order to preserve our working capital, we decided that it was in our best interest not to proceed forward with the Oakland Sponsored Research Agreement and exercised our termination right by providing written notice to Oakland University of our election to terminate the Oakland Sponsored Research Agreement. As of the termination date of the Oakland Sponsored Research Agreement, $20,220 of the $140,519 initially advanced to Oakland University had been expended, all during the quarter ended February 28, 2009, and is included in research and development expense for the year ended August 31, 2009.  The remaining $120,299 was refunded to us in April 2009.

MotionPower™ Technology

Veryst Agreement

On November 4, 2008, our wholly-owned subsidiary, KEC, entered into an agreement (the “Veryst Agreement”) with Veryst Engineering LLC (“Veryst”) relating to the development of a car and truck energy harvester. The Veryst Agreement continues until terminated by either Veryst Engineering LLC or KEC. Pursuant to Rule 24b-2 we submitted a request for confidential treatment of certain portions of the Veryst Agreement, relating to the payment terms, scope of work and the milestone terms of the license agreement under the Veryst Agreement.  Our request was granted on November 25, 2008.  

On September 9, 2009, we entered into two additional agreements with Veryst whereby Veryst performed additional testing of our vehicle energy harvester and advanced prototyping as well as continued development of a commercial scale truck energy harvester. 

During the years ended August 31, 2010 and 2009, we recorded $298,915 and $4,176, respectively, as research and development expense pursuant to the agreements with Veryst entered into on September 9, 2009.  During the period from inception (May 5, 1998) to August 31, 2010, we recorded $303,091 as research and development expense pursuant to these same agreements. 

On July 6, 2010, we entered into another agreement with Veryst whereby Veryst performed services associated with improving system energy capture and conversion, and enhancing electrical power production.

During the years ended August 31, 2010 and 2009, we recorded $48,000 and $0, respectively, as research and development expense pursuant to the agreement with Veryst entered into on July 6, 2010.  During the period from inception (May 5, 1998) to August 31, 2010, we recorded $48,000 as research and development expense pursuant to the same agreement.

We continue to utilize Veryst, on a consulting basis, to further test and calibrate our MotionPower™ Technology.

Sigma Design Agreement

On May 1, 2009, KEC entered into a consulting agreement (the “Initial Sigma Consulting Agreement”) with Sigma Design Company (“Sigma Design”) whereby Sigma Design provided ongoing engineering and product development services relating to the development of our MotionPower™ Technology.  On August 25, 2009, KEC entered into an additional consulting agreement with Sigma Design whereby Sigma Design continued to provide engineering services relating to the development of our MotionPower™ Technology (the “Additional Sigma Consulting Agreement”). On June 25, 2010, KEC entered into another consulting agreement with Sigma Design whereby Sigma Design will develop a modified prototype for the MotionPower™ Technology, which will deliver more output than the original prototype. The agreements between KEC and Sigma Design are collectively referred to herein as the “Sigma Design Agreements”).  Each of the Sigma Design Agreements may be terminated by either Sigma Design or us upon 30 days written notice to the other party.  We have also engaged Sigma Design to conduct durability field tests of our MotionPower™ Technology.

During the years ended August 31, 2010 and 2009, we recorded $197,102 and $69,169, respectively, as research and development expense pursuant to the Sigma Design Agreements and services provided for the durability field tests.   During the period from inception (May 5, 1998) to August 31, 2010, we recorded $266,271 as research and development expense pursuant to the Sigma Design Agreements and services provided for the durability field tests.

Nerve Regeneration Technology

On August 22, 2007, we spun off our wholly-owned biotechnology subsidiary, MicroChannel Technologies Corporation (“MicroChannel”) with our shareholders. The net assets and results of operations of MicroChannel of the prior period have been reclassified as discontinued operations.

Results of Operations

Operating Expenses

A summary of our operating income (expense) for the years ended August 31, 2010 and 2009 was as follows:

 * Not meaningful               

Marketing

Marketing costs represent fees paid to publicize our technology within the industry and investor community with the purpose of increasing company recognition.

We utilize various third parties to facilitate our marketing programs, to increase company recognition and branding, and to provide shareholder communications.

The increase in marketing expense during the year ended August 31, 2010 compared to the year ended August 31, 2009 is substantially due to us undertaking a targeted marketing program during the current year-end and entering into a Public Relations Agreement (the “PR Agreement”), as described below in July 2009.

During the year ended August 31, 2010, we spent $450,000 on our marketing program, compared to $356,170 in the prior year.  We incurred $93,830 more during the current year as a result or our targeted marketing program designed to establish our brand name recognition early on in our corporate development.  During this time our marketing efforts, in addition to keeping our shareholders apprised of the advances to our technologies, have generated more than 70 news media stories, including online, radio, television, and print media coverage in leading mainstream media in the United States.

As the development of our MotionPower™ Technology and SolarWindow™ Technology products advances, we intend to continue to further develop and market our brand name, pending commercialization of our MotionPower™ Technology and SolarWindow™ Technology products, if any. Subject to the receipt of any requisite regulatory approvals, we believe our marketing strategy ultimately will facilitate the distribution, sale and public acceptance of our MotionPower™ Technology and SolarWindow™ Technology products. We anticipate that as our technologies advance we may be required to expend increasing amounts in connection with our marketing efforts.

Effective July 29, 2009, we entered into a one-year PR Agreement with a third party consultant to implement a public relations program.  In accordance with the terms of the PR Agreement, we pay the third party consultant $6,500 per month plus reimbursement of expenses.  We renewed the PR Agreement for another year, expiring July

29, 2011.  Either party may cancel the PR Agreement upon 60-days written notice.  During the year ended August 31, 2010, we incurred $79,200 pursuant to the PR Agreement compared to $13,415 in the prior year, an increase of $65,785.

In addition to the targeted marketing program and PR Agreement previously discussed, we also have a Market Agreement and a Shareholder Communications Agreement with third party providers.

Effective October 1, 2008, we entered into a one-year Market Access Services Agreement (the “Market Agreement”) to publicize our technology within the industry and increase company recognition and branding.  In accordance with the terms of the Market Agreement, we pay $1,900 per month for investor and public relations, corporate branding and corporate image services.  The Market Agreement automatically renewed on October 1, 2009 for another one-year term. During the years ended August 31, 2010 and 2009, we incurred $30,300 and $32,167, respectively related to the Market Agreement.

Effective April 15, 2009, we entered into a one-year Shareholder Communication Services Agreement (the “Shareholder Communications Agreement”) with a third party consultant to provide shareholder communication and related administrative services.  In accordance with the terms of the Shareholder Communications Agreement, we initially paid the third party consultant $1,250 per month. As a result of an increase in services provided to us, effective September 15, 2009, the Shareholder Communications Agreement was amended, increasing the amount paid the consultant to $1,500 per month.  The Shareholder Communications Agreement was subsequently amended again, effective February 1, 2010, increasing the amount paid to the consultant to $1,667 per month.  The Shareholder Communications Agreement was renewed for another one-year term, expiring on April 15, 2011.  During the years ended August 31, 2010 and 2009, we incurred $19,042 and $5,625, respectively related to the Shareholder Communications Agreement.

Wages and Benefits

On August 9, 2010, Mr. Meetesh Patel resigned as our President, Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and as one of our directors.  Prior to Mr. Patel’s resignation, we recorded stock compensation of $498,923 and $121,816 during the years ended August 31, 2010 and 2009, related to the amortization of the fair value of stock options previously granted to Mr. Patel.  As a result of Mr. Patel’s resignation, we recorded a reversal of stock compensation expense of $465,840 during the year ended August 31, 2010, for stock options granted that were unvested and forfeited at the time of his resignation. Please refer to “Note. 9 Stock Options” in the consolidated notes to the financial statements included in this Form 10-K.  During the years ended August 31, 2010 and 2009, we recorded $166,767 and $162,638 in wages and benefits expnese for services rendered by Mr. Patel. 

Upon Mr. Patel’s resignation, we appointed Mr. John A. Conklin to serve as our President, CEO, and CFO, effective August 9, 2010.  During the year ended August 31, 2010, we incurred $10,961 in wages and benefits expense for services rendered by Mr. Conklin and $78,607 in stock compensation expense for the amortization of the fair value of the stock option granted to Mr. Conklin on August 9, 2010 to purchase up to 2,000,000 shares of our common stock at an exercise price of $0.55 per share, expiring on August 9, 2020. Please refer to “Note. 9 Stock Options” in the consolidated notes to the financial statements included in this Form 10-K.

During the years ended August 31, 2010 and 2009, we incurred $566 and $77,154 in wages and benefits expense for services rendered by Mr. Nicholas Cucinelli, our former President and CEO. Wages and benefits expense of $77,154 for the year ended August 31, 2009 includes a $50,000 severance payment pursuant to the Employment Termination Agreement, dated October 15, 2008 between us and Mr. Cucinelli.  As a result of his resignation, the stock option granted to Mr. Cucinelli on February 15, 2008 to purchase 1,250,000 shares of our common stock was forfeited pursuant to the terms the Employment Termination Agreement.  Accordingly, stock option compensation expense of $3,573,778 previously recorded during fiscal year 2008 was reversed during the quarter ended November 30, 2008 and is included in wages and benefits expense for the year ended August 31, 2009. 

During the year ended August 31, 2010, we incurred $23,497 in wages and benefits expense for services rendered by Mr. James B. Wilkinson.  On February 1, 2010 we entered into an “at will” employment agreement with Mr. Wilkinson pursuant to which Mr. Wilkinson was to serve as our Vice President Corporate Development and Chief Operating Officer, in consideration for which Mr. Wilkinson was to receive an annual salary of $150,000 (the

“Wilkinson Agreement”). On February 15, 2010, we received Mr. Wilkinson’s resignation, effective as of February 15, 2010, and his concurrence to the mutual termination of the Wilkinson Agreement. 

Wages and benefits for the year ended August 31, 2009 also includes $50,703 for severance paid to employees in our former administrative office in Vancouver, British Columbia, which was closed effective August 31, 2008. 

Following is a summary of wages and benefits expense (income) for each individual who served as our President, Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer during the years ended August 31, 2010 and 2009:

Management Fees – Related Party

During the year ended August 31, 2009, we incurred $4,472 for services rendered by Mr. Frank Fabio, our former consultant CFO.  Mr. Fabio resigned as CFO, effective January 9, 2009.

On September 12, 2008, we granted a stock option to Mr. Fabio to purchase, subject to applicable vesting provisions, 50,000 shares of our common stock at an exercise price of $0.78 per share. During the year ended August 31, 2009, we recorded stock compensation expense of $4,053 related to Mr. Fabio’s stock option grant.  Pursuant to the terms of the stock option agreement, the stock option was all forfeited upon his resignation.  Accordingly, stock option compensation expense of $4,053 previously recorded was reversed resulting in a net $0 impact to the consolidated statements of operations for the year ended August 31, 2009.

Professional Fees

Professional fees consist primarily of accounting, audit and tax fees, legal fees, non-employee Board fees, SEC related filing fees, and consulting services provided to advance our MotionPower™ Technology and SolarWindow™ Technology products (“Energy Consulting Services”).

Professional fees increased $151,936 during the year ended August 31, 2010 compared to the year ended August 31, 2009 primarily as a result of increases in accounting and audit related fees of approximately $17,000, legal fees of approximately $32,400, SEC filing fees of approximately $30,400, Board fees of approximately $24,500, and Energy Consulting Services of approximately $54,200.  Offsetting these increases was a decrease in tax fees of approximately $6,200 related to the filing of amended tax returns during fiscal year 2009.  The increases in

accounting, audit, legal and SEC filing fees are directly related to the preparation and filing of our Form S-1, and amendments thereto. The increase in Board fees is entirely due to stock compensation related to stock options that were granted to non-employee board members on December 15, 2009. Please refer to “Note. 9 Stock Options” in the consolidated notes to the financial statements included in this Form 10-K. Energy Consulting Services were incurred pursuant to a consulting agreement that we entered into on April 1, 2010, with Mr. John A. Conklin whereby Mr. Conklin provided technical advice, guidance, and management oversight to help advance the commercial development of our technologies, including but not necessarily limited to our SolarWindow™ and MotionPower™ technologies.  In consideration of Mr. Conklin’s services, we paid Mr. Conklin $11,000 per calendar month for the first three calendar months of the consulting agreement and $12,444 for each calendar month of service thereafter.  In additional consideration of Mr. Conklin’s services, we granted Mr. Conklin a stock option to purchase up to 250,000 shares of our common stock at an exercise price of $0.54 per share, expiring five years from the date of grant on April 1, 2015.  On August 9, 2010, contemporaneously with the resignation Mr. Meetesh Patel as an officer and director of the Company, we entered into an employment agreement with Mr. John A. Conklin pursuant to which Mr. Conklin was appointed our President, CEO, and CFO. Pursuant to Mr. Conklin’s employment agreement, the 250,000 stock options previously granted to him on April 1, 2010 were forfeited, none of which had vested.  Accordingly, stock option compensation expense of $13,131 previously recorded was reversed resulting in a net $0 impact to the consolidated statements of operations for the year ended August 31, 2010.

Research and Development

Research and development costs represent costs incurred to develop our technology and are incurred pursuant to our sponsored research agreements with USF and Oakland University, development agreements with Veryst, consulting agreements with Sigma Design, and agreements with other third party providers. These agreements include salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, contract services 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. 

Please refer to the appropriate sections above for disclosure of the specific terms and amounts incurred for each research and development agreement.

License Fee

Please refer to “USF Sponsored Research Agreement, Option Agreement, and License Agreement” under “SolarWindow™ Technology” above.

Travel and Entertainment

Travel and entertainment for the year ended August 31, 2010 was primarily related to executive and Board member travel required as part of the ongoing research and development efforts as well as in connection with the preparation and filing of our Form S-1 and amendments thereto.

Travel and entertainment for the year ended August 31, 2009 was partially related to us closing our administrative office in Vancouver, British Columbia, Canada, effective August 31, 2008. We incurred significant travel related expenses during the fourth quarter of fiscal year 2009 as part of our ongoing research and development efforts, particularly related to the MotionPower^TM Technology.  During the fourth quarter of fiscal year 2009, we announced, by way of press releases, that we had completed a prototype for the MotionPower^TM energy harvester for heavy trucks and vehicles and expanded testing of the MotionPower^TM prototype to include active field tests of the devices. 

Other Operating Expenses

Other operating expenses includes rent, patent filing costs, utilities, insurance, press releases, information technology related fees, printing costs, and other administrative costs. 

Other operating expenses increased $139,401 during the year ended August 31, 2010 as compared to the year ended August 31, 2009 as a result of increases in printing and postage costs of approximately $10,300, patent expense of approximately $49,500, rent of approximately $9,200, press releases of approximately $30,100, and directors and officers insurance of approximately $38,900.  In both October 2009 and May 2010 we distributed letters from our President to all of our stockholders providing an update on the results of our testing of our MotionPower™ and SolarWindow™ Technologies, thus incurring printing and postage for this mailing.  Patent expense increased as a result of filing United States and international patent applications for our MotionPower™ Technology and SolarWindow™ Technology.  The increase in rent of $9,200 is due to the one year sublease agreement we entered into, effective December 1, 2009, with MVP Law Group, P.A., of which our former President and CEO, Mr. Patel, is a founder and managing attorney.  Monthly rent is $900.  As we continue to advance our MotionPower™ and SolarWindow™ Technologies we anticipate continuing to make announcements by way of press releases, resulting in additional fees for press releases. Prior to October 2009, we did not have insurance for our directors and officers.  The total annual premium for directors and officers insurance from October 2009 through September 2010 is $44,500, which we amortize on a straight-line basis over the term of the policy.

Other Income (Expense)

A summary of our other income (expense) for the years ended August 31, 2010 and 2009 was as follows:

* Not meaningful               

Interest Income

Interest income decreased during the year ended August 31, 2010 as compared to the year ended August 31, 2009 due to the closing of the administrative office in Vancouver, British Columbia, Canada. As of December 31, 2008, we transferred all of the funds in our interest bearing cash account maintained at a Canadian owned financial institution to non-interest bearing bank accounts at U.S. financial institutions.

Gain on Dissolution of Foreign Subsidiary

Octillion Technologies provided administrative services to our Canadian office. We ceased to conduct business in Canada, effective August 31, 2008 and closed this office. As a result, we dissolved Octillion Technologies and eliminated all intercompany balances and recorded a gain on our investment in Octillion Technologies equal to the accumulated other comprehensive income at December 1, 2008, the time of the dissolution.

Foreign Exchange Loss

We translate assets and liabilities of our foreign subsidiaries, other than those denominated in United States Dollars, at the rate of exchange at the balance sheet date.  The foreign exchange loss during the year ended August 31, 2009 is substantially the result of cash infusions made from New Energy Technologies to our former foreign subsidiary, Octillion Technologies (denominated in Canadian dollars), thereby increasing the intercompany payable on Octillion Technologies’ balance sheet.  Octillion Technologies was dissolved, effective December 1, 2008.

Change in Fair Value of Warrant Liability

On September 1, 2009, we adopted guidance which is now part of ASC 815-40, Contracts in Entity’s Own Equity.  We determined that our Class F Callable Warrants contained a Dilutive Issuance provision.  As a result, we reclassified 3,188,500 of our Class F Callable Warrants to warrant liability, resulting in a cumulative adjustment to accumulated deficit as of September 1, 2009 of $342,771.

Our Class F Callable Warrants are considered derivative financial liabilities and are therefore required to be adjusted to fair value each quarter.  We have valued our warrant liability at August 31, 2010 using a Black-Scholes model containing the following assumptions:  dividend yield of 0%, volatility of 68.99%, risk-free rate of 0.19%, and a term of 0.45 years.   Decreases in the remaining term and volatility of the Class F Callable Warrants during the year ended August 31, 2010 and a decline in the fair value of our common stock from September 1, 2009 to August 31, 2010 resulted in a decrease in the warrant liability and a non-cash gain related to the Class F Callable Warrants of $2,120,272 during the year ended August 31, 2010.

Liquidity and Capital Resources

The accompanying financial statements have been prepared assuming we will continue as a going concern.  We have incurred cumulative losses of $6,728,176 through August 31, 2010.  Due to the "start up" nature of our business, we expect to incur losses as we continue development of our photovoltaic and energy harvesting technologies and expand.  These conditions raise substantial doubt about our ability to continue as a going concern.  Management recognizes that in order for us to meet our capital requirements, and continue to operate, additional financing will 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.

Our principal source of liquidity is cash in the bank.  At August 31, 2010, we had a cash and cash equivalent balance of $502,528. We have financed our operations primarily pursuant to a Securities Purchase Agreement in which we received net proceeds of $3,395,955 in February 2008 (as further described below) and from the exercise of warrants.

Net cash used in operating activities was $2,233,693 for the year ended August 31, 2010, compared to net cash used in operating activities of $1,289,596 for the year ended August 31, 2009.  The increase in cash used in operating activities of $944,097 substantially reflects increases in amounts paid for marketing of approximately $176,000 (see “Marketing” above), research and development of $376,000 (see “Research and Development” above), professional fees of $139,000 (see “Professional Fees” above), license fee of $20,000 (see “License Fee” above), and other operating expenses (see “Other Operating Expenses” above).

Net cash provided by financing activities was $0 and $1,044,500 for the years ended August 31, 2010 and 2009.  During July and August 2009, we received $1,044,500 from the exercise of Class E and Class F warrants.

Securities Purchase Agreement

On February 12, 2008, we consummated the sale of an aggregate of 3,675,000 shares of our common stock and Class F Callable Warrants to purchase up to an additional 3,675,000 shares of our common stock for aggregate gross proceeds of $3,675,000 pursuant to the terms of a Securities Purchase Agreement dated February 8, 2008 (the “2008 Private Placement”) with certain institutional and other accredited investors (the “Investors”).

We engaged an agent (the “Agent”) to help in the fund raising efforts of the 2008 Private Placement. The agent was paid a total cash fee of 7% ($257,250) of the aggregate proceeds and received Class F Callable Warrants to purchase 514,500 shares of our common stock valued at $642,980 and representing 7% of the total number of shares purchased by the Investors. In addition, the Agent was reimbursed $6,045 for expenses incurred on our behalf.

Accrued Liabilities

On August 25, 2006, we entered into the UIUC Sponsored Research Agreement, which was amended on July 23, 2007. Pursuant to the amended UIUC Sponsored Research Agreement, we agreed to provide a total of $422,818 to the University of Illinois. The UIUC Sponsored Research Agreement expired on August 22, 2008. As of this date, we had advanced a total of $266,709 to the University of Illinois pursuant to the terms of the UIUC Sponsored Research Agreement. We were to advance an additional $156,109 to the University of Illinois, which is included in other accrued liabilities at August 31, 2010 and 2009. However, we have not made the advance pending determination as to whether funds previously paid to UIUC under the terms of the UIUC Sponsored Research Agreement have been fully expended. We are of the opinion that to the extent these funds were not expended they are refundable to us (see “UIUC Sponsored Research Agreement” under “Terminated Research Agreements” above).

Other Contractual Obligations

In addition to the contractual obligations discussed above for the research and development agreement with USF, as of August 31, 2010, we have future minimum lease payments of $17,300 under our corporate and other office operating leases.  In addition, we have future minimum payments totaling $1,900 pursuant to the Market Agreement entered into on October 1, 2008, $12,500 pursuant to the Shareholder Communications Services Agreement entered into on April 15, 2009, and $65,000 pursuant to the PR Agreement entered into on July 29, 2009.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

See Note 3.  “Summary of Significant Accounting Policies” to the Consolidated Financial Statements in this Form 10-K.

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. (formerly Octillion Corp.) and Subsidiaries ("the Company") (a development stage company) as of August 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and for the cumulative period from May 5, 1998 (inception), to August 31, 2010.  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, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, and for the cumulative period from May 5, 1998 (inception), to August 31, 2010, 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 2 to the consolidated financial statements, the Company has experienced recurring losses from operations since inception, 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 2.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/S/ PETERSON SULLIVAN LLP

Seattle, Washington

December 13, 2010