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EXCEL - IDEA: XBRL DOCUMENT - NEW ENERGY TECHNOLOGIES, INC.Financial_Report.xls
10-K - FORM 10-K - NEW ENERGY TECHNOLOGIES, INC.v329104_10k.htm
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EX-31.1 - EXHIBIT 31.1 - NEW ENERGY TECHNOLOGIES, INC.v329104_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - NEW ENERGY TECHNOLOGIES, INC.v329104_ex32-1.htm
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v2.4.0.6
Stock Options
12 Months Ended
Aug. 31, 2012
Notes to Financial Statements  
Note 7. Stock Options

On October 10, 2006, 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 stock options to purchase a maximum of 5,000,000 shares of the Company’s common stock. Stock options granted to employees under the Company’s 2006 Stock Plan generally vest over two to five years or as otherwise determined by the plan administrator. Stock options to purchase shares of the Company’s common stock expire no later than ten years after the date of grant.

 

The per share exercise price for each stock option is determined by the Board and may not be below the underlying stock price on the date of grant as listed on the OTC Markets Group, Inc. QB tier (the “OTCQB”).

 

The Company measures all stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite service period. The grant date fair value of stock options is calculated using the Black-Scholes-Merton formula which requires management to make assumptions regarding option time to expiration, expected volatility, and risk-free interest rates, all of which impact the fair value of the option and, ultimately, the expense that will be recognized over the life of the option.

 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a bond with a similar term. The Company does not anticipate declaring dividends in the foreseeable future. Volatility is calculated based on the historical weekly closing stock prices for the same period as the expected life of the option. The Company uses the “simplified” method for determining the expected term of its “plain vanilla” stock options. The Company recognizes compensation expense for only the portion of stock options that are expected to vest. Therefore, the Company applies an estimated forfeiture rate that is derived from historical employee termination data and adjusted for expected future employee turnover rates. If the actual number of forfeitures differs from those estimated by the Company, additional adjustments to compensation expense may be required in future periods. 

 

A summary of the Company’s stock option activity for the years ended August 31, 2012 and 2011, and related information follows:

 

    Number of
Options
    Weighted
Average
Exercise
Price ($)
    Weighted
Average
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value ($)
 
                         
Outstanding at August 31, 2010     900,003       1.71                  
Grants     610,002       5.97                  
Exercises     (73,334 )     1.61                  
Forfeitures     (476,666 )     5.59                  
Outstanding at August 31, 2011     960,005       2.49                  
Forfeitures     (98,334 )     5.93                  
Outstanding at August 31, 2012     861,671       2.10       7.41 years     $ 0  
                                 
Exercisable at August 31, 2012     385,666       2.39       6.80 years     $ 0  
                                 
Available for grant at August 31, 2012     4,064,995                          

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value for all “in-the-money” options (i.e. the difference between the Company’s closing stock price on the last trading day of fiscal 2012 and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on August 31, 2012. The intrinsic value of the option changes based upon the fair market value of the Company’s common stock. Since the closing stock price was $1.29 on August 31, 2012 and no outstanding options have an exercise price below $1.32 per share, as of August 31, 2012, there is no intrinsic value to our outstanding stock options.

 

The following table sets forth the share-based compensation cost resulting from stock option grants, including those previously granted and vesting over time, that were recorded in the Company’s Consolidated Statements of Operations for the years ended August 31, 2012 and 2011, and from May 5, 1998 (inception) to August 31, 2012:

 

                Cumulative  
    Year Ended     May 5, 1998  
    August 31,     (Inception) to  
    2012     2011     August 31, 2012  
Stock Compensation Expense:                        
Selling general and administrative expense   $ 205,098     $ 1,551,079     $ 2,130,768  

 

As of August 31, 2012, the Company had $131,347 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 2.75 years. 

 

Stock Option Activity During the Years Ended August 31, 2012

 

On December 8, 2011, Mr. Todd Pitcher resigned from the Board. Mr. Pitcher had vested 6,667 stock options and forfeited 10,000 unvested stock options. During the year ended August 31, 2011, the Company recorded stock based compensation of $27,784 for the amortization of the fair value of his stock option. Since the stock option was forfeited prior to 10,000 options vesting, $8,243 previously recognized for stock based compensation was reversed on November 30, 2011, resulting in total stock based compensation expense related to Mr. Pitcher’s stock option grant of $19,541. Mr. Pitcher has until December 8, 2013, to exercise his 6,667 vested stock options.

 

On August 12, 2012, 83,334 vested options held by Mr. Andrew Farago, the Company's former Chief Operating Officer expired unexercised.

 

On September 30, 2012, Mr. Javier Jimenez resigned from the Board. As a result of his resignation, Mr. Jimenez forfeited 5,000 unvested stock options and had vested 11,667 stock options. During the years ended August 31, 2012 and 2011, the Company recorded stock based compensation of $66,252 and $25,528, respectively for the amortization of the fair value of his stock option of which $9,117 and $14,588 relate to the forfeited options. Since the stock option was forfeited prior to 5,000 options vesting, $23,705 previously recognized for stock based compensation was reversed on August 31, 2012, resulting in total stock based compensation expense related to Mr. Jimenez's stock option grant of $68,075. Mr. Jimenez has until September 30, 2014, to exercise his 11,667 vested stock options.

 

Stock Option Activity During the Year Ended August 31, 2011

 

On April 5, 2011, the Company granted a stock option to purchase up to 10,000 shares of the Company’s common stock at an exercise price of $2.50 per share, the fair market value of the Company’s common stock on the date of grant, to an employee as partial compensation for services. The stock options expire ten years from the date of grant, on April 5, 2021 and vests as follows: (a) 2,000 shares on December 1, 2011, and (b) 2,000 shares on each of April 1 of 2012, 2013, 2014, and 2015. The stock option is further subject to the terms and conditions of a stock option agreement between the Company and the employee. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that employee ceases to be one of the Company’s employee. Upon termination of such service, the employee will have a specified period of time to exercise vested stock options, if any. The grant date fair value of the stock option granted was $23,536, estimated using the Black-Scholes-Merton formula containing the following assumptions: dividend yield of 0%, volatility of 133.0%, risk-free rate of 2.9%, and a term of 7.67 years. During the years ended August 31, 2012 and 2011, the Company recognized $7,028 and $16,639 of expense related to this issuance.

 

On March 21, 2011, the Board appointed Mr. Todd Pitcher and Mr. Peter Fusaro as directors and granted them each a stock option to purchase 16,667 shares of the Company’s common stock at an exercise price of $3.27 per share, the fair market value of the Company’s common stock on the date of grant. The stock options expire ten years from the date of grant, on March 21, 2021 and vests as follows: (a) 6,667 shares on March 21, 2011; (b) 5,000 shares on March 21, 2012; and (c) 5,000 shares on March 21, 2013. The stock options are further subject to the terms and conditions of a stock option agreement between the Company and each of Mr. Pitcher and Mr. Fusaro. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that either Mr. Pitcher or Mr. Fusaro ceases to be one of the Company’s directors. Upon termination of such service, Mr. Pitcher or Mr. Fusaro will have a specified period of time to exercise vested stock options, if any. The grant date fair value of each of the stock options granted to Mr. Pitcher and Mr. Fusaro was $48,850, estimated using the Black-Scholes-Merton formula containing the following assumptions: dividend yield of 0%, volatility of 133.3%, risk-free rate of 2.0%, and a term of 5.75 years. On December 8, 2011, Mr. Pitcher resigned from the Board. Mr. Pitcher had vested 6,667 stock options and forfeited 10,000 unvested stock options. During the year ended August 31, 2011, the Company recorded stock compensation of $27,784 for the amortization of the fair value of his stock option. Since the stock option was forfeited prior to 10,000 options vesting, $8,243 previously recognized for stock compensation was reversed on November 30, 2011 resulting in total stock compensation expense related to Mr. Pitcher’s stock option grant of $19,541. During the years ended August 31, 2012 and 2011, the Company recognized net expense of $8,243 and $55,568, respectively related to Mr. Pitcher and Mr. Fusaro’s option grants described above. 

 

On January 17, 2011, the Board appointed Mr. Javier Jimenez as a director and granted him a stock option to purchase 16,667 shares of the Company’s common stock at an exercise price of $6.51 per share, the fair market value of the Company’s common stock on the date the stock option agreement was executed by Mr. Jimenez, January 19, 2011. The stock option vested as follows: (a) 6,667 shares on January 19, 2011; (b) 5,000 shares on January 19, 2012; and (c) 5,000 shares on January 19, 2013. The grant date fair value of the stock option granted to Mr. Jimenez was $97,250 estimated using the Black-Scholes-Merton formula containing the following assumptions: dividend yield of 0%, volatility of 133.4%, risk-free rate of 2.0%, and a term of 5.75 years. On September 30, 2012, Mr. Javier Jimenez resigned from the Board. As a result of his resignation, Mr. Jimenez forfeited 5,000 unvested stock options and had vested 11,667 stock options. During the years ended August 31, 2012 and 2011, the Company recorded stock compensation of $66,252 and $25,528, respectively for the amortization of the fair value of his stock option of which $9,117 and $14,588 relate to the forfeited options. Since the stock option was forfeited prior to 5,000 options vesting, $23,705 previously recognized for stock compensation was reversed on August 31, 2012, resulting in total stock compensation expense related to Mr. Jimenez's stock option grant of $68,075. Mr. Jimenez has until September 30, 2014, to exercise his 11,667 vested stock options.

 

On December 23, 2010, the Board approved, and the Company granted, a stock option to each of the Company’s three non-employee directors to purchase 16,667 shares of its common stock at an exercise price of $5.94 per share, the fair market value of the Company’s common stock on the date of grant. Each stock option expires ten years from the date the applicable stock option agreement was executed, on January 17, 2021, and vests as follows: (a) 6,667 shares on January 17, 2011; (b) 5,000 shares on January 17, 2012; and (c) 5,000 shares on January 17, 2013. The stock options are further subject to the terms and conditions of a stock option agreement between the Company and each director. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that the director ceases to be one of the Company’s directors. Upon termination of such service, the director will have a specified period of time to exercise vested stock options, if any. The grant date fair value of each of the stock options granted to each of the Company’s three non-employee directors was $89,228 ($267,683 total) estimated using the Black-Scholes-Merton formula containing the following assumptions: dividend yield of 0%, volatility of 134.4%, risk-free rate of 2.8%, and a term of 5.75 years. During the years ended August 31, 2012 and 2011, the Company recognized $66,921 and $187,378 of expense related to these issuances.

 

On December 17, 2010, the Board approved, and the Company granted, Mr. Andrew Farago, the Company's former Chief Operating Officer, a stock option to purchase 500,000 shares of the Company’s common stock at an exercise price of $6.21 per share, the fair market value of the Company’s common stock on the date of grant. The grant date fair value of the stock option granted to Mr. Farago was $2,878,274 estimated using the Black-Scholes-Merton formula containing the following assumptions: dividend yield of 0%, volatility of 134.4%, risk-free rate of 2.7%, and a term of 6.8 years. The stock option expired ten years from the date of grant and vested in certain blocks based on Mr. Farago achieving certain milestones. Effective as of August 12, 2011, Mr. Andrew Farago resigned as the Chief Operating Officer. On the date of his resignation Mr. Farago had vested 83,334 as a result of the Company appointing two new directors to its Board, who were recommended by Mr. Farago. During the year ended August 31, 2011, the Company recognized $479,712 as stock based compensation expense related to Mr. Farago’s 83,334 vested options which expired unexercised on August 12, 2012.

 

Stock Option activity During the Year Ended August 31, 2010

 

On December 15, 2009, the Board approved, and the Company granted, a stock option to each of three of its non-employee directors permitting each to purchase, subject to applicable vesting provisions, 16,667 shares of the Company’s common stock at an exercise price of $1.32 per share, the fair market value of the Company’s common stock on the date of grant. Each stock option expires five years from the date of grant, on December 15, 2014 and vests as follows: (a) as to 6,667 shares on December 16, 2009; (b) as to 5,000 shares on December 16, 2010; and (c) as to 5,000 shares on December 16, 2011. The stock options are further subject to the terms and conditions of a stock option agreement between each director and the Company. Under the terms of the stock option agreement, the stock option agreement will terminate and there will be no further vesting of stock options effective as of the date that the director ceases to be a director of the Company. Upon termination of such service, the director will have a specified period of time to exercise vested stock options, if any. The grant date fair value of each 16,667 stock option was estimated at $1.05 each, for a total of $17,500, using the Black-Scholes-Merton formula with the following weighted average assumptions: 0% dividend yield, expected volatility of 140.41%, risk-free interest rate of 1.38%, and expected life of 3.25 years. During the years ended August 31, 2012 and 2011, the Company recorded stock compensation of $2,297 and $12,469, respectively for the amortization of the fair value of these stock options. 

  

On August 9, 2010 and pursuant to Mr. Conklin’s Employment Agreement, the Board granted a stock option to purchase up to 666,666 shares of the Company’s common stock, subject to certain vesting requirements, at an exercise price of $1.65 per share. The stock option expires ten years from the date of grant, on August 9, 2020. Subject to the restrictions and earlier termination provisions set forth in the stock option agreement, the option vests as follows:

 

1. as to 166,667 shares or such portion thereof as may be determined by the Board at its sole discretion, when one or more of the following items related to the development, production, manufacturing, and sale of any commercially viable product have been successfully executed: (a) completion of final design and/or engineering; (b) the establishment of manufacturing facilities, whether in-house or outsourced; and (c) the initial filing of any product safety approval applications, if required, in order to allow for the commercial sale of products by the Company;

 

2. as to 166,667 shares upon commencing commercial sales of any of the Company’s products, as reported in the Company's financial statements, whether to retail customers or wholesale customers;

 

3. 33,333 shares for each calendar year of service in an Executive Position for the next five years (166,667 shares in the aggregate), which shall become exercisable as to 33,333 shares on August 9, 2011 and 33,333 shares on each anniversary thereof through August 9, 2015.

 

4. as to 166,667 shares when, to the Board’s satisfaction, the Company enters into a favorable business partnership with a third-party commercial organization in the industry segment related to the Company’s product development and sales efforts, under any of the following conditions:

 

(a) a product development relationship whereby the third-party partner makes a significant financial investment, as determined at the Board’s discretion, directed towards the development of the Company’s products; or

(b) a product development relationship whereby the third-party partner invests significant research and development resources, as determined at the Board’s discretion, directed towards the development of the Company’s products; or

(c) a strategic partnership with the third-party partner where, as determined at the Board’s discretion, such a partnership provides significant business advantages to the Company which it would otherwise not have, whether related to product development, commercial sales, industry position, or business reputation.

 

The fair market value of the Company’s common stock on the date of grant was $1.62 per share. The grant date fair value of the 666,666 stock options was estimated at $1.50 each, for a total of $1,008,814, using the Black-Scholes-Merton formula with the following assumptions: dividend yield of 0%, expected volatility of 134.81%, risk-free interest rate of 2.21%, and expected life of 7.2 years. During the years ended August 31, 2012 and 2011, the Company recorded stock compensation of $105,190 and $722,909, respectively for the amortization of the fair value of this stock option. Through August 31, 2012, the Company has recognized $906,707 of expense related to Mr. Conklin's option. 

 

The following table summarizes information about stock options outstanding and exercisable at August 31, 2012:

 

      Stock Options Outstanding     Stock Options Exercisable  
            Weighted     Weighted           Weighted Average     Weighted  
Range of     Number of     Average     Average     Number     Remaining     Average  
Exercise     Options     Contractural     Exercise     of Options     Contractual     Exercise  
Prices     Outstanding     Life (years)     Price     Exercisable     Life (Years)     Price  
                                       
$ 1.32       50,001       2.29     $ 1.32       50,001       2.29     $ 1.32  
$ 1.65       666,667       7.95     $ 1.65       233,333       7.95     $ 1.65  
$ 2.50       10,000       8.60     $ 2.50       4,000       8.60     $ 2.50  
$ 2.55       33,334       6.03     $ 2.55       19,998       6.03     $ 2.55  
$ 3.27       23,334       6.48     $ 3.27       18,334       5.91     $ 3.27  
$ 4.98       16,667       5.53     $ 4.98       13,332       5.53     $ 4.98  
$ 5.94       50,001       8.32     $ 5.94       35,001       8.32     $ 5.94  
$ 6.51       11,667       2.08     $ 6.51       11,667       2.08     $ 6.51  
                                                     
Total       861,671       7.41     $ 2.10       385,666       6.80     $ 2.39  

 

In addition to stock compensation recorded for the stock option grants and forfeitures discussed above, the Company recorded stock compensation for stock options previously granted and vesting over time of $11,013 and $19,762 during the years ended August 31, 2012 and 2011, respectively.

 

The Company does not repurchase shares to fulfill the requirements of options that are exercised. Further, the Company issues new shares when options are exercised.