Quarterly Report (10-q)

Date : 07/09/2019 @ 9:29PM
Source : Edgar (US Regulatory)
Stock : Solarwindow Technologies, Inc. (PC CE) (WNDW)
Quote : 2.86  0.02 (0.70%) @ 9:00PM

Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended May 31, 2019

 

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

 

SOLARWINDOW TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

59-3509694
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   

9375 East Shea Blvd., Suite 107-B

 

Scottsdale, Arizona

85260
(Address of principal executive offices) (Zip Code)

 

(800) 213-0689

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer

Non-accelerated filer  

Smaller reporting company

Emerging growth company


 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act).

Yes ☐     No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 WNDW OTC Pink

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 52,959,323 shares of common stock, par value $0.001, were outstanding on July 8, 2019.

 

 

 

 

SOLARWINDOW TECHNOLOGIES, INC.

FORM 10-Q

 

For the Quarterly Period Ended May 31, 2019

 

Table of Contents

 

 

PART I FINANCIAL INFORMATION  
   
Item 1. Consolidated Financial Statements (Unaudited)  
   
Consolidated Balance Sheets 1
   
Consolidated Statements of Operations 2
   
Consolidated Statements of Stockholders’ Equity (Deficit) 3
   
Consolidated Statements of Cash Flows 4
   
Notes to Consolidated Financial Statements 5
   
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
   
Item 4. Controls and Procedures 25
   
   
PART II OTHER INFORMATION  
   
Item 5. Other information 27
   
Item 6. Exhibits 28
   
Signatures 29
   
Certifications  

 

 

 

 

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements (Unaudited)

 

SOLARWINDOW TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

 

    May 31,
2019
  August 31,
2018
ASSETS   (Unaudited)    
Current assets                
Cash   $ 17,990,279     $ 696,826  
Deferred research and development costs     457,410       133,975  
Prepaid expenses and other current assets     86,627       58,819  
Total current assets     18,534,316       889,620  
                 
Operating lease right-of-use asset     71,296       -  
Equipment, net of accumulated depreciation of $62,453 and $50,509, respectively     622,613       39,614  
Security deposit     2,200       -  
Total assets   $ 19,230,425     $ 929,234  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                
                 
Current liabilities                
Accounts payable and accrued expenses   $ 84,373     $ 93,616  
Related party payables     51,868       -  
Interest payable to related party     52,182       -  
Current maturities of operating lease     22,834       -  
Total current liabilities     211,257       93,616  
                 
Non-current operating lease     48,484       -  
Bridge note payable to related party     -       600,000  
Convertible promissory note payable to related party, net of discount of $663,918     -       2,336,082  
Interest payable to related party     -       1,523,943  
Total long term liabilities     48,484       4,460,025  
Total liabilities     259,741       4,553,641  
                 
Commitments and contingencies                
                 
Stockholders' equity (deficit)                
Preferred stock: $0.10 par value; 1,000,000 shares authorized, no shares issued and outstanding     -       -  
Common stock: $0.001 par value; 300,000,000 shares authorized, 52,959,323 and 36,292,656 shares issued and outstanding at May 31, 2019 and August 31, 2018, respectively     52,959       36,293  
Additional paid-in capital     68,303,119       42,223,599  
Retained deficit     (49,385,394 )     (45,884,299 )
Total stockholders' equity (deficit)     18,970,684       (3,624,407 )
Total liabilities and stockholders' equity (deficit)   $ 19,230,425     $ 929,234  

 

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

 

1

 

 

SOLARWINDOW TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

    Three Months Ended May 31   Nine Months Ended May 31,
    2019   2018   2019   2018
                 
Revenue   $ -     $ -     $ -     $ -  
                                 
Operating expenses                                
Selling, general and administrative     511,296       601,782       1,454,363       3,058,476  
Research and product development     594,157       588,986       1,454,666       1,531,280  
Total operating expenses     1,105,453       1,190,768       2,909,029       4,589,756  
                                 
Loss from operations     (1,105,453 )     (1,190,768 )     (2,909,029 )     (4,589,756 )
                                 
Other income (expense)                                
Interest income     118,111       -       200,091       -  
Interest expense     -       (128,706 )     (128,239 )     (345,453 )
Accretion of debt discount     -       (125,422 )     (663,918 )     (698,302 )
Total other income (expense)     118,111       (254,128 )     (592,066 )     (1,043,755 )
                                 
Net loss   $ (987,342 )   $ (1,444,896 )   $ (3,501,095 )   $ (5,633,511 )
                                 
Basic and Diluted Loss per Common Share   $ (0.02 )   $ (0.04 )   $ (0.07 )   $ (0.16 )
                                 
Weighted average number of common shares outstanding - basic and diluted     52,959,323       36,270,592       47,616,857       35,924,340  

 

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

 

 

 

2

 

 

SOLARWINDOW TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)

 

FOR THE NINE MONTHS ENDED MAY 31, 2019

    Common Stock   Additional Paid-   Retained   Total
Stockholders'
    Shares   Amount   in Capital   Deficit   Equity (Deficit)
Balance, August 31, 2018     36,292,656     $ 36,293     $ 42,223,599     $ (45,884,299 )   $ (3,624,407 )
                                         
November 2018 Private Placement units issued for cash     13,200,000       13,200       19,786,800       -       19,800,000  
November 2018 Private Placement units issued in exchange for convertible debt     3,466,667       3,466       5,196,534       -       5,200,000  
Stock based compensation due to common stock purchase options     -       -       1,096,186       -       1,096,186  
Net loss for nine months ended May 31, 2019     -       -       -       (3,501,095 )     (3,501,095 )
Balance, May 31, 2019 (Unaudited)     52,959,323     $ 52,959     $ 68,303,119     $ (49,385,394 )   $ 18,970,684  

 

FOR THE NINE MONTHS ENDED MAY 31, 2018

 

    Common Stock   Additional Paid-   Retained   Total
Stockholders'
    Shares   Amount   in Capital   Deficit   Equity (Deficit)
Balance, August 31, 2017     34,329,691     $ 34,330     $ 35,363,946     $ (39,029,752 )   $ (3,631,476 )
                                         
September 2017 Private Placement units issued     821,600       822       2,554,354       -       2,555,176  
Stock based compensation related to stock issuances     210,000       210       1,022,490       -       1,022,700  
Exercise of warrants for cash     119,500       120       394,030       -       394,150  
Exercise of warrants on a cashless basis     665,703       665       (665 )     -       -  
Exercise of stock options on a cashless basis     146,162       146       (146 )     -       -  
Stock based compensation due to common stock purchase options     -       -       1,341,678       -       1,341,678  
Discount on convertible promissory note due warrant modifications     -       -       1,074,265       -       1,074,265  
Net loss for the Nine months ended May 31, 2018     -       -       -       (5,633,511 )     (5,633,511 )
Balance, May 31, 2018 (Unaudited)     36,292,656     $ 36,293     $ 41,749,952     $ (44,663,263 )   $ (2,877,018 )

 

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

 

 

3

 

 

SOLARWINDOW TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

    Nine Months Ended May 31,
    2019   2018
Cash flows from operating activities                
Net loss   $ (3,501,095 )   $ (5,633,511 )
Adjustments to reconcile net loss to net cash flows used in operating activities                
Depreciation     13,652       11,869  
Stock based compensation expense     1,096,186       2,364,378  
Non cash lease expense     22       -  
Security deposit     (2,200 )        
Accretion of debt discount     663,918       698,302  
Changes in operating assets and liabilities:                
Decrease (increase) in deferred research and development costs     (323,435 )     (42,935 )
Decrease (increase) in prepaid expenses and other assets     (27,808 )     (28,066 )
Increase (decrease) in accounts payable and accrued expenses     (9,243 )     (141,501 )
Increase (decrease) in related party payable     51,868       -  
Increase (decrease) in interest payable     128,239       345,453  
Net cash flows used in operating activities     (1,909,896 )     (2,426,011 )
                 
Cash flows used in investing activity                
Purchase of equipment     (596,651 )     (2,581 )
Net cash flows used in investing activity     (596,651 )     (2,581 )
                 
Cash flows from financing activities                
Proceeds from the issuance of equity securities     19,800,000       2,949,326  
Net cash flows from financing activities     19,800,000       2,949,326  
                 
Change in cash and cash equivalents     17,293,453       520,734  
                 
Cash and cash equivalents at beginning of period     696,826       670,853  
                 
Cash and cash equivalents at end of period   $ 17,990,279     $ 1,191,587  
                 
Supplemental disclosure of cash flow information:                
Interest paid in cash   $ -     $ -  
Income taxes paid in cash   $ -     $ -  
                 
Supplemental disclosure of non-cash transactions:                
Discount on convertible promissory note due to to warrants issued and/or modified   $ -     $ 1,074,265  
Common stock issued for conversion of note payable   $ 5,200,000     $ -  

 

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

 

4

 

 

SOLARWINDOW TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – Basis of Presentation and Organization

 

Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements of SolarWindow Technologies, Inc. (the “ Company ”) as of May 31, 2019, and for the three and nine months ended May 31, 2019 and 2018, include the accounts of the Company and its wholly-owned and controlled subsidiaries, Kinetic Energy Corporation (“ KEC ”), and New Energy Solar Corporation (“ New Energy Solar ”) and have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting periods. Actual results may differ from those estimates. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2018. In the opinion of management, the accompanying unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of May 31, 2019, results of operations for the three and nine months ended May 31, 2019 and 2018, and stockholders equity and cash flows for the nine months ended May 31, 2019 and 2018. The Company did not record an income tax provision during the periods presented due to net taxable losses. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.

 

Organization

 

SolarWindow Technologies, Inc. was incorporated in the State of Nevada on May 5, 1998, under the name “Octillion Corp.” On December 2, 2008, the Company amended its Articles of Incorporation to effect a change of name to New Energy Technologies, Inc. Effective as of March 9, 2015, the Company amended its Articles of Incorporation to change its name to SolarWindow Technologies, Inc. to align the company name with its brand identity, SolarWindow™. Products derived from the Company’s SolarWindow™ technology harvest light energy from the sun and from artificial light sources, by generating electricity from a transparent coating of organic photovoltaic (“ OPV ”) solar cells, applied to glass and plastics, thereby creating a “photovoltaic” effect. The Company’s ticker symbol changed to WNDW.

 

Until the fourth quarter of the 2015 fiscal year, the Company was developing two sustainable electricity generating systems. These novel technologies are branded as SolarWindow™ and MotionPower™. On March 2, 2015, the Company announced its exclusive focus on SolarWindow™.

 

The Company’s SolarWindow™ technology harvests light energy from the sun and artificial sources to generate electricity from a transparent coating of organic photovoltaic solar cells applied to glass or plastics, creating a “photovoltaic” effect. Photovoltaics are best known as “solar panels” providing a method to generate electricity using solar cells to convert energy from the sun into a flow of electrons. Conventional PV power is generated by solar modules composed of interconnected mono- or poly-crystalline cells containing PV and electricity-conducting materials. These materials are usually opaque (i.e., not see-through) and only effectively generate electricity with sun light. The Company’s researchers have replaced these materials with a very thin layer of specially developed compounds that allow SolarWindow™ technology to remain see-through or “transparent,” while generating electricity when exposed to either sun or artificial light. SolarWindow™ coatings are capable of generating electricity when exposed to direct, diffused, filtered, low, or reflected natural or artificial light. The company filed a patent application related to these specially developed compounds.

 

5

 

 

The Company does not have any commercialized products, has not generated any revenue since inception and has sustained recurring losses and negative cash flows from operations since inception. Due to the “start-up” nature of our business, we expect to incur losses as we continue development of our products and technologies. On November 26, 2018, the Company completed a self-directed offering resulting in $19,800,000 of proceeds. Simultaneously, the 2013 Note and March 2015 Loan were converted in the amount of $5,200,000, including outstanding debt principal and unpaid interest. As of May 31, 2019, the Company had $17,990,279 of cash on hand and current liabilities of $211,257. The Company believes that, as a result of the recent financing, it currently has sufficient cash to meet its funding requirements over the next twelve months following the issuance of this Quarterly Report on Form 10-Q. However, the Company has experienced and continues to experience negative cash flows from operations, as well as an ongoing requirement for substantial additional capital investment. The Company expects that it may need to raise additional capital to accomplish its business plan over the next several years. If additional funding is required, the Company expects to seek to obtain that funding through private equity or convertible debt. There can be no assurance as to the availability or terms upon which such financing and capital might be available.

 

NOTE 2 – Summary of Significant Accounting Policies

 

Principles of Consolidation

 

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

 

New Energy Solar was incorporated on February 9, 2009, in the State of Florida and entered into agreements with The University of South Florida Research Foundation (“USF”) to sponsor research related to the Company’s SolarWindow™ technology. On February 18, 2015, the Company terminated the license agreement entered into with USF which originated on June 21, 2010.

 

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

 

Use of Estimates

 

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

 

Equipment

 

Fixed assets are carried at cost, less accumulated depreciation. Major improvements are capitalized, while repair and maintenance are expensed when incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in that period.

 

Depreciation is computed on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:

 

    Estimated
Useful Lives
(in years)
Computers     3  
Equipment     5  

 

During the nine months ended May 31, 2019, the Company purchased $596,651 of equipment, including an initial payment totaling $553,995 towards the purchase of manufacturing equipment with an estimated total cost of $1,846,650. That equipment is currently being manufactured to our particular specifications and will provide a significant increase in our ability to develop and showcase prototype products and components at or near “full size”. Subsequent to May 31, 2019, as of the date of this report, the Company is obligated to the manufacturer for 40% of the cost of the equipment, or $738,660 which we anticipate remitting in July 2019. The remaining $553,995 is expected to be paid upon completion of the equipment sometime in October or November of 2019.

 

6

 

 

Fair Value Measurements

 

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

 

Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company has no assets or liabilities measured and recorded on a recurring or nonrecurring basis with Level 1 inputs.

 

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

 

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

 

Fair Value of Financial Instruments

 

The carrying value of cash and cash equivalents, accounts payable and interest payable approximate their fair value because of the short-term nature of these instruments and their liquidity. It is not practical to determine the fair value of the Company’s notes payable due to the complex terms. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

 

Research and Product Development

 

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

 

Net Income (Loss) Per Share

 

The computation of basic earnings per share (“EPS”) is based on the weighted average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. The computation of diluted net income per share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on earnings per share. Therefore, when calculating EPS if the Company experienced a loss, there is no inclusion of dilutive securities as their inclusion in the EPS calculation is antidilutive. Furthermore, options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants (they are in the money). See “NOTE 7 - Net Loss Per Share” for further discussion.

 

7

 

 

Recent Accounting Standards

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11,  Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).  The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a free-standing equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have a material accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company adopted ASU No. 2017-11 at the beginning of the current fiscal year with no impact on its Consolidated Financial Statements.

 

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The Company adopted ASU 2017-09 at the beginning of the current fiscal year with no impact on its Consolidated Financial Statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)”, which supersedes ASC Topic 840, Leases, and creates a new topic, ASC 842, Leases. The new guidance requires the recognition of lease assets and liabilities for operating leases with terms of more than 12 months. Presentation of leases within the consolidated statements of operations and consolidated statements of cash flows will be generally consistent with the current lease accounting guidance. The ASU is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company early adopted ASU No. 2016-02 at the beginning of the current fiscal year. The adoption of the standard did not impact the Company’s consolidated net earnings and had no impact on cash flows. As of May 1, 2019, the Company entered into an operating lease for office space. See NOTE 9 – Lease, for additional information.

 

The Company reviews new accounting standards as issued. Although some of these accounting standards issued or effective after the end of the Company’s previous fiscal year may be applicable, the Company has not identified any standards that the Company believes merit further discussion. The Company believes that none of the new standards will have a significant impact on the financial statements.

 

8

 

 

NOTE 3 - Debt

 

As of August 31, 2018, the Company had the following outstanding debt balances which were converted to Units (defined below) during the nine months ended May 31, 2019:

 

    Issue
Date
  Maturity
Date
  Principal   Debt
Discount
  Balance   Interest
Payable
As of August 31, 2018:                                        
March 2015 Loan as amended   3/4/2015   12/31/2019   $ 600,000     $ -     $ 600,000     $ 186,797  
2013 Note as amended   10/7/2013   12/31/2019     3,000,000       (663,918 )     2,336,082       1,337,146  
            $ 3,600,000     $ (663,918 )   $ 2,936,082     $ 1,523,943  

 

March 2015 Loan as Amended

 

On March 4, 2015, the Company entered into a Bridge Loan Agreement with 1420468 Alberta Ltd. (which has since been merged with and into Kalen Capital Corporation, a British Columbia corporation wholly-owned by our Chairman, Harmel S. Rayat (the “ Investor ”)). Pursuant the Bridge Loan Agreement, the Company borrowed $600,000 at an annual interest rate of 7% (the “ March 2015 Loan ”), compounded quarterly, with a default rate of 15%.

 

On November 3, 2017, the Company entered into the Third Amendment related to the March 2015 Loan pursuant to which the Company and the Investor amended the March 2015 loan to extend the maturity date to December 31, 2019. As consideration for the note extension, the interest rate was increased to 10.5%. On November 26, 2018, $798,566 of the March 2015 Loan was converted in exchange for 532,377 Units pursuant to the November 2018 Private Placement except for $7,922 of accrued interest which the Company agreed to repay from proceeds from the November 2018 Private Placement, See “Note 4 – Private Placements” for additional information.

 

During the three months ended May 31, 2019 and 2018, the Company recognized $0 and $19,763, respectively, of interest expense. During the nine months ended May 31, 2019 and 2018, the Company recognized $19,691 and $53,045, respectively, of interest expense.

 

2013 Note as Amended

 

On October 7, 2013, the Company sold to the Investor an unsecured Convertible Promissory Note (the “ 2013 Note ”) in the amount of $3,000,000 with 7% interest compounded quarterly. According to the terms of the amended 2013 Note, the Investor may elect to convert principal and accrued interest into units of the Company’s equity securities, with each Unit consisting of (a) one share of common stock; and (b) one Stock Purchase Warrant for the purchase of one share of common stock. The conversion price for each Unit is the lesser of (i) $1.37; or (ii) 70% of the 20 day average closing price of the Company’s common stock prior to conversion, subject to a floor of $1.00 with the exercise price of each Warrant being equal to 60% of the 20 day average closing price of the Company’s common stock prior to conversion. On November 26, 2018, $4,401,434 of the 2013 Note was converted in exchange for 2,934,290 Units pursuant to the November 2018 Private Placement except for $44,260 of accrued interest which the Company agreed to repay from proceeds from the November 2018 Private Placement, See “Note 4 – Private Placements” for additional information.

 

On November 3, 2017, the Company entered into the Third Amendment related to the 2013 Note pursuant to which the Company and the Investor amended the 2013 Note to extend the maturity date to December 31, 2019. As consideration for the note extension, the interest rate was increased to 10.5% and all outstanding warrants held by the Investor had their maturity date extended to December 31, 2022, resulting in an additional debt discount of $1,074,265 as of November 3, 2017. The modification did not result in a gain or loss due to the related party nature of the transaction.

 

During the three months ended May 31, 2019 and 2018, the Company recognized $0 and $108,943, respectively, of interest expense. Interest expense amounted to $108,548 and $292,408 during the nine months ended May 31, 2019 and 2018, respectively. Accretion of the debt discount related to the 2013 Note as amended amounted to $0 and $125,422 during the three months ended May 31, 2019 and 2018, respectively and $663,918 and $698,302 during the nine months ended May 31, 2019 and 2018, respectively.

 

9

 

 

NOTE 4 – Private Placements

 

November 2018 Private Placement

 

On November 26, 2018, the Company completed a self-directed offering (the “ November 2018 Private Placement ”) to accredited investors of 16,666,667 units of the Company’s equity securities (each a “ Unit ” and collectively, the “Units”) at a price of $1.50 per Unit with each Unit comprised of (a) one share of unregistered common stock; and (b) one warrant to purchase one share of common stock at a price, subject to certain adjustments, of $1.70 per share for a period of seven (7) years (the “ Series T Warrant ”). The Unit price represents an approximately 20% discount to the closing price of the Company's common stock on October 29, 2018, the date the Investor and the Board agreed to enter into a significant financing arrangement. Pursuant to the November 2018 Private Placement, the Company issued 13,200,000 Units in exchange for cash of $19,800,000 and 3,466,667 Units for the conversion of $5,200,000 of the principal and unpaid interest owed under the 2013 Note and the March 2015 Loan. The interest payable remaining under the notes totals $52,182, which the Company agreed to repay from proceeds received under the November 2018 Private Placement. Of the 13,200,000 Units issued in exchange for cash, Kalen Capital Corporation purchased 13,100,000 Units.

 

The Series T Warrants were accounted for pursuant to ASC 470-20-25-2. The relative fair value of the common stock was estimated to be $13,687,151. The relative fair value of the Series T Warrants was estimated to be $11,312,849 as determined based on the relative fair value allocation of the proceeds received. The Series T Warrants were valued using the Black-Scholes option pricing model using the following variables: market price of common stock - $2.94 per share; estimated volatility – 85.85%; 7-year risk free interest rate – 2.97%; expected dividend rate - 0% and expected life - 7 years.

 

NOTE 5 – Common Stock and Warrants

 

Common Stock

 

At May 31, 2019, the Company had 300,000,000 authorized shares of common stock with a par value of $0.001 per share, 52,959,323 shares of common stock outstanding and 2,570,085 shares reserved for issuance under the Company’s 2006 Long-Term Incentive Plan (the “ 2006 Plan ”) as adopted and approved by the Company’s Board on October 10, 2006 that provides for the grant of stock options to employees, directors, officers and consultants (See “NOTE 6 - Stock Options”).

 

During the nine months ended May 31, 2019, the Company completed the November 2018 Private Placement of 16,666,667 units at a price of $1.50 per unit. Each unit consisted of one share of common stock and one Series T Stock Purchase Warrant to purchase one (1) share of common stock at an exercise price of $1.70 per share for a period of seven (7) years (See “NOTE 4 – Private Placements”).

 

Warrants

 

Each of the Company’s warrants outstanding entitles the holder to purchase one share of the Company’s common stock for each warrant share held. Other than the Series O Warrants and Series P Warrants, all of the following warrants may be exercised on a cashless basis. A summary of the Company’s warrants outstanding and exercisable as of May 31, 2019 and August 31, 2018 is as follows:

 

  Shares of Common Stock
Issuable from Warrants
Outstanding as of
  Weighted
Average
   
Description   May 31,
2019
  August 31,
2018
  Exercise
Price
  Date of
Issuance
  Expiration
Series M     246,000       246,000     $ 2.34     December 7, 2015   December 31, 2022
Series N     767,000       767,000     $ 3.38     December 31, 2015   December 31, 2022
Series P     213,500       213,500     $ 3.70     March 25, 2016   December 31, 2022
Series R     468,750       468,750     $ 4.00     June 20, 2016   December 31, 2022
Series S-A     300,000       300,000     $ 2.53     July 24, 2017   December 31, 2022
Series S     821,600       821,600     $ 3.42     September 29, 2017   September 29, 2022
Series T     16,666,667       -     $ 1.70     November 26, 2018   November 26, 2025
Total     19,483,517       2,816,850                  

 

10

 

 

NOTE 6 - Stock Options

 

Stock option grants pursuant to the 2006 Plan vest either immediately or over one to five years and expire ten years after the date of grant. Stockholders previously approved 5,000,000 shares for grant under the 2006 Plan, of which 2,570,085 remain available for grant, 1,305,001 have been exercised in total with 629,677 net shares (due to the cashless exercise feature) issued pursuant to such exercises of vested options from inception of the 2006 Plan through August 31, 2018. All shares approved for grant and subsequently forfeited are available for future grant. The Company does not repurchase shares to fulfill the requirements of options that are exercised and therefore issues new shares when options are exercised. The 2006 Plan was approved by stockholders on February 7, 2011 and expires according to its terms on February 7, 2021.

 

A summary of the Company’s stock option activity for the three and nine months ended May 31, 2019 and related information follows:

 

    Number of
Shares
Subject to
Option
Grants
  Weighted
Average
Exercise
Price ($)
  Weighted
Average
Remaining
Contractual Term
(in years)
  Aggregate
Intrinsic
Value ($)
Outstanding at August 31, 2018     1,291,334       5.22                  
Forfeitures and cancellations     (20,000 )     4.87                  
Outstanding at May 31, 2019     1,271,334       5.23       8.33       -  
Exercisable at May 31, 2019     620,334       5.10       8.06       -  

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value for all “in-the-money” options (i.e. the difference between the Company’s closing stock price on the last trading day of the period covered by this report and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all in-the-money option holders exercised their vested options on May 31, 2019. The intrinsic value of the option changes based upon the fair market value of the Company’s common stock. Since the closing stock price was $2.75 on May 31, 2019 and no outstanding options have an exercise price below $2.75 per share, as of May 31, 2019, there is no intrinsic value to the Company’s outstanding stock options.

 

Three and nine months ended May 31, 2019

 

Due to his resignation from the Board of Directors on October 22, 2018, Joseph Sierchio forfeited 20,000 unvested stock options with an exercise price of $4.87 which resulted in the Company reversing previously recorded stock compensation expense related to the vesting of said options in the amount of $58,367.

 

11

 

 

The following table sets forth the share-based compensation cost resulting from stock option grants, including those previously granted and vesting over time, that were recorded in the Company’s Consolidated Statements of Operations for the three and nine months ended May 31, 2019 and 2018:

 

    Three Months Ended
May 31,
  Nine Months Ended
May 31,
    2019   2018   2019   2018
Stock based compensation expense related to the following:                                
Stock Options:                                
SG&A   $ 118,409     $ 215,695     $ 372,260     $ 796,371  
R&D     236,817       251,529       723,926       545,307  
Total     355,226       467,224       1,096,186       1,341,678  
Restricted stock issuances:                                
SG&A     -       -       -       1,022,700  
R&D     -       -       -       -  
Total     -       -       -       1,022,700  
Total stock based compensation expense   $ 355,226     $ 467,224     $ 1,096,186     $ 2,364,378  

 

As of May 31, 2019, the Company had $3,670,664 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 2.75 years.

 

The following table summarizes information about stock options outstanding and exercisable at May 31, 2019:

 

    Stock Options Outstanding   Stock Options Exercisable
Range
of
Exercise
Prices
  Number of
Shares
Subject to
Outstanding
Options
  Weighted
Average
Contractual
Life (years)
  Weighted
Average
Exercise
Price ($)
  Number
of Shares
Subject
To
Options
Exercise
  Weighted
Average
Remaining
Contractual
Life
(Years)
  Weighted
Average
Exercise
Price ($)
  3.28       7,500       7.46       3.28       7,500       7.72       3.28  
  3.46       35,000       6.60       3.46       35,000       6.85       3.46  
  4.87       187,500       8.48       4.87       187,500       8.73       4.87  
  5.35       1,008,000       8.59       5.35       357,000       8.85       5.35  
  5.94       33,334       1.57       5.94       33,334       1.82       5.94  
  Total       1,271,334       8.33       5.23       620,334       8.06       5.10  

 

NOTE 7 - Net Loss Per Share

 

During the three and nine months ended May 31, 2019 and 2018, the Company recorded a net loss. Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company has not included the effects of warrants, stock options and convertible debt on net loss per share because to do so would be antidilutive.

 

12

 

 

Following is the computation of basic and diluted net loss per share for the three and nine months ended May 31, 2019 and 2018:

 

    Three Months Ended May 31,   Nine Months Ended May 31,
    2019   2018   2019   2018
Basic and Diluted EPS Computation                                
Numerator:                                
Loss available to common stockholders'   $ (987,342 )   $ (1,444,896 )   $ (3,501,095 )   $ (5,633,511 )
Denominator:                                
Weighted average number of common shares outstanding     52,959,323       36,270,592       47,616,857       35,924,340  
Basic and diluted EPS   $ (0.02 )   $ (0.04 )   $ (0.07 )   $ (0.16 )
                                 
The shares listed below were not included in the computation of diluted losses
per share because to do so would have been antidilutive for the periods presented:
                               
Stock options     1,271,334       1,291,334       1,271,334       1,291,334  
Warrants     19,483,517       2,816,850       19,483,517       2,816,850  
Convertible debt     -       3,084,175       -       3,084,175  
Warrants issuable upon conversion of debt (See "NOTE 3 - Debt" above)     -       3,084,175       -       3,084,175  
Total shares not included in the computation of diluted losses per share     20,754,851       10,276,534       20,754,851       10,276,534  

 

NOTE 8 - Related Party Transactions

 

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

 

The law firm of Sierchio & Partners, LLP, of which Joseph Sierchio, one of the Company’s directors, was a principal, had provided counsel to the Company since its inception. Beginning in September 2016, Mr. Sierchio became a partner at Satterlee Stephens LLP (“Satterlee”). Concurrently with Mr. Sierchio’s move to Satterlee, the Company engaged with Satterlee to provide legal counsel with Mr. Sierchio maintaining his role as the Company’s primary attorney. Mr. Sierchio resigned from the Board effective October 22, 2018, but maintains his role and the Company’s primary attorney. Fees billed and accrued for related to Satterlee during the three months ended May 31, 2019 and 2018, totaled $84,600 and $74,198, respectively, and $137,299 and $220,032 during the nine months ended May 31, 2019 and 2018.  At May 31, 2019, the Company had accrued payables owing to Satterlee totaling $50,000 which is included in accounts payable and accrued expenses on the face of our balance sheet.

 

On August 7, 2017, the Company appointed Jatinder Bhogal to the Board of Directors. Mr. Bhogal has provided consulting services to the Company through his wholly owned company, Vector Asset Management, Inc., pursuant to a Consulting Agreement dated February 1, 2014, as amended on November 11, 2016 and on December 1, 2018 (Amendment No. 2). Pursuant to the Consulting Agreements in effect prior to December 1, 2018, Mr. Bhogal received compensation of $5,000 per month. Beginning with Amendment No. 2, Mr. Bhogal receives compensation of $18,750 per month. During the three months ended May 31, 2019 and 2018, the Company recognized $56,250 and $15,000 of expense in connection with the Consulting Agreement. During the nine months ended May 31, 2019 and 2018, the Company recognized $108,750 and $45,000 of expense in connection with the Consulting Agreement.

 

On November 26, 2018, the Company completed the November 2018 Private Placement to accredited investors of 16,666,667 Units of the Company’s equity securities at a price of $1.50 per Unit with each Unit comprised of (a) one share of common stock; and (b) one Series T Warrant to purchase one share of common stock at a price of $1.70 per share for a period of seven (7) years. The Investor participated in the November 2018 Private Placement by purchasing 13,100,000 Units in exchange for cash of $19,650,000 and converting $5,200,000 owing under the March 2015 Loan and 2013 Note into 3,466,667 Units.

 

13

 

 

On November 3, 2017, the Company entered into the Third Amendment to the 2013 Bridge Loan Agreement and the Third Amendment to the 2015 Bridge Loan Agreement with the Investor pursuant to which the Company and the Investor agreed to extend the maturity date to December 31, 2019. Pursuant to the Third Amendment to the 2013 Bridge Loan Agreement and the Third Amendment to the 2015 Bridge Loan Agreement, the rate of interest increased to 10.5% and the following warrants, held by the Investor, had their maturity date extended to December 31, 2022: a) Series M Warrant to purchase 246,000 shares; b) Series N Warrant to purchase 767,000 shares; c) Series P Warrant to purchase 213,500 shares; d) Series R Warrant to purchase 468,750; and e) Series S-A Warrant to purchase 300,000 shares. As a result of extending the expiration date of the above warrants to December 31, 2022, the Company recognized an additional debt discount to the 2013 Note of $1,074,265 as of November 3, 2017. For additional information related to our warrants, please see “NOTE 5 – Common Stock and Warrants”. For additional information related to our debt, please see “NOTE 3 – Debt”.

 

All related party transactions are recorded at the exchange amount established and agreed to between related parties and are in the normal course of business.

 

NOTE 9 – Lease

 

On May 1, 2019, the Company leased office space in Vestal, New York and entered into a Professional Building Lease Agreement (the “Lease”). The Lease has an initial term of three years through May 1, 2022 with monthly rent due of $2,200 for the first two years and $2,266 during year three. The Company has the sole option to renew the lease for an additional two years through May 1, 2024. The amounts disclosed in the Consolidated Balance Sheets pertaining to the right-of-use asset and lease liability are measured based on only the initial, three-year term.

 

The Company’s existing leases are not subject to any restrictions or covenants which preclude its ability to pay dividends, obtain financing, or enter into additional leases.

 

As of May 31, 2019 the Company has not entered into any leases which have not yet commenced which would entitle the Company to significant rights or create additional obligations.

 

The Company used its estimated incremental borrowing rate as the basis to calculate the present value of future lease payments at lease commencement. The incremental borrowing rate represents the rate the Company would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic environment.

 

The components of lease expenses were as follows:

 

    Three Months Ended May 31,   Nine Months Ended May 31,
    2019   2018   2019   2018
Operating lease cost   $ 2,222     $ -     $ 2,222     $ -  
Short-term lease costs     -       3,600       -       10,800  
Total net lease costs   $ 2,222     $ 3,600     $ 2,222     $ 10,800  

 

Supplemental balance sheet information related to the Lease is as follows:

 

    As of May 31, 2019
     
Operating lease right-of-use asset   $ 71,296  
         
Current maturities of operating lease   $ 22,834  
Non-current operating lease     48,484  
Total operating lease liabilities   $ 71,318  
         
Weighted Average remaining lease term (in years):     2.9  
Discount rate:     5.85 %

 

14

 

 

The Company’s future lease payments, which are presented as current maturities of operating leases and non-current operating leases liabilities on the Company’s consolidated balance sheets as of May 31, 2019 are as follows:

 

    Amount
2019 (remaining three months)   $ 6,600  
2020     26,400  
2021     26,664  
2022     18,128  
Total lease payments     77,792  
Less: Imputed interest     (6,474 )
Total lease obligation     71,318  
Less: current lease obligations     22,834  
Long term lease obligations   $ 48,484  

 

 

NOTE 10 – Subsequent Events

 

Management has reviewed material events subsequent to the period ended May 31, 2019 and through the date of filing of financial statements in accordance with FASB ASC 855 “Subsequent Events”.

 

On June 14, 2019, the Company received a payment request for 40% or $738,660 of the cost of the manufacturing equipment currently in construction which we anticipate remitting on or about July 19, 2019, See NOTE 2 – Summary of Significant Accounting Policies, for additional information.

 

On July 5, 2019, the Board appointed Steve Yan-Klassen to serve as its Treasurer. Mr. Klassen was originally appointed to serve as the Company’s Chief Financial Officer on October 22, 2018. Currently there is no written employment agreement between the Company and Mr. Yan-Klassen. Mr. Yan-Klassen employment is at will and may be terminated by him or the Company at any time. Mr. Yan-Klassen will receive an annual salary of Canadian $31,500 payable bi-weekly.

 

On July 5, 2019, the Board appointed Justin Frere, CPA, to serve as its Secretary. Mr. Frere has served as the Company’s Controller since August of 2011 and continues to serve the Company as its Controller. Mr. Frere and the Company entered into an Accounting Services Agreement originally dated August 25, 2011 as amended on January 1, 2014 and December 8, 2014. Mr. Frere and the Company have a verbal agreement whereby the Company will pay Mr. Frere a salary of $8,000 per month for his services as Controller and Secretary.

 

On July 5, 2019, the Board granted 50,000 options to each of its Board members and the Treasurer and Secretary for a total option grant of 400,000 options. The non qualified stock options are subject to vesting ratably over five (5) years and are exchangeable for cash upon exercise.

 

On July 5, 2019, the Board granted 6,000 options each to two employees for a total option grant of 12,000 options. The non qualified stock options are subject to vesting ratably over three (3) years and are exchangeable for cash upon exercise.

 

On July 5, 2019, the Board Granted to Jatinder Bhogal, an option to purchase 1,008,000 shares of common stock which will vest ratably over 4 years.

 

Vesting for all options granted on July 5, 2019 as described above options begins on May 31, 2019 and carry an exercise price of $3.54 per share, the closing price of the Company’s common stock on the date of grant.

 

15

 

 

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

 

Forward-Looking Statements

 

This Report on Form 10-Q contains forward-looking statements which involve assumptions and describe our future plans, strategies, and expectations, and are generally identifiable by use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project,” or the negative of these words or other variations on these words or comparable terminology. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished.

 

Such forward-looking statements include statements regarding, among other things, (a) the potential markets for our technologies, our potential profitability, and cash flows, (b) our growth strategies, (c) expectations from our ongoing research and development activities, (d) anticipated trends in the technology industry, (e) our future financing plans, and (f) our anticipated needs for working capital. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in this Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the matters described in this Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.

 

Although forward-looking statements in this report reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect our actual results may vary materially from those expected or projected.

 

Except where the context otherwise requires and for purposes of this Form 10-Q only, “we,” “us,” “our,” “Company,” “our Company,” and “SolarWindow” refer to SolarWindow Technologies, Inc., a Nevada corporation, and its consolidated subsidiaries.

 

Overview

 

We are a pre-revenue company developing proprietary SolarWindow™ transparent electricity generating coatings. The SolarWindow™ coating is an OPV (Organic Photo-voltaic) device comprised of specially formulated ultra-thin layers which can be applied to glass, flexible glass and plastic surfaces. Our SolarWindow™ transparent, electricity-generating coatings and technology that can harvest light energy from the sun and artificial sources and could potentially be used on any of the more than 85 million commercial and residential buildings in the United States alone. Our SolarWindow™ technology is the subject of over ninety (90) pending U.S. and international patent and trademark filings.

 

16

 

 

The development of our SolarWindow™ technology continues to advance under the Stevenson-Wydler Cooperative Research and Development Agreement (the “ NREL CRADA ”) with the Alliance for Sustainable Energy, LLC (the “ Alliance for Sustainable Energy ”), which is the operator of The National Renewable Energy Laboratory (“ NREL ”); and the award of the Company’s first-ever advanced materials manufacturing Cooperative Research and Development Agreement (CRADA) from the U.S. Department of Energy (DOE) Office of Energy Efficiency and Renewable Energy’s (EERE) Advanced Manufacturing Office (AMO). The purpose of this project is to develop and demonstrate a unique high-throughput process methodology for semi-transparent organic photovoltaic (OPV) modules compatible with high process speeds for many different advanced material manufacturing systems.

 

On August 2, 2017, we entered into a Process Integration and Production Agreement with TriView Glass Industries, LLC (“Triview”). Triview is a glass fabricator operating a manufacturing facility in City of Industry, California. The purpose and primary goals of agreement are to:

 

1. establish commercial scale manufacturing methodologies and processes to fabricate products based on SolarWindow technologies; and

 

2. integrate SolarWindow™ process technologies into the Triview manufacturing process, to fabricate specific transparent electricity-generating SolarWindow™ Products.

 

The Company has validated our SolarWindow™ coatings under rigorous autoclave testing for window glass lamination at Triview. Layered with SolarWindow™ electricity-generating liquid coatings, glass modules were subjected to the extremely high heat and pressure in the autoclave equipment located at the fabricator’s facility. Despite the SolarWindow™ modules being subjected to the harsh pressure and temperature conditions, subsequent performance testing confirmed that the modules continued to produce power. This is a critically important milestone for the commercialization of SolarWindow products, showing that our PV layers are compatible with (the commonly-used) autoclave production equipment.

 

We have achieved numerous important milestones and overcome major technical challenges in the development of our SolarWindow™ technology, including the ability to generate electricity on glass while remaining transparent and the application of our coatings on to glass at room temperature and pressure.

 

A brief list of some of our milestones includes:

 

SolarWindow has been awarded a Grant by the U.S. Department of Energy, for Advanced Manufacturing. The Company was awarded the CRADA after submitting a proposal outlining its process technologies and fabrication methods to the DOE’s Roll-to-Roll Advanced Materials Manufacturing Consortium, led by Oak Ridge National Laboratory (ORNL) and partnering with Argonne National Laboratory (ANL), Lawrence Berkeley National Laboratory (LBNL), and the National Renewable Energy Laboratory (NREL). The CRADA will be carried out with the DOE by SolarWindow, ANL, and NREL;

 

The Company has set a new performance record for power efficiency with a 34% increase in performance over previous generations of its transparent electricity-generating glass. Performance results are based on independent testing and certification of SolarWindow™ devices by NREL’s Device Performance Measurement Laboratory;

 

Our SolarWindow™ transparent electricity-generating glass modules were successfully processed under rigorous conditions in an autoclave system used for window glass lamination at a commercial window fabricator;

 

We have successfully completed important freeze/thaw performance testing necessary for the commercialization of our transparent electricity-generating coatings; modules were subjected to more than 200 freeze/thaw cycles, which yielded favorable performance results of the edge sealing processes and minimal impact on the device electrical performance;

 

We have expanded product development range/activities and successfully applied our electricity-generating coatings onto flexible glass – as thin as a business card (only 0.1-millimeter-thick) – that is flexible enough to be bent without breaking or cracking;

 

17

 

 

entered into the NREL CRADA which is still in effect;

 

filed over sixty (60) U. S. and international patent and thirty (30) trademark applications for our electricity-generating coating and SolarWindow™ technology development efforts;

 

expanded the use of our SolarWindow™ coatings to include two new product lines for commercial and military aircraft, and the safety and security of military pilots;

 

generated electricity on flexible plastic using novel see-through SolarWindow™ coatings;

 

developed new SolarWindow™ coatings with increased transparency and improved color;

 

produced the largest OPV device ever fabricated at NREL in the institute’s history; and

 

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

 

We are currently developing “ SolarWindow™ Products ” derived from our SolarWindow™ technology designed to address several potential markets, including:

 

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

 

SolarWindow™ – Structural Glass – Structural glass walls and curtains for tall structures;

 

SolarWindow™ – Architectural Glass – Textured and decorative interior glass walls, room dividers, etc.;
     
  SolarWindow™ – Residential – A window glass for installation in new residential homes under construction and replacement windows;

 

SolarWindow™ – Flex – Flexible films which may be applied directly to different surfaces; and

 

SolarWindow™ Retrofit Veneer - Transparent, tinted, and flexible veneers that installers can apply directly on to existing, previously installed, window glass.

 

In addition to SolarWindow™-Commercial, Structural, and Architectural products, we are also developing SolarWindow™ Retrofit Veneer products as transparent, tinted, flexible and rigid veneers that installers can apply directly over the inside of existing windows. This expanded product line broadens our market reach beyond new and replacement installations, to include windows currently installed on the estimated five million commercial buildings constructed in the U.S. alone. As noted, the SolarWindow™ Retrofit Veneer products will be developed concurrently with the other SolarWindow™ products currently under development.

 

We also developed the capability to integrate transparent SolarWindow™ coatings on to flexible glass. This presents new product opportunities for curved and non-flat surfaces in automotive, aircraft, and military applications.

 

Our product development efforts have produced early working prototypes for these applications, which we are sharing with potential commercialization partners, who will work along-side us to ascertain whether the SolarWindow TM technology can form the basis for a commercially viable technology or product and to help determine which products will be first to market.

 

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We plan to market any SolarWindow™ Products we commercialize through co-marketing and co-promotion, licensing, and distribution arrangements with third party collaborators, such as Triview, to advance the technical development and subsequent commercialization of our SolarWindow™ products. We are actively seeking additional technology and product licensing, joint venture arrangements, and manufacturing process integration relationships with commercial partners and industry; and organizations which have established technical competencies, market reach, and mature distribution networks in the solar PV, building-integrated PV, and alternative and renewable energy market industries. We believe that this approach could provide immediate access to existing distribution channels which can increase market penetration and commercial acceptance of our products, and enable us to avoid expending significant funds for development of a large sales and marketing organization. Other than our agreement with Triview, we have not yet entered into any other such arrangements for these services.

 

Disclaimer

 

We do not currently have commercial products and there is no assurance that we will successfully be able to design, develop, manufacture, or sell any commercial products in the future. Our product development programs involve ongoing R&D and product development efforts, and the commitment of significant resources to support the extensive invention, design, engineering, testing, prototyping, and intellectual property initiatives carried-out by our contract engineers, scientists, and consultants.

 

We cannot accurately predict the amount of funding or the time required to successfully commercialize or fabricate SolarWindow™ products. The actual cost and time required to commercialize our SolarWindow™ technology may vary significantly depending on, among other things, the results of our product development efforts; the cost of developing, acquiring, or licensing various enabling technologies; changes in the focus and direction of our business or product development plans; competitive and technological advances; the cost of patent filing, prosecuting, defending and enforcing claims; demonstrating compliance with regulations and standards; and manufacturing, marketing and other costs that may be associated with product fabrication. Because of this uncertainty, even if financing is available to us, we may secure insufficient funding to effectuate our business and/or product development plans.

 

Research and Related Agreements

 

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

 

Process Integration and Production Agreement with TriView Glass Industries

 

On August 2, 2017, we entered into the PIPA Agreement with Triview. Triview is a glass fabricator operating a manufacturing facility in City of Industry, California. The purpose and primary goals of agreement are to:

 

establish commercial scale manufacturing methodologies and processes to fabricate products based on SolarWindow technologies; and

integrate SolarWindow™ technologies into the Triview’s manufacturing process, to fabricate specific SolarWindow™ transparent electricity-generating glass products.

 

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

 

On March 18, 2011, we entered into the NREL CRADA with Alliance for Sustainable Energy, the operator of the NREL under its U.S. Department of Energy contract to advance the commercial development of the SolarWindow™ technology. Under terms of the NREL CRADA, NREL researchers will make use of our exclusive intellectual property (“ IP ”), newly developed IP, and NREL’s background IP in order to work towards specific product development goals. Under the terms of the NREL CRADA, we agreed to reimburse Alliance for Sustainable Energy for filing fees associated with all documented, out-of-pocket costs directly related to patent application preparation and filings, and maintenance of the patent applications.

 

On January 16, 2013, we entered into a modification to the NREL CRADA for the purpose of extending the date pursuant to which NREL’s researchers will make use of our exclusive IP and NREL’s background IP.

 

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

 

further improving SolarWindow™ technology efficiency and transparency;
optimizing electrical power (current and voltage) output;
optimizing the application of the active layer coatings which make it possible for SolarWindow™ coatings to generate electricity on glass surfaces;
developing improved electricity-generating coatings by enhancing performance, processing, reliability, and durability;
optimizing SolarWindow™ coating performance on flexible substrates; and
developing high speed and large area roll-to-roll (R2R) and sheet-to-sheet (S2S) coating methods required for commercial-scale building integrated photovoltaic (“BIPV”) products and windows.

 

On December 28, 2015, we entered into a modification of the CRADA (the “ Modification ”) to the NREL CRADA with Alliance for Sustainable Energy, previously entered into between us and NREL. The purpose of the Modification was to extend the date pursuant to which NREL’s researchers work towards specific product development goals.

 

On November 21, 2017, the Company entered into a No Cost Time Extension (“NCTE”) under the NREL CRADA with the Alliance for Sustainable Energy. Under the terms of the NCTE, all terms and conditions of the CRADA remain in full force and effect without change, with a completion date of December 21, 2019. On November 8, 2018, we entered into an NCTE which extended the completion date to December 31, 2019. Specifically, we are preparing to commercialize our OPV-based SolarWindow™ transparent electricity-generating coatings for BIPV, and glass and flexible plastic applications. Under Modification, NREL and the Company will work jointly towards achieving specific commercialization goals and objectives. As of May 31, 2019, the Company made $457,410 of advances to Alliance for Sustainable Energy for work to be performed under the NREL CRADA, which is capitalized as deferred research and development costs on our consolidated balance sheets.

 

U.S. Department of Energy (DOE) Office of Energy Efficiency and Renewable Energy’s (EERE) Advanced Manufacturing Office (AMO) Cooperative Research and Development Agreement

 

On March 15, 2018 the Company was awarded its first-ever advanced materials manufacturing collaborative research and development agreement (CRADA) by the U.S. Department of Energy (DOE) Office of Energy Efficiency and Renewable Energy’s (EERE) Advanced Manufacturing Office (AMO). SolarWindow was awarded the CRADA after submitting a proposal outlining its coating technologies and fabrication methods to the DOE’s Roll-to-Roll Advanced Materials Manufacturing Consortium, led by Oak Ridge National Laboratory and partnering with Argonne National Laboratory (ANL), Lawrence Berkeley National Laboratory, and the National Renewable Energy Laboratory (NREL). The CRADA will be carried out with the DOE by SolarWindow, ANL, and NREL.

 

The purpose of this project is to develop and demonstrate a unique high-throughput process methodology for semitransparent organic photovoltaic (OPV) modules compatible with high process speeds for many different advanced material manufacturing systems.

 

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Results of Operations

 

Three and nine months ended May 31, 2019 compared with the three and nine months ended May 31, 2018

 

Operating Expenses

 

A summary of our operating expense for the three and nine months ended May 31, 2019 and 2018 follows:

 

    Three Months Ended May 31,   Increase /   Percentage
    2019   2018   (Decrease)   Change
Operating expenses                                
Selling, general and administrative   $ 392,887     $ 386,087     $ 6,800       2  
Research and product development     357,340       337,457       19,883       6  
Stock based compensation     355,226       467,224       (111,998 )     -24  
Total operating expenses   $ 1,105,453     $ 1,190,768     $ (85,315 )     -7  

 

    Nine Months Ended  May 31,   Increase /    
    2019   2018   (Decrease)   % Change
Operating expenses                                
Selling, general and administrative   $ 1,082,103     $ 1,239,404     $ (157,301 )     -13  
Research and product development     730,740       985,973       (255,233 )     -26  
Stock based compensation     1,096,186       2,364,379       (1,268,193 )     -54  
Total operating expenses   $ 2,909,029     $ 4,589,756     $ (1,680,727 )     -37  

 

Selling, General and Administrative

 

Selling, general and administrative (“ SG&A ”) costs include all expenditures incurred other than research and development related costs, including costs related to personnel, professional fees, travel and entertainment, public company costs, insurance and other office related costs. During the three months ended May 31, 2019 compared to the three months ended May 31, 2018, SG&A costs increased slightly. During the nine months ended May 31, 2019 compared to the nine months ended May 31, 2018, SG&A costs decreased due primarily to an approximately $203,000 reduction in investor communications related fees offset by an approximately $54,000 increase in professional fees.

 

Research and Product Development

 

Research and Product Development (“ R&PD ”) costs represent costs incurred to develop our SolarWindow™ technology and are incurred pursuant to our research agreements and agreements with other third-party providers and certain internal R&PD cost allocations. Payments under these agreements include salaries and benefits for R&PD personnel, allocated overhead, contract services and other costs. R&PD costs are expensed when incurred, except for non-refundable advance payments for future research and development activities which are capitalized and recognized as expense as the related services are performed. During the three months ended May 31, 2019 compared to the three months ended May 31, 2018, R&PD costs increased primarily as a result of an increase in CRADA costs. During the nine months ended May 31, 2019 compared to the nine months ended May 31, 2018, R&PD costs decreased primarily as a result of an approximate $334,000 decrease in consulting and personnel offset by an approximate $78,000 increase in CRADA and materials costs.

 

Stock Based Compensation

 

The Company grants stock options to its Directors, employees and consultants and issues stock to its Directors. Stock compensation represents the expense associated with the amortization of our stock options and issuance of common stock. Expense associated with equity-based transactions is calculated and expensed in our financial statements as required pursuant to various accounting rules and is non-cash in nature. Stock based compensation expense decreased during the three and nine months ended May 31, 2019 compared to the three and nine months ended May 31, 2018 due to no stock or option grants occurring since December 2018 and no issuances of restricted common stock to our directors since November 2017.

 

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Other Income (Expense)

 

A summary of our other income (expense) for the three and nine months ended May 31, 2019 and 2018 follows:

 

    Three Months Ended May 31,   Increase /
    2019   2018   (Decrease)
Other income (expense)                        
Interest income   $ 118,111     $ -     $ 118,111  
Interest expense     -       (128,706 )     (128,706 )
Accretion of debt discount     -       (125,422 )     (125,422 )
Total other income (expense)   $ 118,111     $ (254,128 )        

 

    Nine Months Ended May 31,   Increase /
    2019   2018   (Decrease)
Other income (expense)                        
Interest income   $ 200,091     $ -     $ 200,091  
Interest expense     (128,239 )     (345,453 )     (217,214 )
Accretion of debt discount     (663,918 )     (698,302 )     (34,384 )
Total other income (expense)   $ (592,066 )   $ (1,043,755 )        

 

“Interest income” relates to the interest earned on our cash. “Interest expense” relates to the stated interest of our convertible promissory notes and bridge note. “Accretion of debt discount” represents the accretion of the discount applied to our notes as a result of the issuance and modification of detachable warrants and the beneficial conversion feature contained in our notes. On November 26, 2018, the Investor converted all outstanding debt resulting in the elimination of further interest expense and an increase in accretion due to the recognition of all remaining debt discount related to the 2013 Note. See “NOTE 3 – Debt” and “NOTE 4 – Private Placements” to our Consolidated Financial Statements for additional information.

 

Liquidity and Capital Resources

 

Our principal source of liquidity is cash in the bank. As of May 31, 2019, the Company had $17,990,279 of cash compared to $696,826 as of August 31, 2018. We have financed our operations primarily from the sale of equity and debt securities. On November 26, 2018, the Company completed a self-directed offering resulting in $19,800,000 of proceeds. Simultaneously, the 2013 Note and March 2015 Loan were converted in the amount of $5,200,000, including outstanding debt principal and unpaid interest.

 

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Summary of Consolidated cash Flows

 

Presented below is a table that summarizes the cash provided or used in our activities and the amount of the respective increases or decreases in cash provided by (used in) those activities between the fiscal periods:

 

    Nine Months Ended May 31,   2019
compared to
    2019   2018   2018
Operating activities   $ (1,909,896 )   $ (2,426,011 )   $ 516,115  
Investing activities     (596,651 )     (2,581 )     (594,070 )
Financing activities     19,800,000       2,949,326       16,850,674  
Net increase (decrease) in cash and cash equivalents   $ 17,293,453     $ 520,734     $ 16,772,719  

 

Operating Activities

 

Net cash used in operating activities totaled $1,909,896 for the nine months ended May 31, 2019 as compared to $2,426,011 for the nine months ended May 31, 2018. The $516,115 decrease in cash used in operating activities was primarily the result of lower investor communications related fees and personnel and consulting costs offset by an increase in CRADA costs and professional fees.

 

Investing Activities

 

Net cash used in investing activities totaled $596,651 for the nine months ended May 31, 2019 as compared to $2,581 for the nine months ended May 31, 2018. During the nine months ended May 31, 2019, the Company purchased a computer, office equipment, office furniture and various production and R&D equipment, including a payment of $553,995 towards the purchase of manufacturing equipment with an estimated total cost of $1,846,650. That equipment is currently being fabricated to meet our process and product fabrication standards and requirements.

 

Financing Activities

 

Net cash provided by financing activities totaled $19,800,000 for the nine months ended May 31, 2019, compared to $2,949,326 for the nine months ended May 31, 2018. During the nine months ended May 31, 2019, the Company received proceeds of $19,800,000 from the November 2018 Private Placement whereas during the nine months ended May 31, 2018, the Company received proceeds of $394,150 from the exercise of a total of 119,500 Series O Warrants and Series P Warrants and $2,555,176 from the September 29, 2017 private placement.

 

Other Contractual Obligations

 

None.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Recently Issued Accounting Pronouncements

 

See Note 2 to our Consolidated Financial Statements for more information regarding recent accounting pronouncements and their impact to our consolidated results of operations and financial position.

 

Critical Accounting Policies

 

The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”) requires the use of estimates and assumptions that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental disclosures including information about contingencies, risk and financial condition.

 

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Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties and potentially yield materially different results under different assumptions or conditions. Given current facts and circumstances, we believe that our estimates and assumptions are reasonable, adhere to GAAP and are consistently applied. Our selection and disclosure of our critical accounting policies and estimates has been reviewed by our Board. Following is a review of the more significant assumptions and estimates and the accounting policies and methods used in the preparation of our consolidated financial statements. For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. See Note 2 - Summary of Significant Accounting Policies to the Notes to Consolidated Financial Statements which discusses the significant accounting policies that we have adopted.

 

Stock Based Compensation

 

We account for stock based compensation arrangements through the measurement and recognition of compensation expense for all stock based payment awards to employees and directors based on estimated fair values. We use the Black-Scholes option valuation model to estimate the fair value of our stock options and warrants at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of options and warrants. We use historical company data among other information to estimate the expected price volatility and the expected forfeiture rate and not comparable company information, due to the lack of comparable publicly traded companies that exist in our industry.

 

New Accounting Pronouncements

 

For a discussion of our New Accounting Pronouncements, refer to Note 2. Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

 

Related Party Transactions

 

For a discussion of our Related Party Transactions, refer to “Note 8 - Related Party Transactions” to our Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

 

Corporate Information

 

SolarWindow Technologies, Inc., a Nevada corporation, was incorporated in 1998. The Company’s executive offices are located at 300 Main Street, Suite 6, Vestal, NY 13850. The Company’s telephone number is (800) 213-0689. Our Internet address is  www.solarwindow.com.  We make available free of charge through our Internet website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information accessible through our website is not a part of this Quarterly Report on Form 10-Q.

 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains or incorporates a number of "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on current expectations, and are not strictly historical statements. In some cases, you can identify forward-looking statements by terminology such as "if," "may," "should," "believe," "anticipate," "future," "forward," "potential," "estimate," "opportunity," "goal," "objective," "growth," "outcome," "could," "expect," "intend," "plan," "strategy," "provide," "commitment," "result," "seek," "pursue," "ongoing," "include" or in the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties and are not guarantees of performance, results, or the creation of shareholder value, although they are based on our current plans or assessments which we believe to be reasonable as of the date hereof.

 

Factors that could cause actual results, events and developments to differ include, without limitation: the ability of our Company to generate sufficient net income and cash flows, capital market conditions, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance, litigation, potential and contingent liabilities, management’s plans, changes in regulations and taxes.

 

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We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.

 

Forward-looking statements are not guarantees of performance. You should understand that the following important factors, in addition to those discussed under the section entitled "Risk Factors" in the Annual Report and in the documents incorporated by reference, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. You should also understand that many factors described under one heading below may apply to more than one section in which we have grouped them. As a result, you should consider all of the relevant factors, together with all of the other information presented herein, in evaluating our business and that of our subsidiaries.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company maintains “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) of the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any control and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective.

 

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of May 31, 2019. Based on this evaluation, the Company’s Principal Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were not sufficiently effective as of May 31, 2019 because of the following material weakness in our internal control over financial reporting:

 

Ineffective design and implementation of internal controls impacting financial statement accounts related to a lack of segregation of duties.

 

Changes in Internal Control Over Financial Reporting

 

As of our fiscal year ended August 31, 2018 and based on the COSO criteria, management identified control deficiencies that constituted material weaknesses. A “material weakness”, as defined by COSO, is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is more than a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following material weaknesses in our internal control over financial reporting as of August 31, 2018:

 

  Ineffective control environment due to an insufficient number of independent board members, insufficient oversight of work performed, and the lack of compensating controls over financial reporting due to limited personnel;
     
  Ineffective design, implementation, and documentation of internal controls impacting financial statement accounts and general controls over technology pertaining to user access and segregation of duties, banking and disbursements, and financial accounting system applications; and

 

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  Ineffective monitoring controls related to the financial close and reporting process, including management’s risk assessment process and its identification, evaluation, and timely remediation of control deficiencies.

 

The Company began implementing new and more robust internal controls during our fiscal year ended August 31, 2018 and has continued to take actions to remediate the material weaknesses in our internal controls over financial reporting identified above, including implementing additional processes and controls designed to address the underlying causes associated with the above mentioned material weaknesses. The Company’s internal control implementation and remediation efforts include the following:

 

On June 6, 2018, we engaged the services of a risk and compliance consulting firm to assist in our evaluation and implementation of internal controls and remediation of identified control deficiencies;
On October 22, 2018, we appointed Steve Yan-Klassen, CPA, CMA as our CFO in an effort to provide senior financial oversight and increased segregation of duties;
Since November 30, 2019, we have been performing more extensive and frequent reviews of critical estimates, journal entries, complex calculations, the financial close and financial reporting processes;
Realigning certain roles to provide better segregation of duties and implementing stronger user access controls;
We continue to create and implement new policies and procedures related to controls over various operating activities;
We have hired additional staff and reassigned duties of existing staff in connection with our remediation efforts;
Regular onsite and offsite backups of critical electronic data;
Regular informal and formal meetings of Board members who also have been incorporated into the review process of all financial statement filings, and
The Board has been strengthened by the addition of three independent directors, including the June 14, 2019 appointment of Gary Parmar, CPA, CA, who will chair our Audit Committee, bringing the total independent directors to 4 of 7 total directors. The 4 independent directors listed below qualify as an “independent director” under the standards of independence of the FINRA listing standards. Our entire Board of Directors is comprised of the following individuals:

 

Harmel Rayat, Chairman – Not independent

John Conklin, CEO – Not independent

Jatinder Bhogal, Consultant to the Company – Not independent

Dr. Alastair Livesey – Independent

Bob Levine – Independent (Date of appointment – December 17, 2018)

Steve Horvitz – Independent (Date of appointment – April 17, 2019)

Gary Parmar, CPA, CA – Independent (Date of appointment – June 14, 2019)

 

We have and will continue to utilize internal resources, and outside resources when deemed necessary, in our remediation efforts and will implement additional controls and processes as applicable to strengthen our controls over the financial reporting and disclosure process and to meet the needs of our growing organization.

 

26

 

 

Item 5. Other Information

 

On July 5, 2019, the Board appointed Steve Yan-Klassen to serve as its Treasurer. Mr. Klassen was originally appointed to serve as the Company’s Chief Financial Officer on October 22, 2018. Currently there is no written employment agreement between the Company and Mr. Yan-Klassen. Mr. Yan-Klassen employment is at will and may be terminated by him or the Company at any time. Mr. Yan-Klassen will receive an annual salary of Canadian $31,500 payable bi-weekly.

 

On July 5, 2019, the Board appointed Justin Frere, CPA, to serve as its Secretary. Mr. Frere has served as the Company’s Controller since August of 2011 and continues to serve the Company as its Controller. Mr. Frere and the Company entered into an Accounting Services Agreement originally dated August 25, 2011 as amended on January 1, 2014 and December 8, 2014. Mr. Frere and the Company have a verbal agreement whereby the Company will pay Mr. Frere a salary of $8,000 per month for his services as Controller and Secretary.Mr. Frere has over 20 years of experience as a hands-on CFO/Controller level finance and administration professional with extensive operational and analytical experience as a consultant, CFO and controller. Mr. Frere specializes in technical accounting with extensive SEC reporting experience, financial modeling experience, day to day finance and accounting operations and overall organizational support. From 2001 through present, Mr. Frere has been principal of Frontline Accounting performing CFO/controller, and financial analyst services for various public and private domestic and international clients. During this time, Mr. Frere has been the primary party responsible for accounting support, auditor interface, drafting and filing of SEC forms 10-K, 10-Q, S-1, and 8-K, including interfacing and responding to SEC staff on numerous occasions on behalf of registrant clients. In addition to Frontline Accounting, from 2007 - 2009, Mr. Frere served as CFO for a private, $18 million revenue, contract manufacturer, and from 2002 - 2004 as Controller of a start-up, multimedia marketing firm. From 1999 through 2001, Mr. Frere was responsible for the implementation and oversight of the financial and administrative infrastructure, day to day activities and high level financial reporting and analysis for domestic and international entities as an outsourced controller for a San Diego based business services outsourcing company primarily in support of VC backed companies in the biotech and wireless communications industries. From 1998 to 1999, Mr. Frere was the Senior Reporting Analyst at Maxtor Corp., a former disk drive manufacturer located in Milpitas, California. From 1996 through 1998, Mr. Frere served as a Senior Accountant with KPMG, a professional services firm, in their assurance practice located in the San Francisco Bay Area. Mr. Frere earned a Bachelors of Science in accounting and finance from California Polytechnic State University in San Luis Obispo (1996), Certified Public Accountant license (1998) and Masters in Business Administration with a Finance emphasis from San Diego State University (2001).

 

On July 5, 2019, the Board granted 50,000 options to each of its Board members and the Treasurer and Secretary for a total option grant of 400,000 options. The non qualified stock options are subject to vesting ratably over five (5) years and are exchangeable for cash upon exercise.

 

On July 5, 2019, the Board granted 6,000 options each to two employees for a total option grant of 12,000 options. The non qualified stock options are subject to vesting ratably over three (3) years and are exchangeable for cash upon exercise.

 

On July 5, 2019, the Board Granted to Jatinder Bhogal, an option to purchase 1,008,000 shares of common stock which will vest ratably over 4 years.

 

Vesting for all options granted on July 5, 2019 as described above options begins on May 31, 2019 and carry an exercise price of $3.54 per share, the closing price of the Company’s common stock on the date of grant.

 

On July 5, 2019, the Board authorized management to proceed with the process of seeking a listing of its common stock on the New York Stock Exchange American.

 

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PART II – OTHER INFORMATION

 

Item 6. Exhibits

 

Exhibit No. Description of Exhibit
   
4.1 Form of Series T Stock Purchase Warrant dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 29, 2018)

 

4.2 Form of Subscription Agreement for Units Dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 29, 2018)

 

10.1 Amendment to the March 2015 Loan Agreement dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 29, 2018)

 

10.2 Amendment to the 2013 Note as amended dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 29, 2018)

 

10.3 Lease dated May 1, 2019 between Rose Claudia of the Vestal Professional Building and Registrant for 300 Main Street, Suite 6, Vestal, New York*

 

31.1 Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

31.2 Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

32.1 Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
   
101.INS XBRL Instance Document**
101.SCH XBRL Taxonomy Extension Schema Document**
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB XBRL Taxonomy Extension Label Linkbase Document**
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document**

______________________

 

*Filed herewith

 

** Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

28

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

SolarWindow Technologies, Inc.

 

By:   /S/ Steve Yan-Klassen  
  Steve Yan-Klassen  
  Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)  
Date: July 9, 2019  
     

 

 

 

 

 

 

 

 

 

29

 

SolarWindow Technologies, Inc. (USOTC:WNDW)
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