Annual Report (10-k)

Date : 11/18/2019 @ 10:11PM
Source : Edgar (US Regulatory)
Stock : Solarwindow Technologies, Inc. (PC CE) (WNDW)
Quote : 2.86  0.02 (0.70%) @ 8:59PM

Annual Report (10-k)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended August 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

(State or other jurisdiction of incorporation or organization)

 

59-3509694

(I.R.S. Employer Identification No.)

 

300 Main Street, Suite 6

Vestal, NY

 

 

 

13850

(Address of principal executive offices)   (Zip Code)

 

(800) 213-0689

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes ☐    No ☒

 

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 and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

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

 

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 Rule 12b-2 of the Exchange Act.). Yes ☐    No ☒

 

The aggregate market value of SolarWindow common stock held by non-affiliates of the registrant as of the last day of our most recently completed second quarter on February 28, 2019 was $38,036,000.

 

As of November 13, 2019, 52,959,323 shares of common stock, par value $0.001, were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

 

 

 

 

TABLE OF CONTENTS

 

SOLARWINDOW TECHNOLOGIES, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEARS ENDED AUGUST 31, 2019 and 2018

 

PART I   PAGE
     
Item 1. Business 4
Item 1A. Risk Factors 14
Item 1B. Unresolved Staff Comments 28
Item 2. Properties 28
Item 3. Legal Proceedings 28
   
PART II    
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 28
Item 6. Selected Financial Data 32
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
Item 7A. Qualitative and Quantitative Disclosures About Market Risk 41
Item 8. Financial Statements 41
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 41
Item 9A. Controls and Procedures 42
Item 9B. Other Information 43
     
PART III    
     
Item 10. Directors, Executive Officers, and Corporate Governance 44
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 53
Item 13. Certain Relationships and Related Transactions, and Director Independence 54
Item 14. Principal Accounting Fees and Services 56
     
PART IV    
     
Item 15. Exhibits, Financial Statement Schedules 57
Item 16. Form 10-K Summary 60
     
SIGNATURES 61
     
INDEX TO FINANCIAL STATEMENTS F-1 to F-20

 

 

 

 

PART I

 

Forward-Looking Statements

 

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

 

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

 

Although forward-looking statements in this report reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and factors that may cause actual results to be materially different from those discussed in these forward-looking statements. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Accordingly, you are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

 

We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation.

 

All references to “we,” “us,” or “our,” refer to SolarWindow Technologies, Inc.

 

Item 1. Business

 

Background

 

We have developed transparent electricity-generating liquid coatings (the “SolarWindow™ Coatings”) that can be applied to glass and plastic surfaces to generate electricity. These coatings generate electricity when exposed to natural sun or artificial light; and when exposed to low, shaded, or reflected light.

 

When these electricity-generating coatings are applied to glass and fabricated into a window, these windows could become electricity-generating windows, which could potentially be used on any of the estimated 5.6 million commercial buildings, in the United States alone, which consume almost $150 billion in electricity annually.

 

Over the years, 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. In September 2014, we demonstrated SolarWindow™ Coatings to members of the U.S. Congress during the first ever National Lab Day, which was cosponsored by the U.S. Department of Energy.

 

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We have scaled-up the SolarWindow™ technology from a single solar cell – only one-quarter the size of a grain of rice – to a working array of solar cells which form a one-foot by one-foot working prototype – our largest-ever SolarWindow™ module.

 

In early 2017, our SolarWindow™ transparent electricity-generating coatings on glass were successfully processed through the rigorous autoclave system for window glass lamination at a commercial window fabricator. Layered with SolarWindow™ electricity-generating liquid coatings, glass modules were subjected to the extremely high heat and pressure of 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 validated that our SolarWindow™ Coatings can be processed in an industrial window fabrication autoclave manufacturing process.

 

Our technological advancements over the past two years now enable us to fabricate a pane of glass coated with our SolarWindow™ technology by simply applying our transparent, electricity-generating coatings onto glass surfaces at room temperature and pressure; this process represents a significant technical achievement which may provide a manufacturing advantage over expensive and cumbersome high temperature and high positive or negative pressure-sensitive manufacturing methods common to conventional solar photovoltaic (“PV”) manufacturing.

 

Our current focus is on the commercialization of products derived from our SolarWindow™ technology. We continue to develop our SolarWindow™ technology and products with the Alliance for Sustainable Energy, LLC (the “Alliance”) under the Stevenson-Wydler Cooperative Research and Development Agreement (“CRADA”). The Alliance is the Manager and Operator of the National Renewable Energy Laboratory (“NREL”) under the U.S. Department of Energy (“DOE”).

 

In March 2018 the Company was awarded its first-ever Advanced Materials Manufacturing Cooperative Research and Development Agreement (“AMM CRADA”) from the 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 semitransparent organic photovoltaic (“OPV”) modules compatible with high process speeds for many different advanced material manufacturing process systems.

 

On August 2, 2017, we entered into a Process Integration and Production Agreement (the “PIPA Agreement”) with Triview Glass Industries, LLC (“Triview”). On September 27, 2019, the Company was notified that Triview, effective on September 27, 2019, would cease operations and would not be able to fulfill its commitment to support SolarWindow and meet its obligations to integrate SolarWindow™ processes into its manufacturing operations and build electricity-generating glass products under the PIPA Agreement. The Company does not believe that the termination of its relationship with Triview will result in any material adverse effect on the Company’s operations. The Company remains focused and continues to:

 

•    Pursue commercial manufacturing partnerships to establish and integrate SolarWindow™ coatings and processes into glass fabrication processes, and
•    Develop manufacturing lines for the full-scale fabrication of specific SolarWindow™ electricity-generating products.

 

To advance the technical and product development, and subsequent commercialization of SolarWindow™ technologies and products, we are seeking technology and product licensing and joint venture arrangements with additional research institutions, commercial partners, glass manufacturing and fabrication facilities, and organizations with established technical competencies, market reach, and mature distribution networks in the building development, solar PV, building-integrated PV, and alternative and renewable energy market industries.

 

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As of the date of this filing, our proprietary SolarWindow™ electricity-generating coatings and associated technologies are the subject of over sixty (60) pending U.S. and international patent, and thirty (30) trademark filings.

 

More information about the Company can be read at www.solarwindow.com

 

Our Important Business and Technology Development Milestones and Achievements

 

We have been researching, developing, designing and testing our SolarWindow™ technology, as well as developing prototype fabrications of our SolarWindow™ modules, for commercial application of flat and insulated electricity-generating glass products for tall towers and other commercial buildings since November 2006.

 

To date we have achieved a number of important milestones in the development of our technology, including:

 

awarded its first-ever advanced materials manufacturing CRADA by the DOE Office of Energy Efficiency and Renewable Energy’s (EERE) Advanced Manufacturing Office (AMO). 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. We refer to this CRADA as our Advanced Manufacturing Materials or “AMM CRADA” which focuses on high-speed roll-to-roll manufacturing processes of our SolarWindow™ technology.

 

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 the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) Device Performance Measurement Laboratory;

 

processed our SolarWindow™ transparent electricity-generating glass modules through the rigorous autoclave system for window glass lamination at a commercial window fabricator;

 

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;

 

expanded product development 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; This thin glass substrate can be used to make curved PV panels or can be used in laminated glass, therefore significantly expanding the potential product range for our coatings;

 

entered into the NREL CRADA, which is still in effect, that focuses on continued development and improvement of the underlying OPV materials and module/integration science and engineering;

 

filed over ninety (90) patent and trademark applications for our electricity-generating coating and technology development efforts;

 

expanded the potential use of our SolarWindow™ coatings to include applications for commercial and military aircraft, and the safety and security of military pilots and troops;

 

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

 

developed new SolarWindow™ coatings with increased transparency, and use of new and improved colors;

 

produced the largest OPV module for the same type of device structure ever fabricated at NREL in the institute’s history;

 

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

 

completed successful performance tests on the suitability of our transparent electricity-generating coatings for glass and flexible plastics for glass-to-glass lamination processes, and

 

demonstrated that our SolarWindow™ coatings and materials can be incorporated into manufacturing processes using methods and techniques that do not require high temperature or a vacuum deposition methods typical for conventional PV or thin-film cell or module fabrication.

 

On September 16, 2010, we publicly unveiled a working four-inch by four-inch prototype of our proprietary SolarWindow™ technology. Scientists at the event powered lights on a scale-model house by exposing our transparent SolarWindow™ to artificial light from fluorescent lamps, mimicking lighting typically installed inside offices.

 

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

 

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

 

In February 2012, we successfully developed the largest OPV device fabricated at NREL at that time, measuring 170cm2, approximately 14 times larger than previous devices of the same type device and structure ever produced at NREL. In March 2012, we, in collaboration with NREL researchers, successfully collected and transported electricity using a virtually 'invisible' conductive wiring system developed for SolarWindow™. The ability to transport electricity on glass windows while remaining transparent is especially important to the eventual deployment of an aesthetically pleasing commercial product. 

 

On March 8, 2014, we made public never-before-seen images of our largest area, high-performance SolarWindow™ arrays. These SolarWindow™ arrays measure over 232 cm² – a significant achievement for size, improving upon our previous achievements at NREL, and produced with highly-uniform, colored tints preferred by commercial window manufacturers for installation on skyscrapers, worldwide. Among the most important criteria for developing SolarWindow™ coating applications for today's skyscrapers is providing a set of neutral colors that remain see-through and are uniform in fabrication. We revealed the Company’s largest-area transparent, OPV SolarWindow™ array that addresses tall-tower and commercial building glass requirements and that also bears the promise of scale-up and manufacturability at large commercial sizes. This SolarWindow™ array is over 35% larger than our previously-fabricated, 170 cm² working module achievement. That prior module was already 14 times larger than the then-previous largest-area OPV module for the same type device structure ever fabricated at the NREL. 

 

7

 

In September 2014, we demonstrated SolarWindow™ electricity-generating coatings to Congress during the first ever National Lab Day on Capitol Hill. National Lab Day was cosponsored by the U.S. Department of Energy. On April 8, 2015, Engineers and research scientists at the University of North Carolina Charlotte Energy Production and Infrastructure Center (“UNCC-EPIC”) have independently reviewed and validated our proprietary Power & Economic Model. The Model calculates a financial payback of less than one year for our transparent electricity-generating SolarWindow™ Technology. The UNCC-EPIC team of engineering and science experts independently validated the modeling assumptions, reference data, and technical basis important to calculating our one-year financial payback for SolarWindow™ systems. UNCC-EPIC validation also confirmed our methodology for modeling the performance of competing PV technologies.

 

In May 2015 we announced plans to replace traditional electrical wiring connections with a simplified next-generation system for collecting the power produced by its transparent electricity-generating windows. In addition to reducing costs, ease of electrical installation will be important to window fabricators, glass installers (i.e., glaziers), electricians, and maintenance personnel. The replacement of today's cumbersome methods with our easy power connection system ('module interconnects') is also important for new construction and retrofit applications of SolarWindow™ electricity-generating window modules on skyscrapers and tall towers.

 

On August 20, 2015, we featured a first-ever demonstration of our working, electricity-generating window unit, during our webcast. Webcast participants witnessed clean electricity being generated on a demonstration window unit. Its glass is tinted in a high-demand, high transparency, very light green modules framed in aluminum, popular with architects and developers of commercial towers – our target market. Participants also heard us explain exactly how we plan to: generate revenue, work towards product development and getting SolarWindow ™ ready for commercial manufacturing, build shareholder value, expand our name recognition and branding plans, increase investor outreach, engage media, and outlined important next steps for commercialization and bring SolarWindow™ products to market.

 

On May 17, 2017, we announced the successful processing of our SolarWindow™ transparent electricity-generating coatings on glass through the rigorous autoclave system for window glass lamination at a commercial window fabricator. Layered with SolarWindow™ electricity-generating liquid coatings, glass modules were subjected to the extremely high heat and pressure of 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.

 

Product Development Utilizing our SolarWindowTM Technology

 

We are currently developing seven (7) products (collectively, the “SolarWindow™ Products”) based on our SolarWindow™ technology:

 

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 glass and plastic films which may be applied directly to different surfaces;

 

SolarWindow™ - PowerWrap™ - A proprietary product under development that plans to feature multiple colors and high-power production; and

 

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

 

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Currently, we are concentrating on the development and deployment of SolarWindow™-Commercial, Structural, Architectural, and Retrofit Veneer glass products.

 

The SolarWindow™ Retrofit Veneer products are 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. The SolarWindow™ Retrofit Veneer products will be developed concurrently with the other SolarWindow™ products currently under development.

 

Although our efforts have already produced the basis for these prototype applications, commercialization of the SolarWindowTM technology will require significant further product development, fabrication, testing, and validation, much of which will be supported by our technology development CRADA and our AMM CRADA grant. This and additional work should enable us to ascertain whether the SolarWindowTM technology can serve as the basis for a commercially viable technology or product, and, ultimately, be manufactured.

 

Our Industry and Market Opportunity

 

Overview

 

From a total glass market perspective, global production of flat glass is forecast to rise 4 percent per year through 2021 to 11 billion square meters.

 

According to the International Energy Outlook 2017 (IEO2017) released by the U.S. Energy Information Administration (EIA), world energy consumption is projected to increase by 28% by 2040.

 

The United States is the world’s largest consumer of electricity, according to the U.S. Energy Information Administration, with nearly 70% of the nation’s electricity generated by coal and natural gas; 50% of the total U.S. electrical generation relies on coal, a fossil fuel. The environmental impact and rising costs of these non-renewable fuels, along with the potential doubling of global electricity consumption in the coming years, illustrate the need for more creative, sustainable methods for generating electrical power. A forecast of U.S. electricity demand shows an expected increase is usage of 40% by 2032.

 

We believe that the SolarWindow™ Products will uniquely address a growing market opportunity for technologies able to generate sustainable electricity, without taking up the large amount of land needed for utility scale solar farms or requiring large roof-top area that simply doesn’t exist on a skyscraper. Rising energy costs, increasing electricity consumption, and the need for a cleaner alternative to today’s non-renewable energy sources, all contribute to the growing demand for clean, renewable alternative energy sources. Renewable energy, especially solar and wind has reached a key tipping point whereby many renewable energy projects can compete directly with fossil fuel power plants without subsidies. Legislation or fiscal support may no longer be needed to drive the growth and commercialization of renewable energy including PV solar power. Building integrated photovoltaic (BIPV) allows solar modules to be added to a building at marginal extra costs. Our goal is that integrating SolarWindow™ products into buildings may present an opportunity of a marginal cost above a regular commercial window cost because the cost of installing windows is already factored into the building or renovation costs.

 

The Market Opportunity for our SolarWindow™ Technology and Products

 

Based on our initial market research, there are no commercially marketed OPV transparent glass window products similar to our SolarWindow™ device technology capable of generating electricity available for sale in the United States. We believe our SolarWindow™ technology, as well as the products that may be derived from our SolarWindow™ technology, could be uniquely positioned as first-to-market, if our commercial launch is timely.

 

9

 

Unprecedented levels of government initiatives, heightened residential demand for green construction, and improvements in sustainable materials are driving green building. Although percentages vary from country to country, buildings are responsible for about 30–45% of the global energy demand in developed countries. Governments (both locally at e.g. State level and nationally) are putting increased focus on legislation and policies to improve their energy efficiency, according to the United States Environmental Protection Agency. In North America, initiatives such as the environmental building rating system (LEED) run by the U.S. Green Building Council are helping to transform the market for added-value glazing, and this trend is expected to continue. We anticipate similar opportunities in Europe, through the development of a European Union-wide energy labeling system for windows.

 

Our SolarWindow™ Products are under development for building window glass application, often referred to as “architectural flat glass” and “fabricated glass products.” In 2010, an industry report on flat glass by Pilkington, a major global glass manufacturer, noted that the ten largest cities in the United States had more than 444 million square feet of architectural flat glass. We believe that this market is growing in volume, with global growth reported to be approximately 4-5% annually, with Europe, China and North America accounting for over 70% of global demand, according to the same report. Market research reports estimate the flat glass market was valued at USD 108.51 billion in 2018, and it is expected to reach a value of USD 180.79 billion by 2024, at a compound annual growth rate (CAGR) of 9.33%, over the forecast period, 2019 - 2024.

 

Our Competitive Strengths

 

We believe that the following strengths of our SolarWindow™ technology should enable us to compete successfully in the alternative and renewable energy industries:

 

our products development goals are unique solutions for generating sustainable electricity on glass and flexible materials;

 

SolarWindow™ transparent electricity-generating technology re-purposes passive windows as energy generators;

 

we believe that there are no commercially available transparent OPV products for sale that directly compete with our technologies and products, and therefore, SolarWindow™ products may be positioned as ‘first-to-market;’

 

our SolarWindow™ Products are anticipated to have a low price point which may help deliver greater energy cost savings when compared to alternatives;

 

Modeled payback time for SolarWindow™ technology shows a much shorter payback period than the payback period associated with rooftop solar PV modules mounted on the same skyscraper building, indicating an economically viable decision;

 

our SolarWindow™ Products are being designed to be attractive, ‘active’ energy producing products that address a growing energy demand;

 

our products have unique characteristics, not easily achievable by other companies or their renewable energy technologies. Our SolarWindow™ Products generate electricity while remaining transparent, and are able to produce electricity from natural sunlight and artificial light;

 

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

 

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

 

our SolarWindow™ Products are being designed and developed for high volume and speed production using low-cost manufacturing processes and methods; and

 

our market strategy focuses on deployment using glass fabrication companies in an existing large global market with total glass market focus (Annealed & Tempered Glass, Glass Fabrication Processing, and Glazing Installation).

 

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Our Business Strategy

 

Our goal is to complete the product development phase for our SolarWindow™ technologies in parallel with work directed towards the commercial launch of SolarWindow™ Products. Key elements of our business strategy include:

 

partnering with window and glass companies that are capable of building SolarWindow™ Products that meet our performance, aesthetics; and strict environmental, energy, and budget specifications;

 

partnering with research institutions, product development firms, and others with proven technology expertise. We are currently working with scientists at NREL for the ongoing development of our SolarWindow™ Products and on the AMM CRADA which focuses on high-speed roll-to-roll manufacturing processes development. We will seek to engage additional firms and institutions with important technical and product development competencies as needed;

 

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

 

fostering commercial partnerships and joint ventures with industry partners. We are continuously working to develop commercial partnerships and joint ventures with third-parties, which could help us accelerate the development of our sales and distribution pipeline for any products which we develop;

 

developing pricing and power production models that capitalize on available energy subsidies in order to make our products affordable and attractive to end-users. In developing pricing strategies for our future potential products, we would seek to provide our customers with access, to the extent available, to various subsidies, government incentives, tax credits, and other related financial mechanisms;

 

developing cost-effective, efficient, and strategic facility planning for supply-chain management and manufacturing processes. Our SolarWindow™ technology and Products would require manufacturing systems and supply-chain management expertise. We have begun to strategize and work towards addressing these needs in a cost-effective and efficient manner.

 

identifying and potentially acquiring strategic technologies and/or companies that complement our SolarWindow™ technologies;

 

raising capital in new, engaging, and innovative ways in order to continue execute on, and potentially accelerate, our path to commercialization and building shareholder value;

 

formalizing strategic relationships and partnerships with glass, energy, architectural and engineering, building and construction industries that can assist us with commercial and market outreach;

 

working with strategic partners to design and build SolarWindow™ products and processes that can assist with commercial production; and

 

identifying and developing additional applications and markets for our SolarWindow™ products.

 

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Competition for SolarWindow™ Technology and Products

 

The solar PV industry is highly competitive and such competition is increasing as the number of participants in the industry continues to grow. Although we are not aware of other products utilizing technology substantially similar to our SolarWindow™ technology, numerous solar cell technologies have been developed, or are being developed, by a number of companies, from which products may be derived and ultimately compete with the SolarWindow™ Products.

 

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

 

We face competition from many companies, major universities and research institutions in the United States and abroad. Many of our competitors have substantially greater resources, experience in conducting research, experience in obtaining regulatory approvals for their products, operating experience, research and development and marketing capabilities name recognition and production capabilities. We will face competition from companies marketing existing products or developing new products which may render our technologies (and hence future products) obsolete.

 

The descriptions of the products and technologies being developed or marketed by our competitors listed below have been taken from publicly available documents or reports filed by these companies:

 

Ubiquitous Energy is a company that began at the Massachusetts Institute of Technology and is initially moving toward the electronics (tablet & E-reader, cell phone) market. Their first product seems to be a very clear, high visible light transmission (“VLT”), low efficiency charging system for the electronics market;

 

Solarmer is developing organic photovoltaic or OPV technology, targeting portable power, off-grid power, and building integrated photovoltaics (BIPV) markets. Solarmer will utilize its materials, devices, and roll-to-roll process technology to manufacture OPV modules with strategic partners throughout the world. Solarmer sells and provides OPV modules to product developers and system integrators who will integrate them into various products;

 

ONYX Solar is a new type of solar company, while they are not an OPV material company, the company is considered a competitor in the space for generating power under low light conditions. Their current technology is mixture of semitransparent amorphous Si, Crystalline Si and possibly Copper, Indium, Gallium, Selenide (CIS or CIGS) and is also working on OPV. They are currently in production, and are generating revenue; and

 

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

 

 

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These companies may have numerous competitive advantages, including:

 

significantly greater name recognition;

 

established distribution networks;

 

more advanced technologies and product development;

 

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

 

processes that are operational and manufacturing prototype or final products;

 

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

 

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

 

If our competitors were to succeed in developing products that are more effective in producing electrical energy at a lower cost than our SolarWindow™ technology, some or all of our SolarWindow™ Products or our technology could be rendered obsolete and non-competitive. Accordingly, in addition to our research and development efforts, we have undertaken a public relations, advertising, and market access outreach programs designed to establish our “brand” name recognition early on in our corporate development; we intend to continue to develop and market our brand name pending commercialization of products, if any, we may derive from our research and development efforts. We believe our strategy ultimately will facilitate the marketing, distribution and public acceptance of any products we may derive from our research and development efforts, if and when any applicable regulatory approval is received.

 

Our commercial success will depend on our ability and the ability of our licensee or sub-licensees, if any, to compete effectively in product development areas such as, but not limited to: safety, reliability, availability, price, marketing, distribution and patent position.

 

Our competitive position in the market will also depend on our ability to attract and retain qualified personnel, to obtain patent protection, develop proprietary products and processes, and to secure sufficient capital resources for the often substantial period between technology development and commercial sales.

 

An important factor will be the timing of market introduction of any SolarWindowTM products we develop. Accordingly, the speed with which we can develop our SolarWindow™ products, complete safety approvals processes and ultimately supply commercial quantities of any products we develop to the market is expected to be an important competitive factor.

 

Proprietary Assets

 

SolarWindowTM Technology

 

Our SolarWindow™ technology is the subject of over ninety (90) US and International patent and trademark filings.

 

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Government Regulation

 

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

 

The production and marketing of SolarWindow™ technology derived products would be subject to existing and future safety & health regulations and standards.

 

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

 

Employees

 

As of August 31, 2019, we had four full time employees, including Mr. John A. Conklin, President and Chief Executive Officer, Patrick Sargent, Vice President of Product Development and Engineering, Anthony Conklin, Manager, Strategic Programs & Operations and Briana Erickson, Manager of Business Operations & Communication. Our Chief Financial Officer, Steve Yan-Klassen and our Secretary and Controller, Justin Frere, are contracted on a part-time basis.

 

On November 1, 2019 the Company hired Dr, James B. Whitaker as our Principal Research & Development Scientist. Dr. Whitaker will lead our team scientists at the U.S. Department of Energy’s (DOE) National Renewable Energy Laboratory (NREL) through our Cooperative Research and Development Agreements with NREL to develop new and improved, lower cost, and more efficient SolarWindow™ coatings and technologies; and optimize processes required for our goal of integrating our process into industry. Dr. Whitaker has been a Post-Doctoral Fellow and Staff Scientist at NREL since 2014; a Professor of Chemistry at Red Rocks Community College, a Graduate Research Assistant at Colorado State University in the Chemistry Department from 2008—2013; an Alexander von Humboldt-Foundation Research Fellow at the Free University in Berlin, and a Research Fellow at the International Center for Spectroelectrochemistry in the Leibniz Institute for Solid State and Materials Research in Dresden, Germany in 2009. Dr. Whitaker has a B.A. in chemistry from Colorado College and a Ph.D. in Inorganic Chemistry from Colorado State University. Dr. Whitaker has worked with the company on the development of SolarWindow™ electricity-generating coating technology and process methods as a Staff Scientist at NREL since 2015..

 

 

Item 1A. Risk Factors

 

RISK FACTORS

 

The following risk factors and the forward-looking statements elsewhere herein should be read carefully in connection with evaluating the business of the Company. A wide range of events and circumstances could materially affect our overall performance and our results of operations, and therefore, an investment in us is subject to risks and uncertainties. In addition to the important factors affecting specific business operations and the financial results of those operations identified elsewhere in this Annual Report on Form 10-K, the following important factors, among others, could adversely affect our operations. While each risk is described separately below, some of these risks are interrelated and it is possible that certain risks could trigger the applicability of other risks described below. Also, the risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to us, or that are currently deemed immaterial, could also potentially impair our overall performance, the performance of particular businesses and our results of operations. These risk factors may be amended, supplemented or superseded from time to time in filings and reports that we file with the SEC in the future.

 

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Risks Related To Our Business

 

We have experienced significant losses, have not generated any revenues and expect losses to continue for the foreseeable future.

 

We have not generated any revenue since inception and do not expect to generate any substantial amounts of revenue for the foreseeable future. We had a net loss of $6,887,678 and $6,854,547 for our fiscal years ended August 31, 2019 and 2018.

 

The sale by our stockholders of restricted shares, either pursuant to a resale prospectus or Rule 144, may adversely affect our ability to raise the funds we will require to effectuate our business plan.

 

As of the date of this Form 10-K, we had 52,959,323 shares issued and outstanding, of which 31,333,372 are deemed “restricted” or “control” securities within the meaning of Rule 144, as promulgated under the Securities Act (“Rule 144”). The possibility that substantial amounts of our common stock may be sold into the public market, either under Rule 144, or pursuant to a resale registration statement, may adversely affect prevailing market prices for the common stock and could impair our ability to raise capital in the future through the sale of equity securities because of the perception that future stock sales could decrease our stock price and because of the availability of resale shares to those interested in investing in our common stock.

 

We will require additional financing in the future to expand operations into advanced stages of product development and fabrication, and failure to obtain such financing would have a material adverse effect on our business, operating results, financial condition and prospects.

 

We are currently in the advanced stages of our research and early stages of product development and have come to the point where larger, faster, and more precise equipment is necessary for development to continue and to be able to come to market with a commercially viable product. On November 26, 2018, the Company completed a self-directed offering of equity securities resulting in proceeds of $19,800,000. Based on management’s assessment, the Company had sufficient cash to meet its funding requirements through and beyond December 2020, to meet product development and fabrication goals.

 

We have experienced and continue to experience negative cash flows from operations. We expect that we will need to raise substantial additional capital to accomplish our business plan in future years. We expect to seek additional funding through private equity or convertible debt. If adequate funds are not available on reasonable terms, or at all, it would result in a material adverse effect our business, operating results, financial condition and prospects. In particular, the Company may be required to delay; reduce the scope of or terminate its research and development programs; sell rights to its SolarWindow™ technology and/or MotionPower™ technology, or other technologies or products based upon these technologies; or license the rights to these technologies or products on terms that are less favorable to us than might otherwise be available.

 

If we raise additional funds by issuing equity or debt securities, further dilution to stockholders may result and new investors could have rights superior to existing stockholders.

 

Even if financing is available to us, because we cannot currently estimate the amount of funds or time required to commercialize our technologies, we may secure less funding than is actually required to effectuate our business plan.

 

We are currently in the advanced stages of our research and early stages of product development and have come to the point where larger, faster, and more precise equipment is necessary for development to continue and to be able to come to market with a commercially viable product; however, we cannot accurately predict the amount of funding or the time required to successfully commercialize the SolarWindow™ technology. The actual cost and time required to commercialize these technologies may vary significantly depending on, among other things, the results of our research and product development efforts; the cost of developing, acquiring, or licensing various enabling technologies, changes in the focus and direction of our research and product development programs; competitive and technological advances; the cost of filing, prosecuting, defending and enforcing claims with respect to patents; the regulatory approval process; process manufacturing; marketing and other costs associated with commercialization of these technologies. Because of this uncertainty, even if financing is available to us, we may secure insufficient funding to effectuate our business plan.

 

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Due to the fact that all but one of our seven directors conduct outside business activities and are not our employees, attention and efforts will not be focused solely on our business activities which may hinder our achieving our business objectives.

 

Currently we have seven directors, only one of whom is an employee. Mr. John A. Conklin, our President and Chief Executive Officer, does and will continue to provide his full-time efforts to our business activities. While our six (6) other Directors intend to devote as much time as necessary to the success and development of SolarWindow™ technology, currently each has other business interests or employment obligations requiring their time and attention. While each has generally agreed to provide such time and attention to our business activities as may be reasonably required, and have done so to date, there can be no assurance that their priorities will not shift in the future and that the amount of time that each devotes to our activities will be sufficient for us to meet our business objectives. In the event that their outside interests begin to take precedence over their positions in with the Company, our business will suffer and may adversely our goal of achieving profitability through the commercialization of SolarWindow. In this event, if effective corrective action is not taken, investors could lose all or part of their investment.

 

The success of our research and development activities is uncertain. If such efforts are not successful, we will be unable to generate revenues from our operations and we may have to cease doing business.

 

Commercialization of the SolarWindow™ technology will require significant further research, development and testing as we must ascertain whether the SolarWindow™ technology can form the basis for a commercially viable technology or product. If our research and development fails to prove the commercial viability of the SolarWindow™ technology, we may need to abandon our business model and/or cease doing business, in which case our shares may have no value and you may lose your investment. We anticipate we will remain engaged in technology and product development through at least June 2020.

 

The development of the SolarWindow™ technology is subject to the risks of failure inherent to the development of any novel technology.

 

Ultimately, the development and commercialization of the SolarWindow™ technology is subject to a number of risks that are particular to the development and commercialization of any novel technology. These risks include, but are not limited to, the following:

 

our research and development efforts may not produce a commercially viable product;
we may fail to maintain license rights to the SolarWindow™ technology (or any of its derivatives);
we may fail to develop, acquire, or license various enabling technologies that may be integral to the commercialization of the SolarWindow™ (or any of its derivatives);
we may fail to integrate our process into an industrial setting for the manufacturing of SolarWindow™ Products;
the SolarWindow™ technology (or any of its derivatives) may ultimately prove to be ineffective, unsafe or otherwise fail to receive necessary regulatory approvals;
the SolarWindow™ technology (or any of its derivatives), even if safe and effective, may be difficult to manufacture on a large scale or be uneconomical to market;
our marketing license or proprietary rights to products derived from the SolarWindow™ technology may not be sufficient to protect our products from competitors;
the proprietary rights of third parties may preclude us or our collaborators from making, using or marketing products utilizing the SolarWindow™ technology; or,
third parties may market superior, more effective, or less expensive technologies or products having comparable performance and appearance characteristics to the SolarWindow™ coatings (or any of its derivatives).

 

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If we ultimately do not obtain the necessary regulatory approvals for the commercialization of the SolarWindow™ technology, we will not achieve profitable operations and your investment may be lost.

 

In order to commercialize the SolarWindow™ technology, we may need to obtain regulatory approval from various local, state, federal or international agencies. At this time, we do not have a product to be submitted for regulatory approval. The process for obtaining such regulatory approvals may be time consuming and costly, and there is no guaranty that we will be able to obtain such approvals. The failure to obtain any necessary regulatory approvals could delay or prevent us from achieving revenue or profitability, which could result in the partial or total loss of your investment.

 

Our ability to operate profitably is directly related to our ability to develop, protect and perfect rights in and to our proprietary technology.

 

We rely on a combination of trademark, trade secret, nondisclosure, know-how, copyright and patent law to protect our SolarWindow™ technology, which may afford only limited protection.

 

We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity, scope or enforceability of our proprietary rights. Any such claims could be time consuming, result in costly litigation, or force us to enter into royalty or license agreements rather than dispute the merits of such claims, requiring us to pay royalties and/or license fees to third parties. There is always a risk that patents, if issued, may be subsequently invalidated, either in whole or in part and this could diminish or extinguish protection for any technology we may license or may adversely affect our ability to fully commercialize our technologies.

 

We generally require our employees, consultants, advisors and collaborators to execute appropriate agreements with us, regarding the confidential information developed or made known to such persons during the course of their engagement by us. These agreements provide that any proprietary technologies developed during such engagement are owned by us and that confidential information pertaining to such technologies will be kept confidential and not disclosed to third parties except in specific circumstances. These agreements also provide for the assignment to us by any such person of any patents issued with respect to any such technologies. If these provisions are breached, we may not be able to fully perfect our rights to the technologies in question, and in some instances, we may not have an appropriate remedy available for the damages that we may incur as a result of any such breach.

 

Our proprietary rights may not adequately protect our technologies and products.

 

Our commercial success will depend, in part, on our ability to obtain patents and/or regulatory exclusivity and maintain adequate protection for our technologies and products in the United States and other countries. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies and products are covered by valid and enforceable patents or are effectively maintained as trade secrets.

 

We intend to apply for additional patents for our SolarWindow™ technologies and products, as we deem appropriate. We may, however, fail to apply for patents on important technologies or products in a timely fashion, if at all. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products and technologies. In addition, the patent positions of alternative energy technology companies are highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. As a result, the validity and enforceability of our patents cannot be predicted with certainty. In addition, we cannot guarantee that:

 

we were the first to make the inventions covered by each of our issued patents and pending patent applications;
we were the first to file patent applications for these inventions;
others will not independently develop similar or alternative technologies or duplicate any of our technologies;
any of our pending patent applications will result in issued patents;
any of our patents will be valid or enforceable;
any patents issued to us will provide us with any competitive advantages, or will not be challenged by third parties; and
we will develop additional proprietary technologies that are patentable, or the patents of others will not have an adverse effect on our business.

 

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The actual protection afforded by a patent varies on a product-by-product basis, from country to country and depends on many factors, including the type of patent, the scope of its coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patents. Our ability to maintain and solidify our proprietary position for our products will depend on our success in obtaining effective claims and enforcing those claims once granted. Our issued patents and those that may be issued in the future, or those licensed to us, may be challenged, invalidated, unenforceable or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar products. We also rely on trade secrets to protect some of our technology, especially where it is believed that patent protection is inappropriate or unobtainable. However, trade secrets are difficult to maintain. While we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose our proprietary information to competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, non-U.S. courts are sometimes less willing than U.S. courts to protect trade secrets. If our competitors independently develop equivalent knowledge, methods and know-how, we would not be able to assert our trade secrets against them and our business could be harmed.

 

We may not be able to protect our intellectual property rights throughout the world.

 

Filing, prosecuting and defending patents on all of our products in every jurisdiction would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products. These products may compete with our products and may not be covered by any patent claims or other intellectual property rights.

 

The laws of some non-U.S. countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

 

If we fail to protect our intellectual property rights, our competitors may take advantage of our ideas and compete directly against us.

 

Our success will depend, to a significant degree, on our ability to secure and protect intellectual property rights and enforce patent and trademark protections relating to our technology. While we believe that the protection of patents and trademarks is important to our business (and as a result we have over 90 U.S. and International patent and trademark filings), we also rely on a combination of copyright, trade secret, nondisclosure and confidentiality agreements, know-how and continuing technological innovation to maintain our competitive position. From time to time, litigation may be advisable to protect our intellectual property position. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Any litigation in this regard could be costly, and it is possible that we will not have sufficient resources to fully pursue litigation or to protect our intellectual property rights. This could result in the rejection or invalidation of our existing and future patents. Any adverse outcome in litigation relating to the validity of our patents, or any failure to pursue litigation or otherwise to protect our patent position, could materially harm our business and financial condition. In addition, confidentiality agreements with our employees, consultants, customers, and key vendors may not prevent the unauthorized disclosure or use of our technology. It is possible that these agreements will be breached or that they will not be enforceable in every instance, and that we will not have adequate remedies for any such breach. Enforcement of these agreements may be costly and time consuming. Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States.

 

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We may be accused of infringing the intellectual property rights of others.

 

We cannot guarantee that we will not become the subject of infringement claims or legal proceedings by third parties with respect to our current or future technology developments. Any such claims could be time consuming, result in costly litigation and could ultimately lead to a determination that the SolarWindow™ technology, or any of its derivatives, infringe on a third party's patent rights.

 

If we fail to obtain additional licenses in the future required to maintain our rights to market products developed, if any, we may need to curtail or cease operations.

 

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

 

Compliance with environmental regulations or dealing with harmful or hazardous materials involved in our research and development, may require us to divert our limited capital resources.

 

Our research and product development programs involve the handling of chemicals. These chemicals have the potential to be harmful or hazardous. Accordingly, we may become subject to federal, state and local laws and regulations governing the use, handling, storage and disposal of dangerous and hazardous materials. If violations of environmental, and/or safety & health laws or standards occur, we could be held liable for damages, penalties and costs of remedial actions. These expenses or this liability could have a significant negative impact on our business, financial condition and results of operations. We may violate environmental, and/or safety & health laws or standards in the future as a result of human error, equipment failure or other causes. Environmental, and safety & health laws and standards could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. We may be subject to potentially conflicting and changing regulatory agendas of political, business and environmental groups. Changes to or restrictions on permitting requirements or processes, harmful or hazardous material storage, or chemical handling might require an unplanned capital investment or relocation of our research or product development programs. Failure to comply with new or existing laws or regulations could harm our business, financial condition and results of operations. We do not have any insurance coverage with respect to damages or liabilities we may incur as a result of these activities.

 

In seeking to acquire or develop technologies, we are operating in highly competitive markets and our competitors have several competitive advantages over us.

 

Our commercial success will depend on our ability to compete effectively in product development areas such as, but not limited to, building integration, safety, efficacy, ease of use, customer compliance, price, marketing and distribution. Our competitors may succeed in developing products that are more effective than any products derived from our research and development efforts or that would render such products obsolete and non-competitive. The alternative and renewable energy industry is characterized by intense competition, rapid product development and technological change. Most of the competition that we encounter is expected to come from companies, research institutions and universities who are researching and developing technologies and products similar to, or are competitive with, any technology we may develop.

 

These companies may have several competitive advantages, including:

 

significantly greater name recognition;
established relations with customers;
established distribution networks;
more advanced technologies and product development;
additional lines of products, and the ability to offer rebates, higher discounts or incentives to gain a competitive advantage;
greater experience in conducting research and development, manufacturing, obtaining regulatory approval for products, and marketing approved products;
has, or has greater access to, significantly greater financial and human resources (HR) for product development, sales and marketing, and
has the ability to endure potentially prolonged patent litigation.

 

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As a result, we may not be able to compete effectively against these companies or their products.

 

Any products developed from our SolarWindow™ technology will face competition from other companies producing solar power and/or energy harvesting or storage products.

 

The solar power market is intensely competitive and rapidly evolving.

 

Some of our competitors are better capitalized, have more employees, and have established market positions than SolarWindow. If we fail to attract and retain customers and establish a successful distribution network for our solar products, we may be unable to achieve adequate sales and market share. There are a number of major multi-national corporations that produce solar power and alternative energy products, which may be competitive with those that we are seeking to develop, including Heliatek, Dyetec Solar, Dysol, Solarmer Energy, BP Solar, Kyocera, Sharp, GE, Mitsubishi, Solar World AG and Sanyo, Ubiquitous Energy, Oxford Photovoltaics, ONYX Solar, among others. We also expect that future competition will include new entrants to the solar power market offering new technological solutions. Further, many of our competitors are developing and are currently producing products based on new solar power and alternative energy technologies that may have a cost basis similar to, or lower than, our SolarWindow™ Product projected costs.

 

Technological changes could render our products uncompetitive or obsolete, which could prevent us from achieving market share and sales.

 

Our failure to refine or advance our technologies, and to develop and introduce new products could cause our products to become uncompetitive or obsolete, which could prevent us from achieving market share and sales. The alternative and renewable energy industry is rapidly evolving and highly competitive. We will need to invest significant financial resources in research and product development to keep pace with technological advances in the industry and to compete in the future; we may be unable to secure such financing. We believe that a variety of competing solar and alternative or renewable energy technologies may be in development by other companies that could result in lower manufacturing costs and/or higher product performance than those expected for our products. Our development efforts may be rendered obsolete by the technological advances of others, and other technologies may prove more advantageous for the commercialization of products.

 

To the extent we are able to develop and commercialize products based upon or derived from the SolarWindow™ technology, if such products do not gain market acceptance, we may not achieve sales and market share.

 

The development of a successful market for our products may be adversely affected by a number of factors, some of which are beyond our control, including:

 

customer acceptance of our products;
our failure to produce products that compete favorably against other alternative or renewable energy and solar-photovoltaic power products on the basis of cost, quality, reliability, and performance;
our failure to produce products that compete favorably against conventional energy sources and distributed-generation technologies on the basis of cost, quality and performance;
our failure to qualify for and secure government grants, tax incentives and any other financial subsidies that may be available to consumers for the implementation of alternative or renewable energy technologies such as solar systems at such time as our products become available for commercial sale, and which potential customers for our products may reasonably expect; and
our failure to develop and maintain successful partnerships with manufacturers, distributors, and other resellers, as well as strategic partners.

 

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If our products fail to gain market acceptance, we will be unable to achieve sales, market share, or profitability.

 

If organic solar photovoltaic harvesting technologies are not suitable for widespread adoption or sufficient demand for such products does not develop or takes longer to develop than we anticipate, we may not be able to profitably exploit the SolarWindow™ technology.

 

The market for OPV solar-energy related products is emerging and rapidly evolving, and the market for energy harvesting products is generally unproven and not yet established. The success of products for these markets is uncertain.

 

If our SolarWindow™ OPV solar power or energy harvesting technologies prove unsuitable for widespread commercial deployment or if demand for such power products fails to develop sufficiently, we would be unable to achieve sales and market share. In addition, demand for such products in the particular markets and geographic regions we target may not develop or may develop more slowly than we anticipate. Many factors will influence the widespread adoption of organic solar photovoltaic light energy capture and conversion products, including:

 

cost-effectiveness of such technologies as compared with conventional and competitive alternative energy technologies;
performance and reliability of such products as compared with conventional and competitive alternative energy products;
success of other alternative or renewable energy technologies such as hydrogen fuel cells, wind turbines, bio-diesel generators and solar thermal technologies;
public concern regarding energy security, the potential risks associated with global warming, the environmental and social impacts of fossil fuel extraction and use;
fluctuations in economic and market conditions that impact the viability of conventional and competitive alternative or renewable energy sources;
fluctuations in the prices of oil, coal and natural gas;
capital expenditures by customers, which tend to decrease when domestic or foreign economies slow;
continued deregulation of the electric power industry and broader energy industry initiatives; and
availability of government subsidies and incentives.

 

Our growth and success, and that of the SolarWindow™ technologies and products, depends on our ability to develop new products and services and adapt to market and customer needs.

 

The sectors in which we operate experience rapid and significant changes due to the introduction of innovative technologies. Introducing new technology products and innovative services, which we must do on an ongoing basis to meet customers' needs, requires a significant commitment to research and development, which may not result in success. The company is pre-revenue and may suffer if it invests in technologies that do not function as expected or are not accepted in the marketplace; its products, systems or service offers are not brought to market in a timely manner; or products become obsolete or are not responsive to our customers' needs or requirements.

 

Our business model and strategy are based on growth through acquisitions, joint ventures and mergers that may be difficult to execute.

 

Our business model and strategy are based on growth through acquisitions, joint ventures and mergers. External growth transactions are inherently risky because of the difficulties that may arise in integrating people, operations, technologies and products, and the related acquisition, administrative and other costs.

 

We are dependent upon hiring and retaining highly qualified management and technical personnel.

 

Competition for highly qualified management and technical personnel is intense in our industry. Future success depends in part on our ability to hire, assimilate and retain engineers and scientists, sales and marketing personnel, and other qualified personnel, especially in the area of OPV with focus in our SolarWindow™ technologies and products. A key risk is our ability to anticipate our need for certain key competences and to implement human resource solutions to recruit or improve these competences. If we are not successful in hiring and retaining qualified management and technical personnel our ability to execute on our business model and strategy will be adversely affected and our ability to achieve profitability compromised.

 

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We may be the subject of product liability claims and other adverse effects due to defective products, design faults or harm caused to persons and property.

 

Despite our development, testing, fabrication, and quality procedures, SolarWindow™ products might not operate properly or might contain design faults or defects, which could give rise to disputes in respect of its performance, giving rise to liability. Product liability related to defective products could lead to a loss of revenue, claims under warranty, and legal proceedings. Such disputes could result in a fall-off in demand or harm our reputation for product performance, safety, and/or quality.

 

Our SolarWindow™ technology and products will be subject to environmental, occupational safety & hygiene, Underwriter Laboratory (UL) Certification, European Conformity (CE) Certification, electrical codes, and other state and federal, European Union (EU), and other Country regulations.

 

Our SolarWindow™ technologies and products will be subject to extensive and increasingly stringent environmental, occupational safety & health, Underwriter Laboratory, electrical codes, and other state and federal, EU laws, regulations, and standards (“Laws & Regulations”). There can be no guarantee that we will not be required to pay significant fines or compensation as a result of past, current or future breaches of Laws & Regulations. This exposure exists even if we are not responsible for the breaches, in cases where they were committed in the past by companies or businesses that were not part of ours that may be exposed to the risk of claims for breaches of these Laws & Regulations. Such claims could adversely affect our financial position and reputation, despite the efforts and investments made to comply at all times with all applicable Laws & Regulations. If we fail to conduct our business in full compliance with the applicable Laws & Regulations, the judicial or regulatory authorities could require us to conduct investigations and/or implement costly curative measures.

 

Our business faces significant financial risks related to interest rate, State & Federal subsidies, modified accelerated cost recovery system, taxes, depreciation, etc.

 

Our Power, and Financial and Revenue Modeling and Estimates (the “Model”) are exposed to risks associated with the effect of changing interest rates, State & Federal subsidies, modified accelerated cost recovery system (MACRS), taxes, depreciation and renewable energy tax credits. These risks affect borrowings; return on investment (ROI), internal rate of return (IRR) or economic rate of return (ERR), etc. and the ability to borrow or raise capital to secure deployment funding. If any of these Financial and Revenue Modeling and Estimation parameters fail to exist, cease to be available, or diminish in any way, our Financial and Revenue Modeling and Estimates may not be accurate or reveal profitability, or favorable ROI and/or IRR necessary for SolarWindow™ technology or related product deployment.

 

Our financial model may prove to be inaccurate and our SolarWindow™ technology or related products may not be cost effective.

 

Although our independently verified Model has shown that our SolarWindow™ technology can provide a one-year payback, it is based upon a number of assumptions that may not prove accurate. If the Model is inaccurate our SolarWindow™ technology or related product may not provide potential customers with sufficient return on investment (“ROI”) or individual rate of return (“IRR”) to be a cost-effective alternative to other available competing products.

 

An increase in raw material prices could have negative consequences on our long-term profitability.

 

We face exposure to fluctuations in energy, raw materials, chemicals, and glass and plastic film prices. If we are not able to hedge, compensate or pass on our increased costs through a supply-chain or to customers, this could have an adverse impact on its financial results and stability, and deployment of SolarWindow™ technologies or products.

 

22

 

We lack sales and marketing experience and will likely rely on third party marketers.

 

We have limited experience in sales, marketing or distribution of photovoltaic and energy capture and conversion and generating products. We expect to market and sell or otherwise commercialize the SolarWindow™ technology (or any of its derivatives) through distribution and supply-chain channels, co-marketing, co-promotion or licensing arrangements with third parties. Therefore, any revenues received by us will be dependent on the efforts of third parties. If any such parties breach or terminate their agreements with us or otherwise fail to conduct marketing activities successfully and in a timely manner, the commercialization of the SolarWindow™ technology (or any of its derivatives) would be delayed or terminated, which would adversely affect our ability to generate revenues and our profitability.

 

We may not be able to integrate our process and/or technologies into a manufacturing process necessary to produce a manufacturable product.

 

Without sufficient capital, human resources, the appropriate process equipment, or required supply chain, the Company may not be capable of integrating its process and/or technologies into a manufacturing process necessary to produce a manufacturable product. The innovation of SolarWindow™ processes and technologies is a crucial strategic concern, with mounting pressure to meet anticipated power, financial, and return on investment (ROI) for our manufacturers. If we are unable to integrate of process and/or technologies into industry, SolarWindow™ product innovation can rapidly become obsolete. SolarWindow™ processes and supply chains are highly complex and continuously exposed to a variety of risks such as macroeconomic, face geopolitical pressures, regulatory requirements, environmental risk and responsibilities, and emerging markets. Integration of the company SolarWindow™ processes is critical to product development and revenue generation. If the process cannot be integrated into industry and products brought to market in a timely manner, the Company, its potential SolarWindow™ products, and ability to operate may be threatened. At this time, the integration of SolarWindow™ technologies into industrial manufacturing processes is uncertain.

 

While there are numerous reasons for selecting a manufacturing partner, there is considerable risk in selecting a manufacturing partner that is the correct fit for the Company. The level and severity of risk to the Company is associated with cost, resources and resource management, quality control, scaled production, complicated supply chain, location, corporate culture, management philosophy, market experience, and an adaptable business model. Based on these risks, the Company may not be able to integrate our process or technology into an existing manufacturing process with an acceptable level of risk.

 

Risks Related To Ownership of Our Common Stock

 

We are not a fully reporting company under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act; therefore, we are subject only to the reporting requirements of Section 15(d) of the Exchange Act.

 

We are not a fully reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); therefore, we are subject only to the reporting requirements of Section 15(d) of the Exchange Act. Until our Common Stock is registered under the Exchange Act, we will be subject only to the reporting obligations imposed by Section 15(d) of the Exchange Act, which we refer to as Section 15(d). Section15(d) requires that issuers file periodic and current reports with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”) when they have issued any class of securities for which a registration statement was filed and became effective pursuant to the Securities Act. The purpose of Section 15(d) is to ensure that investors who buy securities in registered offerings are provided with the same information on an ongoing basis that they would receive if the securities they purchased were listed on a securities exchange or the issuer were otherwise subject to periodic reporting obligations. However, companies that are required to report only under Section 15(d) are not subject to some of the Exchange Act reporting requirements. For example, companies that are required to report only under Section 15(d) are not subject to the short-swing profit reporting requirements contained in Section 16 of the Exchange Act, the beneficial ownership reporting requirements contained in Section 13 of the Exchange Act, the institutional investor reporting rules or the third-party tender offer rules, or the Exchange Act’s proxy rules contained in Section 14 of the Exchange Act.

 

23

 

The reporting obligations under Section15(d) of the Exchange Act are automatically suspended when: (i) any class of securities of the issuer reporting under Section 15(d) is registered under Section 12 of the Exchange Act; or (ii) at the beginning of the issuer’s fiscal year, other than the year in which the applicable registration statement became effective, if the class of securities covered by the registration statement is held of record by fewer than 300 persons. In the latter case, the Company would no longer be subject to periodic reporting obligations so long as the number of holders remained below 300 unless we filed a registration statement with the Securities and Exchange Commission under Section 12 of the Exchange Act. If our obligation to file reports under Section 15(d) is suspended (other than due to our having registered our common stock under Section 12 of the Exchange Act), then investors will have reduced visibility with respect to the Company, its financial condition and results of operations.

 

Until our Common Stock is listed on an exchange, we expect to remain eligible for quotation on the OTCPINK or on another over-the-counter quotation system. In those venues, however, an investor may find it difficult to obtain accurate quotations for our common stock. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of your shares. This would also make it more difficult for us to raise additional capital or attract qualified employees or partners. Please refer to “Our common stock is currently quoted on the OTCPINK which may make it more difficult for you to purchase or sell shares of the Company’s Common Stock” below.

 

Our common stock is currently quoted on the OTCPINK which may make it more difficult for you to purchase or sell shares of the Company’s Common Stock.

 

Prior to February 26, 2018, our stock was included for trading on the OTCQB; on February 23, 2018 we received an email notification from OTC Markets Group, Inc. (the “OTC Markets”), which regulates the OTCQB, informing us that effective immediately, our stock would be quoted on the OTCPINK. This action was taken by OTC Markets pursuant to Section 4.2 of the OTCQB Standards, which generally provide that the OTC Markets may remove the Company’s securities from trading on the OTCQB market immediately and at any time, without notice, if OTC Markets, in its sole and absolute discretion, believes that the continued inclusion of the Company’s securities would impair the reputation or the integrity of OTC Markets or be detrimental to the interests of investors. Such concerns may include but are not limited to promotion, spam or disruptive corporate actions even when adequate current information is available.

 

The OTCPINK is viewed by most investors as a less desirable, and less liquid, marketplace. As a result, an investor may find it more difficult to purchase, dispose of or obtain accurate quotations as to the value of, our common stock. We may reapply for listing on the OTCQB, which application may or may not be approved. If not approved, we expect that our stock will continue to trade on the OTCPINK

 

To be eligible for OTCQB, companies will be required to at least:

 

· meet a minimum bid price test of $0.01. Securities that do not meet the minimum bid price test will be downgraded to OTC Pink;
· submit an application to OTCQB and pay an application and annual fee; and
· submit an OTCQB “annual certification” confirming the Company Profile displayed on www.otcmarkets.com is current and complete and providing additional information on officers, directors, and controlling shareholders.

 

In the event we do not submit an application for listing on the OTCQB or if we do and the application is not approved, we expect that our stock will continue to trade on the OTCPINK, which could adversely affect the market liquidity of our common stock.

 

Our common stock is a penny stock and is not traded on a national securities exchange, therefore you may find it difficult to sell the shares of our common stock.

 

Our common stock is subject to regulations of the SEC applicable to “penny stock.” Penny stock includes any non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Rules 15g-1 through 15g-9 under the Exchange Act, imposes certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and “accredited investors” (as defined in Rule 501(c) of the Securities Act). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of our common stock.

 

In addition, the penny stock regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule proscribed by the SEC relating to the penny stock market must be delivered by a broker-dealer to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for our common stock. The regulations also require that monthly statements be sent to holders of penny stock that disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.

 

24

 

Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our common stock, which could depress the price of our common stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that the investment is suitable for that customer before recommending an investment to a customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares of common stock, have an adverse effect on the market for our shares of common stock, and thereby depress our price per share of common stock.

 

The trading price of our common stock historically has been volatile and may not reflect its actual value.

 

The trading price of our common stock has, from time to time, fluctuated widely and in the future may be subject to similar fluctuations. The trading price may be affected by a number of factors including the risk factors set forth herein, as well as our operating results, financial condition, general economic our control. In recent years, broad stock market indices in general, and smaller capitalization companies in particular, have experienced substantial price fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our common stock. These fluctuations may have a negative effect on the market price of our common stock.

 

The sale by our stockholders of restricted shares, either pursuant to a resale prospectus or Rule 144, may adversely affect our ability to raise the funds we will require to effectuate our business plan.

 

As of the date of this Form 10-K we had 52,959,323 shares issued and outstanding, of which 31,333,372 are deemed “restricted securities” or “control securities” within the meaning of Rule 144. The possibility that substantial amounts of our common stock may be sold into the public market, either under Rule 144, or pursuant to a resale registration statement, may adversely affect prevailing market prices for the common stock and could impair our ability to raise capital in the future through the sale of equity securities because of the perception that future re-sales could decrease our stock price and because of the availability of resale shares to those interested in investing in our common stock.

 

Kalen Capital Corporation (“KCC”), a private corporation solely owned by Mr. Harmel S. Rayat, a director of ours, beneficially owns approximately 75.77% of our issued and outstanding stock when giving effect to derivative securities owned by KCC. This ownership interest may preclude you from influencing significant corporate decisions.

 

As of the date of this report, Kalen Capital Holdings LLC, a wholly owned subsidiary of KCC, a private corporation solely owned by Harmel S. Rayat, beneficially owned 54,193,515 shares (inclusive of 18,561,918 shares issuable upon exercise of outstanding warrants, conversion of the Convertible Note and the exercise of the warrants included upon conversion thereof), or approximately 75.77%, of our outstanding common stock, on a fully diluted basis.

 

As a result, Mr. Rayat, having voting control of 35,631,598 shares of our total issued and outstanding 52,959,323 shares, is able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have significant control over our management and policies. Mr. Rayat's interests may be different from yours. For example, he may support proposals and actions with which you may disagree, or which are not in your interest. This concentration of ownership could delay or prevent a change in control of our company or otherwise discourage a potential acquirer from attempting to obtain control of our company, which in turn could reduce the price of our common stock. In addition, Mr. Rayat could use his voting influence to maintain our existing management and directors in office, or support or reject other management and Board proposals that are subject to stockholder approval, such as the adoption of employee stock plans and significant unregistered financing transactions.

 

25

 

The company is subject to compliance with rules requiring the adoption of certain corporate governance measures, which requires control measures for related party transactions, conflicts of interest and similar matters.

 

The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges or the Nasdaq Stock Market. For our year ended August 31, 2018, the Company was subject to Section 404(b) of the Sarbanes-Oxley Act which requires that the management of public companies assess the effectiveness of the internal controls over financial reporting and requires a publicly-held company’s auditor to attest to, and report on, management’s assessment of its internal controls. 

 

Under Section 404(b), our auditors are required to render an opinion which significantly increases the audit effort throughout the current and subsequent fiscal reporting year.

 

Due to the end of our second quarter, February 28, 2019, non-affiliate valuation of the Company being less than $75,000,000, the Company is not subject to the attest requirements of Section 404(b) of the Sarbanes-Oxley Act. However, should the second quarter non-affiliate valuation of the Company exceed $75,000,000 on February 28, 2020, the Company will again be subject to Section 404(b) of the Sarbanes-Oxley Act.

 

There are options to purchase shares of our common stock currently outstanding.

 

As of the date of this Form 10-K we have granted options to purchase shares of our common stock to various persons and entities, under which we could be obligated to issue up to 2,777,334 shares of our common stock. The exercise prices of these options range from $3.28 to $5.94 per share. 2,279,334 of the options contain cashless exercise provisions. If issued, the shares underlying these options would increase the number of shares of our common stock currently outstanding and dilute the holdings and voting rights of our then-existing stockholders.

 

There are warrants to purchase shares of our common stock currently outstanding.

 

As of the date of this Form 10-K we had issued warrants to purchase shares of our common stock to various persons and entities, under which we could be obligated to issue up to 19,483,517 shares of common stock with exercise prices ranging from $1.70 to $4.00 per share. 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 P and Series T Warrants, which combined total 16,880,167, all of the Company’s unexercised warrants may be exercised on a cashless basis. If issued, the shares underlying these warrants would increase the number of shares of our common stock currently outstanding and dilute the holdings and voting rights of our then-existing stockholders.

 

We may issue preferred stock which may have greater rights than our common stock.

 

Our Articles of Incorporation allow our Board of Directors (the “Board”) to issue up to 1,000,000 shares of preferred stock. Currently, no shares of preferred stock are issued and outstanding. However, we can issue shares of our preferred stock in one or more series and can set the terms of the preferred stock without seeking any further approval from the holders of our common stock. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing it to be converted into shares of common stock, which could dilute the value of our common stock to then current stockholders and could adversely affect the market price, if any, of our common stock.

 

The Company may sell additional equity securities in the future and your ownership interest in the Company may be diluted as a result of such sales.

 

The Company may sell additional equity securities in order to fully implement our business plan. Such sales will be made at prices determined by our board of directors based on factors deemed appropriate at the time; accordingly, such sales by us could be made at prices less than the price of the shares of our common stock purchased, in which case, investors could experience dilution of their investment.

 

26

 

Our compliance with changing laws and rules regarding corporate governance and public disclosure may result in additional expenses to us which, in turn, may adversely affect our ability to continue our operations.

 

Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and, in the event we are ever approved for listing on a registered national exchange, such exchange's rules, will require an increased amount of management attention and external resources. We intend to continue to invest all reasonably necessary resources to comply with evolving standards, which may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Our failure to adequately comply with any of these laws, regulations, standards or rules may result in substantial fines or other penalties and could have an adverse impact on our ongoing operations.

 

Because we do not intend to pay dividends for the foreseeable future you should not purchase our shares if you are seeking dividend income.

 

We currently intend to retain future earnings, if any, to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize their investment. Investors seeking cash dividends should not purchase our common stock.

 

Our articles of incorporation provide for indemnification of officers and directors at our expense and limit their liability, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors and may inhibit actions against our officers and directors.

 

Our articles of incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person’s promise to repay us if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us, which we will be unable to recoup.

 

The provisions of the Nevada Revised Statutes and our bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. The provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these amended and restated certificate of incorporation provisions, amended and restated bylaw provisions, indemnification agreements and the insurance are necessary to attract and retain qualified persons as directors and officers.

 

We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against these types of liabilities, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter, if it were to occur, is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our common stock.

 

27

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

Our corporate office is located at 300 Main Street, Vestal, New York 13850. The office is leased pursuant to a Professional Building Lease Agreement containing 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.

 

Item 3. LEGAL PROCEEDINGS

 

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

 

 

PART II

 

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

 

Market Information for Common Stock

 

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

 

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

 

    High   Low
Fiscal Year Ended August 31, 2020                
First Quarter 2020 (September 1 – November 15, 2019)   $ 2.84     $ 2.66  
                 
Fiscal Year Ended August 31, 2019                
First Quarter 2019 (September 1 – November 28, 2018)   $ 3.36     $ 1.53  
Second Quarter 2019 (December 1, 2017 – February 28, 2019)   $ 3.50     $ 2.03  
Third Quarter 2019 (March 1 – May 31, 2019)   $ 3.19     $ 2.10  
Fourth Quarter 2019 (June 1 – August 31, 2019)   $ 3.84     $ 2.57  
                 
Fiscal Year Ended August 31, 2018                
First Quarter 2018 (September 1 – November 30, 2017)   $ 5.38     $ 3.67  
Second Quarter 2018 (December 1, 2016 – February 28, 2018)   $ 10.25     $ 4.96  
Third Quarter 2018 (March 1 – May 31, 2018)   $ 5.82     $ 4.02  
Fourth Quarter 2018 (June 1 – August 31, 2018)   $ 4.57     $ 2.61  

 

As of November 15, 2019, there were 65 stockholders of record of our common stock, and the closing price of our common stock was $2.66 per share as reported on the OTC Markets. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

 

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Dividend Policy

 

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

 

We would not be able to pay our debts as they become due in the usual course of business; or
Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.

 

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

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following sets forth certain information regarding the common stock that may be issued upon the exercise of options, warrants and other rights that have been or may be granted to employees, directors or consultants under all of our existing equity compensation plans. The 2006 Incentive Stock Option Plan (see below) is our only equity based compensation plan as of August 31, 2019.

 

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

 

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

 

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

 

We measure all stock-based compensation awards using a fair value method on the date of grant and recognize such expense in our financial statements over the requisite service period. We use the Black-Scholes option pricing model to calculate the fair value of stock option grants. The Black-Scholes option pricing model requires management to make assumptions regarding the option lives, expected volatility, and risk-free interest rates, all of which impact the fair value of the option and, ultimately, the expense that will be recognized over the life of the option.

 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a bond with a similar term. We do not anticipate declaring dividends in the foreseeable future. Volatility is calculated based on the historical daily closing stock prices for the same period as the expected life of the option. We use the “simplified” method for determining the expected term of our “plain vanilla” stock options.

 

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

Equity compensation plans approved by security holders (1)

   

2,777,334

 (2)   $ 4.31       1,064,085  
Equity compensation plans not approved by security holders     --       --       --  
Total     2,777,334     $ 4.31       1,064,085  

 

(1) Consists of grants under the 2006 Plan.

 

(2) Please refer to ITEM 8, Financial Statements “NOTE 7 - STOCK OPTIONS,” “ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE,” and “ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.”

 

Recent Sales of Unregistered Securities

 

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

 

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

 

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

 

  if requested by the purchaser in writing, a copy of our most recent Form 10-K under the Exchange Act of 1934, as amended (the “Exchange Act”).
  the information contained in an annual report on Form 10-K under the Exchange Act.
  the information contained in any reports or documents required to be filed by SolarWindow Technologies, Inc. under sections 13(a), 14(a), 14(c), and 15(d) of the Exchange Act since the distribution or filing of the reports specified above.
  a brief description of the securities being offered, the use of the proceeds from the offering, and any material changes in our affairs that are not disclosed in the documents furnished.

 

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 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 was based on a 15% discount to the average of the 20-day closing price (last day being Monday, November 12, 2018) of the Company's common stock as reported on the OTCQB. 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 a) $4,401,434 of the principal and unpaid interest owed under the 2013 Note; and b) $798,566 of the principal and unpaid interest owed under the March 2015 Loan. The interest payable remaining under the 2013 Note and March 2015 Loan totals $52,182. The Company agreed to repay the remaining interest from proceeds received from the November 2018 Private Placement. Of the 13,200,000 Units issued in exchange for cash, Kalen Capital Corporation purchased 13,100,000 Units.

 

30

 

During the year ended August 31, 2018, we entered into the following securities related transactions:

 

  On September 29, 2017, the Company completed the September 2017 Private Placement of 821,600 units at a price of $3.11 per unit for $2,555,176 in aggregate proceeds. Each unit consisted of one share of common stock and one Series S Stock Purchase Warrant to purchase one (1) share of common stock at an exercise price of $3.42 per share through September 29, 2022. The warrants may be exercised on a cashless basis. (3)
     
  On November 21, 2017 1) each director was granted 40,000 shares of common stock for a total issuance of 160,000 shares of common stock valued at $4.87 per share, the fair market value of our common stock on the date of issuance and 2) the Company issued Jatinder Bhogal, Director, an additional 50,000 shares valued at $4.87 per share. 75% of the 210,000 issued shares are subject to a one-year lock-up. (2)
     
  From September 6, 2017 through October 30, 2017, holders of our Series O Warrants exercised 80,000 warrants at an exercise price of $3.10 per share resulting in $248,000 to the Company and the issuance of 80,000 shares of common stock. (2)
     
  On September 7, 2017, John Conklin, the Company’s President & CEO, exercised 100,000 stock purchase options on a cashless basis resulting in the issuance of 46,097 shares of common stock. On January 4, 2018, Mr. Conklin exercised 50,000 stock purchase options on a cashless basis resulting in the issuance of 34,013 shares of common stock. (2)
     
  On December 28, 2017, Alastair Livesey, a Company Director, exercised 36,667 stock purchase options on a cashless basis resulting in the issuance of 19,067 shares of common stock. (2)
     
  From September 7, 2017 through April 13, 2018, three other individuals exercised a total of 105,000 stock purchase options on a cashless basis resulting in the issuance of 46,985 shares of common stock. (2)
     
  On September 7, 2017, Kalen Capital Corporation (the “Investor”), a private corporation controlled by Harmel Rayat, our Chairman, and owning in excess of 10% of our issued and outstanding shares of common stock exercised their outstanding Series Q Warrant to purchase up to 468,750 shares of the Company’s common stock on a cashless basis, resulting in the issuance of 189,940 shares of common stock. (2)
     
  On September 7, 2017, a third party exercised their outstanding Series Q Warrant to purchase up to 468,750 shares of the Company’s common stock on a cashless basis, resulting in the issuance of 189,940 shares of common stock. (2)
     
  On December 28, 2017, a third party exercised their outstanding Series R Warrant to purchase up to 468,750 shares of the Company’s common stock on a cashless basis, resulting in the issuance of 285,823 shares of common stock. (2)
     
  From December 1, 2017 through April 30, 2018, holders of our Series P Warrants exercised 39,500 warrants at an exercise price of $3.70 per share resulting in $146,150 to the Company and the issuance of 39,500 shares of common stock. (2)

 

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(1) See “Note 4 - Debt” under ITEM 8 of our Financial Statements for additional information.

(2) See “Note 6 – Common Stock and Warrants” under ITEM 8 of our Financial Statements for additional information.

(3) See “Note 5 – Private Placements” under ITEM 8 of our Financial Statements for additional information.

 

Additional Information

 

The United States Securities and Exchange Commission (“SEC”) maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission and state the address of that site. You can obtain copies of our annual reports, quarterly reports, current reports, and any amendments to those reports, are available free of charge at the SEC’s website at www.sec.gov. All statements made in any of our filings, including all forward-looking statements, are made as of the date of the document(s) in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law. You may also visit our website at www.solarwindow.com.

 

Item 6. Selected Financial Data

 

The selected financial data set forth below should be read in conjunction with Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations and our audited annual financial statements and the notes thereto, each of which are contained in Item 8 - Financial Statements and Supplementary Data.

 

    Years Ended August 31,
    2019   2018
         
Revenue   $ -     $ -  
Loss from operations     (6,410,865 )     (5,553,583 )
Interest income     315,344       -  
Gain on disposal of asset     -       326  
Interest expense     (128,239 )     (477,566 )
Accretion of debt discount     (663,918 )     (823,724 )
Net loss     (6,887,678 )     (6,854,547 )
                 
Per Share Data:                
Income (loss) per common share                
Basic loss per share   $ (0.14 )   $ (0.19 )
Diluted loss per share   $ (0.14 )   $ (0.19 )
Weighted average common shares outstanding:                
Basic     48,986,720       36,020,453  
Diluted     48,986,720       36,020,453  
Dividends declared per basic weighted average common shares outstanding   $ -     $ -  

 

Balance Sheet Data:

 

    As of August 31,
    2019   2018
Cash   $ 16,604,011     $ 696,826  
Total assets   $ 18,668,497     $ 929,234  
Total debt obligations   $ -     $ 4,460,025  
Total liabilities   $ 221,215     $ 4,553,641  
Total stockholders' equity (deficit)   $ 18,447,282     $ (3,624,407 )

 

Cash Flow and Related Data:

 

    Years Ended August 31,
    2018   2017
Net cash (used in) operating activities   $ (2,545,151 )   $ (2,920,772 )
Purchases of equipment   $ (1,347,664 )   $ (2,581 )
Proceeds from the issuance of equity securities   $ 19,800,000     $ 2,949,326  

 

 

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

 

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

 

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

 

Overview

 

We are a pre-revenue company developing proprietary SolarWindow™ transparent electricity generating coatings. SolarWindow™ coatings is an OPV device comprised of ultra-thin layers that can be applied to glass, flexible glass and plastic surfaces. Our SolarWindow™ transparent electricity-generating coatings and technology is capable of harvesting 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 sixty (60) U. S. and international patent, and thirty (30) trademark application filings for our electricity-generating coating and SolarWindow™ technology development efforts.

 

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 (AMM 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 semitransparent organic photovoltaic (OPV) modules compatible with high process speeds for many different advanced material manufacturing systems.

 

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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 more important milestones includes:

 

SolarWindow™ coatings were successfully processed through a rigorous laminated commercial window glass fabrication autoclave system. Layered with SolarWindow™ electricity-generating liquid coatings, glass modules were subjected to the extremely high heat and pressure of autoclave equipment located at a commercial glass 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 an important milestone for the commercialization of SolarWindow products, showing that our PV layers are compatible with autoclave production equipment.

 

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 through the rigorous autoclave system for window glass lamination at a commercial window fabricator;

 

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;

 

expanded product development 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;

 

entered into the NREL CRADA which is still in effect;

 

filed over ninety (90) U. S. and international patent and 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;

 

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

 

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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;

SolarWindow™ - PowerWrap™ - A proprietary product under development that plans to feature multiple colors and high-power production; and 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 SolarWindowTM technology can form the basis for a commercially viable technology or product and which products will be first to market.

 

We plan to advance the technical and product development, and subsequent commercialization of our SolarWindow™ technologies and products through research and development agreements, licensing, joint venture arrangements, and co-marketing and co-promotion and distribution arrangements with third party collaborators. 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. We have not yet entered into any such arrangements for these services.

 

35

 

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

 

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.

 

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 another 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.

 

36

 

On November 8, 2018, 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 new completion date of December 21, 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 August 31, 2019, the Company made $580,879 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 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 OPV modules compatible with high process speeds for many different advanced material manufacturing systems.

 

Results of Operations

 

Year ended August 31, 2019 compared to the year ended August 31, 2018

 

Operating Expenses

 

A summary of our operating expenses for the years ended August 31, 2019 and 2018 follows:

 

 

            2019 compared to 2018
    Year Ended August 31,   Increase /   Percentage
    2019   2018   (Decrease)   Change
Operating expenses:                                
Selling, general & administrative   $ 1,438,111     $ 1,581,316     $ (143,205 )     -9 %
Research and product development     1,013,387       1,134,242       (120,855 )     -11 %
Stock compensation     3,959,367       2,838,025       1,121,342       40 %
Total Operating expense   $ 6,410,865     $ 5,553,583     $ 857,282       15 %

 

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 year ended August 31, 2019 compared to the year ended August 31, 2018, SG&A costs decreased due primarily to a $192,000 reduction in investor communications related fees and $10,000 reduction in travel related costs offset by $24,000 increase in personnel costs, $30,000 increase in professional services related costs and $5,000 increase in other administrative costs.

 

37

 

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. R&PD costs slightly decreased in 2019 compared to 2018 primarily as a result of the Company streamlining its development focus on improving SolarWindow™ technology efficiency and transparency; optimizing electrical power (current and voltage) output; and improving performance, processing, reliability, and durability of SolarWindow™ coatings.

 

Stock Compensation

 

The Company grants stock options to its Directors, employees and consultants and has issued 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 compensation expense increased approximately $1,121,000 to $3,959,000 during the year ended August 31, 2019 compared to $2,838,000 during the year ended August 31, 2018. The increase is due to the July 5, 2019 grant of 1,506,000 options of which 1,008,000 options, representing $2,449,000 of expense, vested upon grant with 498,000 options, representing $59,000 of expense in 2019, vesting over five years offset by no common stock issuances to our Directors in 2019 compared to 210,000 shares of common stock issued to our directors in 2018 valued at $1,023,000.

 

Other Income (Expense)

 

A summary of our other income (expense) for the years ended August 31, 2019 and 2018 follows:

 

    Years Ended August 31,   Increase /
    2019   2018   (Decrease)
Other income (expense)                        
Interest income   $ 315 344     $ -     $ 315,344  
Gain on disposal of assets     -       326       (326 )
Interest expense     (128,239 )     (477,566 )     (349 327 )
Accretion of debt discount     (663,918 )     (823,724 )     (159,806 )
Total other income (expense)   $ (476,813 )   $ (1,300,964 )   $ (824,151 )

 

“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 those notes as a result of the issuance and modification of detachable warrants and the beneficial conversion feature contained therein. 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. For additional information, see “NOTE 4 – Debt” and “NOTE 5 – Private Placements” to our Financial Statements contained in this Form 10-K.

 

Liquidity and Capital Resources

 

Our principal source of liquidity is cash in the bank. As of August 31, 2019, the Company had $16,604,011 of cash and cash equivalents 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 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:

 

    Years Ended August 31,   2019
compared to
    2019   2018   2018
Operating activities   $ (2,545,151 )   $ (2,920,772 )   $ 375,621  
Investing activities     (1,347,664 )     (2,581 )     (1,345,083 )
Financing activities     19,800,000       2,949,326       16,850,674  
Net increase in cash   $ 15,907,185     $ 25,973     $ 15,881,212  

 

Operating Activities

 

Net cash used in operating activities totaled $2,545,151 for the year ended August 31, 2019 as compared to $2,920,772 for the year ended August 31, 2018. The $375,621 decrease was primarily the result of lower investor communications fees ($192,000) and increased interest income ($315,000) offset by higher prepayments to NREL ($447,000) and higher personnel and professional fees ($54,000).

 

Investing Activities

 

Net cash used in investing activities totaled $1,347,664 for the year ended August 31, 2019 as compared to $2,581 for the year ended August 31, 2018. The $1,345,083 increase was the result of the purchase of a computer, office equipment, office furniture and primarily various production and R&D equipment, including payments to date totaling $1,292,655 towards the purchase of manufacturing equipment with an estimated total cost of $1,803,000. 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 year ended August 31, 2019, compared to $2,949,326 for the year ended August 31, 2018. During the year ended August 31, 2019, the Company received proceeds of $19,800,000 from the November 2018 Private Placement whereas during the year ended August 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 of 821,600 units of our securities.

 

Indebtedness

 

None.

 

Other Contractual Obligations

 

The Company entered into an operating lease for office space with a term from May 1, 2019 through May 1, 2022 with monthly rent due of $2,200 for the first two years and $2,266 during year three. For additional information, see Note 8 – Lease, located in the footnotes to our financial statements.

 

During 2019 the Company made payments totaling $1,292,655 towards the purchase of manufacturing equipment with an estimated total cost of $1,803,000. That equipment is currently being manufactured to our particular specifications. We expect the additional $510,345 will be paid during the quarter ending February 29, 2020. For additional information, see Note 3 – Equipment, located in the footnotes to our financial statements.

 

Off-Balance Sheet Arrangements

 

There were no off-balance sheet arrangements for the years ended August 31, 2019 and 2018.

 

39

 

Recently Issued Accounting Standards

 

See Note 2 to our Financial Statements for more information regarding recent accounting standards and their impact to our 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.

 

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 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 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.

 

Embedded Derivatives

 

From time to time we issue financial instruments such as debt in which a derivative instrument is “embedded.” Upon issuing the financial instrument, we assess whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and carried at fair value, with changes in fair value recorded in the income statement.

 

New Accounting Standards to be Adopted Subsequent to August 31, 2019

 

None.

 

Related Party Transactions

 

For a discussion of our Related Party Transactions, refer to “Note 9 - Related Party Transactions” to our Financial Statements included elsewhere in this Annual Report on Form 10-K.

 

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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 Annual Report on Form 10-K.

 

Special Note Regarding Forward-Looking Statements

 

This Annual Report on Form 10-K 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.

 

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 this 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 for the purpose of this presentation. As a result, you should consider all of the following factors, together with all of the other information presented herein, in evaluating our business.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company does not carry any balances that are materially exposed to market risk.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The report of the independent registered public accounting firm and financial statements listed in the accompanying index are included in Item 15 of this report. See Index to the financial statements on page F-1 of this Form 10-K.

 

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

 

None.

 

41

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, which are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours is designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Under the supervision and with the participation of management, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2019. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of August 31, 2019.

 

Management’s Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with US GAAP. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

As of August 31, 2019, our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting using the criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (comm. only referred to as COSO). Based on this assessment, our management concluded that our internal control over financial reporting was effective based on those criteria as of August 31, 2019.

 

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
     
  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.

 

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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, 2018, 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;

 

Implementation of new policies and procedures related to controls over various operating activities;

 

The hiring of additional staff and modification of 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 an audit committee and 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 continue to monitor our control environment and will implement additional controls and processes utilizing internal resources, and outside resources (when deemed necessary) to strengthen our controls over the financial reporting and disclosure process as applicable in order to meet the needs of our growing organization.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

43

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

DIRECTORS AND EXECUTIVE OFFICERS

 

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

 

Name   Age   Current Position With Us   Director or Officer Since
Harmel S. Rayat   58   Chairman of the Board of Directors   March 15, 2018
John A. Conklin   60   President, Chief Executive Officer (principal executive officer) and Director   August 9, 2010
Steve Yan-Klassen   51   Treasurer and Chief Financial Officer (principal financial officer)   October 22, 2018
Justin Frere, CPA   47   Controller (principal accounting officer) and Secretary   July 5, 2019
Alastair Livesey   62   Director   September 19, 2007
Jatinder Bhogal   52   Director   August 7, 2017
Bob Levine   70   Director   December 7, 2018
Steve Horovitz   60   Director   April 17, 2019
Gary Parmar, CPA, CA   48   Director, Audit Committee Chair   June 14, 2019

 

Biographical Information

 

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

 

Current Directors and Officers

 

Harmel S. Rayat. Since the 1990s, Mr. Rayat has provided strategic capital and managerial guidance to a number of entities in various industries, including advertising, biotechnology, news distribution, alternative energy and commercial real estate. Mr. Rayat, a founding shareholder of SolarWindow Technologies, Inc., was invited to join the Board due to his experience in finance, marketing, management and technology start-ups generally. Mr. Rayat is the President and sole stockholder of KCC, which beneficially owns approximately 75.77% of our issued and outstanding stock. Mr. Rayat is also a director and through KCC a controlling stockholder of RenovaCare, Inc. For more information on KCC’s holdings please refer to “ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.”   

 

John A. Conklin. Mr. Conklin is founder of Tellurium Associates, LLC, an industrial and environmental process design and operations consulting company, and founder of National Solar Systems, LLC, a New York based renewable energy firm. Mr. Conklin has studied chemical engineering, chemical technology, industrial systems engineering, product development, strategic facilities planning, project management; and numerous industrial, safety and renewable energy programs. With over 32 years of industrial process and renewable and alternative energy experience, Mr. Conklin has consulted regarding and overseen the technical and business requirements of over 50 technology, manufacturing and industrial companies, ranging from start-ups to Fortune 500 companies, including industry leaders such as Lockheed Martin and TDI Power, a global manufacturer of power systems. Mr. Conklin serves as our President and Chief Executive Officer and brings a combination of technical, business and hands-on alternative and renewable energy experience.

 

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Steve Yan-Klassen. Mr. Yan-Klassen is a Chartered Professional Accountant (“CPA”), a Certified Management Accountant (“CMA”). Mr. Yan-Klassen was a senior manager at Wolrige Mahon Collins Barrow LLP and at BDO Canada LLP, and a practicing CPA at Amisano Hanson Chartered Accountants. Mr. Yan-Klassen’s public company accounting experience includes over fifteen years of auditing financial statements for SEC, Canadian Securities Exchange and TSX Venture Exchange reporting issuers. Areas of expertise include companies with operations in technology, energy, manufacturing and mining in North and South America, Africa, and Southeast Asia. Mr. Yan-Klassen will serve as our Chief Financial Officer and brings a combination of financial and regulatory filing experience.

 

Justin Frere, CPA. Mr. Frere has served as the Company’s Controller since August of 2011 and was appointed Secretary on July 5, 2019. Mr. Frere continues to serve the Company as its Controller. 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. 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. Mr. Frere has been the primary party responsible for accounting, drafting and filing SEC forms 10-K, 10-Q, S-1, and 8-K and interacting with auditors and the SEC in support of public reporting. Mr. Frere started his career at KPMG in their assurance practice. Mr. Frere earned a Bachelors of Science in accounting and finance from California Polytechnic State University in San Luis Obispo (1996), California Certified Public Accountant designation (1998) and MBA with a Finance emphasis from San Diego State University (2001).

 

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

 

Jatinder S. Bhogal. Mr. Jay (Jatinder) S. Bhogal, President & CEO of Vector Asset Management, brings 20 years of experience helping finance and build companies in diversified industries, including: online media, health services, medical devices, drug discovery, vaccine production, renewable and alternative energy, fossil fuels, and others. Numerous breakthrough technologies supported by Mr. Bhogal have grown from inception to achieve $300 million-plus market capitalization. As a private investor, director, and executive, Mr. Bhogal has incubated and directed ventures and projects in collaboration with leading research institutions and government agencies, including: United States Department of Energy’s National Renewable Energy Laboratory, University of California Berkeley, Dartmouth College, NASA’s International Space Station National Laboratory Initiative (on board the Space Shuttle ‘Endeavour’ with USDA; mission STS-126), and others.

 

Bob Levine. Mr. Levine has been with Avison Young since 1994 and is one of the founding partners of the company which, with the purchase of GVA in the U.K. early in the New Year, will have 120 offices in 25 countries and 5,000 real estate professionals. Since 2008, Avison Young has been one of the fastest growing commercial real estate companies in the world. Having recently retired from the Board of Directors of Avison Young after 10 years’ service, Mr. Levine remains on Avison Young’s Executive Committee. Mr. Levine has 40 years of experience in commercial real estate sales, leasing, and advisory roles and has worked with many leading developers, equity partners, and renowned investors. Having consummated many billions of dollars in transactions, he has been responsible for the sale of numerous landmark and Class-A office buildings, shopping centers, industrial properties, and major development sites.

 

45

 

Steve Horovitz. Since September 2018, Mr. Steve Horovitz has been with Omicron Development Inc. as a member of the senior management team leading the full cycle of property project acquisition, design, marketing, leasing, construction and post development activities. Omicron is one of the largest integrated development, design and construction firms in Western Canada, combining the expertise of 150 real estate development strategists, architects, interior designers, engineers, cost estimators, project managers and builders.

 

Between November 2008 and August 2018, Mr. Horovitz was part of the senior management team at Reliance Properties Ltd., a privately owned 50-year old real estate holding and development company involved with award winning heritage building restorations and ground-up residential and office developments.

 

Omicron Development Inc. and Reliance Properties Ltd. are not affiliated with SolarWindow Technologies, Inc.

 

Mr. Horvitz has not served as a director of a public company or any company registered as an investment company in the past 5 years.

 

Gary P. Parmar, CPA, CA. Mr. Parmar is a Partner and Regional Leader of Technology Media Telecommunications with MNP, a leading Canadian national accounting, tax and business consulting firm. Based in Kelowna, Gary provides accounting, tax, financial planning and business management advice to private enterprises and family-owned businesses, helping them increase profits, grow their operations and achieve their goals. With more than 20 years of experience, Gary understands his clients’ unique challenges and delivers creative solutions that help them maximize wealth while keeping taxes to a minimum. His services include assisting with tax planning regarding incorporation, income management, succession planning, business management, the purchase and sale of businesses and estate planning. Gary’s clients rely on him to help them structure their businesses to facilitate various types of projects and transactions, as well as assess the validity of deals and arrange financing. A trusted advisor, he provides ongoing management consulting to assist with job costing, managing working capital and maximizing profitability. Committed to building and nurturing long-term relationships, Gary has worked with a broad range of clients, including real estate developers, builders, agricultural producers, professionals and companies in the technology, media telecommunications industries. A Chartered Professional Accountant (CPA) who qualified as a Chartered Accountant (CA), Gary has a Bachelor of Commerce degree from the University of Alberta, where he majored in accounting.

 

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

 

Family Relationships and Other Matters

 

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

 

Legal Proceedings

 

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

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

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

 

46

 

CORPORATE GOVERNANCE

 

General

 

We believe that good corporate governance is important to ensure that our company is managed for the long-term benefit of our stockholders. We periodically review our corporate governance policies and practices and compare them to those suggested by various authorities in corporate governance and the practices of other public companies. As a result, we have adopted policies and procedures that we believe are in the best interests of SolarWindow and our stockholders.

 

Corporate Governance Guidelines; Code of Conduct and Ethics

 

Our Corporate Governance Guidelines assist our board of directors in the exercise of its duties and responsibilities and to serve the best interests of SolarWindow and our stockholders. These guidelines, which provide a framework for the conduct of our board’s business addresses the role of a director, Board composition, Board meetings, access to management, Board compensation and other topics.

 

We have adopted a Code of Ethics that applies to all of our officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer. The Code of Ethics is designed to deter wrongdoing, and to promote, among other things, honest and ethical conduct, full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to the SEC, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations of the Code of Ethics, and accountability for adherence to the Code of Ethics.

 

We have posted a copy of our Corporate Governance Guidelines and Code of Ethics and Business Conduct on the Investor section of our website at https://www.solarwindow.com/investors/corporate-governance/. Our full Board of Directors must approve in advance any waivers of the Code of Ethics. We will post any amendments or waivers from our Code of Ethics that apply to our executive officers and directors on the “Corporate Governance” section of our website.

 

Board Independence

 

We are not listed on a major U.S. securities exchange and, therefore, are not subject to the corporate governance requirements of any such exchange, including those related to the independence of directors. However, Our Board considers that a director is independent when the director is not an officer or employee of the Company, does not have any relationship which would, or could reasonably appear to, materially interfere with the independent judgment of such director, and the director otherwise meets the independence requirements under the listing standards of FINRA and the rules and regulations of the SEC. Our Board has reviewed the materiality of any relationship that each of our directors has with the Company, either directly or indirectly. Based on this review, our Board has affirmatively determined that four of our seven directors, including Dr. Alastair Livesey, Bob Levine, Steve Horovitz and Gary Parmar, qualify as “independent” directors.

 

Board Leadership Structure

 

We currently have two executive officers and seven directors; four of which are independent. At present, Mr. Rayat serves as the Chairman of the Board, Mr. Conklin serves as our Chief Executive Officer and Mr. Yan-Klassen serves as our Chief Financial Officer. 

 

Our Bylaws provide our Board with flexibility to combine or separate the positions of Chairman of the Board and Chief Executive Officer in accordance with its determination that utilizing one or the other structure would be in the best interests of our Company and its stockholders. Our Board believes that the current leadership structure, which separates the Chairman and Chief Executive Officer roles, enhances the accountability of our Chief Executive Officer to our Board and encourages balanced decision making. Our Board also adopted this leadership structure in recognition of the differences in responsibilities. While our Chief Executive Officer is responsible for the day-to-day leadership and operations of the Company, the Chairman of the Board provides guidance to our Board and sets the agenda for Board meetings. Our Chairman also provides performance feedback on behalf of our Board to our Chief Executive Officer. Our Board also considered that our Audit Committee, which oversees critical matters such as the integrity of our financial statements, consist entirely of independent directors. Our Board has reviewed our current Board leadership structure, our size, the nature of our business, the regulatory framework under which we operate, our stockholder base, our peer group and other relevant factors, and has determined that this structure is currently the most appropriate Board leadership structure for our company.

 

47

 

Board Committees

 

Audit Committee

 

Our Board has established a separately-designated independent Audit Committee of the Board in accordance with Section 3(a)(58)(A) of the Exchange Act for the purpose of overseeing our accounting and financial reporting processes and the audits of our annual financial statements. Our Audit Committee currently consists of Mr. Parmar (Chair), Mr. Levine and Mr. Horovitz. The functions of the Audit Committee include the retention of our independent registered public accounting firm, reviewing and approving the planned scope, proposed fee arrangements and results of the Company’s annual audit, reviewing the adequacy of the Company’s accounting and financial controls and reviewing the independence of the Company’s independent registered public accounting firm. The Board has determined that each of the members of the Audit Committee is independent as determined under Rule 10A-3 of the Exchange Act. Our Board has determined that Mr. Gary Parmar is an audit committee financial expert (as that term is defined in Item 407 of Regulation S-K under the Exchange Act). The Audit Committee is governed by a written charter approved by the Board, a copy of which is available on our website at https://www.solarwindow.com/investors/corporate-governance/.

 

Compensation Committee

 

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

 

Nominating Committee

 

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

 

While the Board is solely responsible for the selection and nomination of Directors, the Board may consider nominees recommended by stockholders as deemed appropriate. The Board evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation. Although we do not have a policy regarding diversity, the Board does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. Stockholders who wish to recommend a nominee should send nominations to Mr. John A. Conklin, President & CEO, 300 Main Street, Suite 6, Vestal, NY 13850, or Mr. Harmel S. Rayat, Chairman of the Board, Suite 700, 688 West Hastings Street, Vancouver, BC, V6B 1P1 that include all information relating to such person that is required to be disclosed in solicitations of proxies for the election of directors. The recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected.

 

Compensation Consultants

 

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

 

48

 

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

 

During the fiscal year ended August 31, 2019, all directors attended at least 75% or more of the aggregate of the meetings of the Board. The Board met one (1) time and acted by written consent Twelve (12) times during the fiscal year ended August 31, 2019; the Audit Committee was established in July 2019 and did not meet nor act by written consent during the fiscal year ended August 31, 2019. We did not have an annual meeting of shareholders during the fiscal year ended August 31, 2019.

 

The Audit Committee is the only standing committee of the Board of Directors. The full Board is responsible for performing the functions of: (i) the Compensation Committee and (ii) the Nominating Committee.

 

Board Role in Risk Oversight

 

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

 

Stockholder Communications

 

Stockholders who wish to communicate with the Board may do so by addressing their correspondence to the Board at SolarWindow Technologies, Inc., Attention: John A. Conklin, 300 Main Street, Suite 6, Vestal, NY 13850, or Mr. Harmel S. Rayat, Chairman of the Board, Suite 700, 688 West Hastings Street, Vancouver, BC, V6B 1P1. The Board will review and respond to all correspondence received, as appropriate.

 

ITEM 11. EXECUTIVE COMPENSATION

 

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

 

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

 

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

 

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

 

reward performance; and

 

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

 

 

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Summary Compensation Table

 

The following table summarizes the total compensation paid to or earned by each named executive officer for Fiscal 2019 and Fiscal 2018:

 

Name and
Principal Position
  Year
Ended
August
31,
  Salary
($)
  Bonus
($)
 

Stock
Awards
($) (1)

  Option
Awards
($) (2)
 

All Other
Compensation
($) (3)

  Total ($)

John A. Conklin (4)

President, Chief Executive Officer and Director

    2019       275,000       -       -       117,500       35,233       427,733  
    2018       257,167       -       194,800       5,834,168       25,992       6,312,127  
Steve Yan-Klassen (5)
Chief Financial Officer
    2019       15,497       -       -       117,500       -       132,997  
    2018       -       -       -       -       -       -  

 

(1) The amounts in this column represent the aggregate grant date fair value of restricted stock grants granted in Fiscal 2018, determined in accordance with FASB ASC Topic 718. During Fiscal 2018, 40,000 shares of common stock were awarded to Mr. Conklin for his service to the Company as a director, see “NOTE 6 – Common Stock and Warrants” of our notes to financial statements contained in this annual report.

 

(2) The amounts in this column represent the aggregate grant date fair value of stock option awards granted, determined in accordance with FASB ASC Topic 718. In Fiscal 2018 Mr. Conklin was awarded (i) 1,008,000 stock purchase options with an exercise price of $5.35 per share, fair value per share of $5.64 per share and vest monthly over four years; and (ii) 40,000 stock options with an exercise price of $4.87 per share, fair value per share of $3.76 and one year vesting. In Fiscal 2019, each of Mr. Conklin and Mr. Yan-Klassen were awarded 50,000 stock options with an exercise price of $3.54, fair market value of $2.35 per share and five year vesting, see “NOTE 7 – Stock Options” of our notes to financial statements contained in this annual report.

 

(3) The amounts in this column represent vacation pay and health insurance premium reimbursement to our employees who generally maintain private insurance coverage and are reimbursed an agreed upon amount each month to offset their out-of-pocket medical insurance premiums.

 

(4) On December 27, 2017, we and Mr. Conklin entered into an employment agreement (the “2018 Employment Agreement”) pursuant to which Mr. Conklin is paid an annual salary of $275,000, received a grant of 1,008,000 stock options and was entitled to a medical insurance premium reimbursement stipend of $2,166 per month. On October 22, 2018, Mr. Conklin resigned as Chief Financial Officer commensurate with the appointment of Steve Yan-Klassen as the Company’s Chief Financial Officer.

 

(5) Effective October 22, 2018, we appointed Steve Yan-Klassen to serve as our Chief Financial Officer. Mr. Yan-Klassen has no employment agreement. Mr. Yan-Klassen resides in Vancouver, Canada and will receive an annual salary of $31,500 Canadian dollars.

 

Outstanding Equity Awards at Fiscal-Year End

 

The following table sets forth information regarding equity awards that have been previously awarded to each of the Named Executives and which remained outstanding as of August 31, 2019.

 

Option Awards
Name   # of Securities
Underlying
Unexercised Options
Exercisable
  # of Securities
Underlying
Unexercised Options
Not Currently
Exercisable
  Option Exercise
Price ($)
  Option
Expiration Date
John A. Conklin (1)     420,000       588,000       5.35     1/1/2028
    40,000       -       4.87     11/21/2027
    2,500       47,500       3.54     7/5/2025
Steve Yan-Klassen     2,500       47,500       3.54     7/5/2025

 

(1) On January 1, 2018, pursuant to the 2018 Employment Agreement, we granted a stock option to purchase 1,008,000 shares of our common stock. On November 21, 2017, pursuant the grant of stock options to our Board for their services, we granted a stock option to purchase 40,000 shares of our common stock. On July 5, 2019, pursuant to a grant of stock options to our Board and executives for their services, we granted a stock option to purchase 50,000 shares of our common stock to each Mr. Conklin and Mr. Yan-Klassen. For the terms of the employment agreement between us and Mr. Conklin, please refer to footnote (1) to the Summary Compensation table in “ITEM 11. EXECUTIVE COMPENSATION.”

 

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Employee directors, of which Mr. Conklin is the only individual, are eligible to receive stock option compensation but do not receive cash compensation in addition to their monthly salary for services rendered as a director.

 

Potential Payments upon Termination or Change in Control

 

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

 

On January 1, 2018, we entered into the 2018 Employment Agreement with Mr. John A. Conklin. Pursuant to the terms of the 2018 Employment Agreement, Mr. Conklin will receive an annual salary of $275,000, medical insurance reimbursement stipend currently at the rate of $2,166 per month and a grant to purchase 1,008,000 stock options. Additionally, in the event that Mr. Conklin’s employment is terminated without cause or a result of disability, he will be entitled to receive up to (i) six monthly payments as in effect on the date of termination if terminated prior to December 31, 2018; (ii) four monthly payments as in effect on the date of termination if terminated after December 31, 2018 and prior to December 31, 2019; (iii) three monthly payments as in effect on the date of termination if terminated after December 31, 2019 and prior to December 31, 2021. In addition to the delivery of the applicable severance payment, 50% of the then unvested stock options shall vest as of the termination date. Mr. Conklin has the right to exercise the vested options within two years from the termination date, after which all unexercised vested options will terminate. In the event of termination for reasons other than cause, death or disability or for good reason the cash severance due to Mr. Conklin would be $91,667 as of August 31, 2019.

 

COMPENSATION OF DIRECTORS

 

Our directors play a critical role in guiding our strategic direction and overseeing the management of our Company. Ongoing developments in corporate governance and financial reporting have resulted in an increased demand for such highly qualified and productive public company directors. The many responsibilities and risks and the substantial time commitment of being a director of a public company require that we provide adequate incentives for our directors’ continued performance by paying compensation commensurate with our directors’ workload. Our non-employee directors are compensated based upon their respective levels of Board participation and responsibilities, including service on Board Committees. Our employee directors receive no separate compensation for their service as directors. Our Board determines the non-employee directors’ compensation for serving on the Board and its committee(s). In establishing director compensation, the Board is guided by the following goals:

 

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

 

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

 

compensation should assist with attracting and retaining qualified directors.

 

 

For their services as directors, non-employee directors received cash compensation of $1,750 per quarter during 2019 pro-rated to the date they join the Board of Directors. Beginning on September 1, 2019, the audit committee chair will receive an additional $750 per quarter. During fiscal 2018, Directors received cash compensation of $4,750 per quarter. The decrease in cash compensation from 2018 to 2019 was the result of realigning the compensation to better reflect the size of the Company and scope of non-employee director involvement.

 

During fiscal 2018, each non-employee director was granted 40,000 shares of common stock with an additional 50,000 share issuance to Jatinder Bhogal for a total issuance of 170,000 shares of common stock valued at $4.87 per share, or $827,900 in aggregate. Additionally, during fiscal 2018, each non-employee director received 40,000 stock purchase options with an additional 50,000 option issuance to Jatinder Bhogal for a total issuance of 170,000 options valued at $3.76 per share using the Black-Scholes Option Pricing Model, or $639,880 in aggregate.

 

51

During fiscal 2019, the Company’s Board granted 50,000 stock options to each of our non-employee directors and an additional 2,000 stock options to our three Audit Committee Board members with an additional 1,008,000 stock option awarded to Jatinder Bhogal for a total issuance of 1,264,000 (of 1,506,000 total stock options granted in 2019) with a weighted average value of $2.40 per share using the Black-Scholes Option Pricing Model, or $3,051,540 in aggregate.

 

Director Compensation Table

 

The following table sets forth the compensation earned and paid to each non-employee director for service as a director during Fiscal 2019 and Fiscal 2018:

 

Name   Fees Earned or Paid in Cash ($)   Stock Awards ($) (1)   Option Awards ($) (2)   Total ($)
Alastair Livesey (3)   7,000   -   117,500   124,500
Joseph Sierchio (4)   2,692   -   -   2,692
Jatinder S. Bhogal(5)   7,000   -   2,566,940   2,573,940
Bob Levine (6)   4,919   -   122,200   127,119
Steve Horovitz (6)   2,625   -   122,200   124,825
Gary Parmar (6)   1,527   -   122,200   123,727
Harmel S. Rayat (7)   1   -   -   1
Total 2019 director compensation   25,764   -   3,051,040   3,076,804
                 
Alastair Livesey (3)   18,750   194,800   150,560   364,110
Joseph Sierchio (4)   18,750   194,800   150,560   364,110
Jatinder S. Bhogal(5)   18,750   438,300   338,760   795,810
Harmel S. Rayat (6)   -   -   -   -
Total 2018 director compensation   56,250   829,700   639,880   1,524,030

 

(1) The amounts in this column represent the aggregate grant date fair value of restricted stock grants granted by the Board, determined in accordance with FASB ASC Topic 718. All awards are amortized over the vesting life of the award. For the assumptions used in our valuations, see “NOTE 6 – Common Stock and Warrants” of our notes to financial statements contained in this annual report

 

(2) The amounts in this column represent the aggregate grant date fair value of stock option awards granted by the Board, determined in accordance with FASB ASC Topic 718. All awards are amortized over the vesting life of the award. See “NOTE 7 – Stock Options” of our notes to financial statements contained in this annual report.

 

(3) During Fiscal 2018, Mr. Livesey received 40,000 shares of restricted stock valued at the closing price of our stock on the date of grant ($4.87 per share). During Fiscal 2019 Mr. Livesey received 50,000 stock options with an exercise price of $3.54 per share, fair market value of $2.35 per share and five year vesting. During Fiscal 2018 Mr. Livesey received 40,000, stock options with an exercise price of $4.87 per share, fair market value of $3.76 per share and one year vesting.

 

(4) During Fiscal 2018, Mr. Sierchio received 40,000 shares of restricted stock valued at the closing price of our stock on the date of grant. During Fiscal 2018, Mr. Sierchio received 40,000 stock options with an exercise price of $4.87 per share, fair market value of $3.76 per share and one year vesting. Mr. Sierchio resigned from the Board effective October 22, 2018.

 

(5) Mr. Bhogal became a director of the Company effective August 7, 2017. During Fiscal 2018, Mr. Bhogal received 90,000 shares of restricted stock valued at the closing price of our stock on the date of grant ($4.87 per share) and 90,000 stock options with an exercise price of $4.87 per share, fair market value of $3.76 per share and one year vesting. During Fiscal 2019, Mr. Bhogal received 50,000 stock options with an exercise price of $3.54 per share, fair market value of $2.35 per share and five year vesting. Additionally, During Fiscal 2019, Mr. Bhogal received 1,008,000 stock options with an exercise price of $3.54 per share, fair market value of $2.43 per share and immediate vesting of the entire award.

 

(6) During Fiscal 2019, Mr. Levine, Mr. Horovitz and Mr. Parmar each received 52,000 stock options with an exercise price of $3.54 per share, fair market value of $2.35 per share and five year vesting.

 

(9) Mr. Rayat became a director of the Company effective March 15, 2018. Mr. Rayat’s annual compensation for serving as Chairman of the Board of Directors is $1.00 per year.

 

52

Director Compensation - Equity

 

The following table shows the total number of unvested and total option awards held by each of our non-employee directors as of August 31, 2019:

 

Name   Vested Stock Options Outstanding (#)   Unvested Stock Options Outstanding (#)
Alastair Livesey   39,167   47,500
Jatinder S. Bhogal   1,100,500   47,500
Bob Levine   2,600   49,400
Steve Horovitz   2,600   49,400
Gary Parmar   2,600   49,400
Harmel S. Rayat (1)   n/a   n/a
Total   1,147,467   243,200

 

(1) Mr. Rayat, Chairman, has chosen to not receive any stock option related compensation.

 

Limitation on Directors' Liabilities; Indemnification of Officers and Directors

 

Our Amended and Restated Bylaws designate the relative duties and responsibilities of our officers and establish procedures for actions by directors and stockholders and other items. Our bylaws also contain extensive indemnification provisions, which will permit us to indemnify our officers and directors to the maximum extent provided by Nevada law. For additional information, see Exhibit 4.34 to this Annual Report.

 

Directors' and Officers' Liability Insurance

 

We have obtained directors' and officers' liability insurance, which expires on December 22, 2019.

 

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

 

The following table sets forth certain information as of November 12, 2019 by (i) all persons who are known by us to beneficially own more than 5% of our outstanding shares of common stock, (ii) each director, director nominee, and Named Executive Officer; and (iii) all executive officers and directors as a group. To our knowledge, no other person beneficially owns more than 5% of our common stock.

 

Name and Address of Beneficial Owner (1) Number of shares Beneficially Owned (2) % of Class Owned (2)
Directors and Officers    
John A. Conklin (3) 765,110 1.43
Jatinder S. Bhogal (4) 1,193,000 2.21
Alastair Livesey (5) 90,734 *
Bob Levine (6) 71,666 *
Justin Frere (7) 15,000 *
Steve Yan-Klassen (8) 5,000 *
Gary Parmar (8) 5,000 *
Steve Horovitz (8) 5,000 *
All Directors and Officers as a Group (8 people) 2,150,510 3.93

 


5% Shareholders
   

Kalen Capital Corporation (6)

The Kalen Capital Building

688 West Hastings St.

Suite 700

Vancouver, BC V6B 1P1

54,193,516 75.77

 

* less than 1%

 

53

(1) Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock and except as indicated the address of each beneficial owner is 300 Main Street, Vestal, NY 13850

 

(2) Calculated pursuant to rule 13d-3(d) of the Exchange Act. Beneficial ownership is calculated based on 52,959,323 shares of common stock issued and outstanding on a fully diluted basis as of September 30, 2019. Under Rule 13d-3(d) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed.

 

(3) Includes 195,110 shares of common stock and 549,000 shares of common stock reserved for issuance upon the exercise of vested stock options, including 42,000 shares issuable upon exercise of options expected to vest on or before January 1, 2020. Does not include 549,000 shares of common stock reserved for issuance upon exercise of stock options granted under the 2006 Plan that have not yet vested.

 

(4) Includes 90,000 shares of common stock and 1,103,000 shares of common stock reserved for issuance upon the exercise of vested stock options granted under the 2006 Plan. Does not include 45,000 shares of common stock reserved for issuance upon exercise of stock options granted under the 2006 Plan that have not yet vested.

 

(5) Includes 49,067 shares of common stock and 41,667 shares of common stock reserved for issuance upon the exercise of vested stock options granted under the 2006 Plan. Does not include 45,000 shares of common stock reserved for issuance upon exercise of stock options granted under the 2006 Plan that have not yet vested.

 

(6) Includes 33,333 shares of common stock, 33,333 shares of common stock reserved for issuance upon the exercise of a Series T Warrant and 5,000 shares of common stock reserved for issuance upon the exercise of vested stock options granted under the 2006 Plan. Does not include 45,000 shares of common stock reserved for issuance upon exercise of stock options granted under the 2006 Plan that have not yet vested.

 

(7) Includes 15,000 shares of common stock reserved for issuance upon the exercise of vested stock options granted under the 2006 Plan. Does not include 45,000 shares of common stock reserved for issuance upon exercise of stock options granted under the 2006 Plan that have not yet vested.

 

(8) Includes 5,000 shares of common stock reserved for issuance upon the exercise of vested stock options granted under the 2006 Plan. Does not include 45,000 shares of common stock reserved for issuance upon exercise of stock options granted under the 2006 Plan that have not yet vested.

 

(9) Kalen Capital Corporation is a private Alberta corporation wholly owned by Mr. Harmel Rayat, our Chairman. In such capacity, Mr. Rayat may be deemed to have beneficial ownership of these shares. The number of shares reflected above is as of the date of this prospectus based upon the review of our transfer records and information provided to us by Kalen Capital Corporation and includes: (a) 35,631,598 shares owned by Kalen Capital Corporation and its wholly owned subsidiary; (b) up to 246,000 shares issuable upon exercise of a Series M Warrant; (c) up to 767,000 shares issuable upon exercise of a Series N Warrant; (d) up to 213,500 shares issuable upon exercise of a Series P Warrant; (e) up to 468,750 shares issuable upon exercise of a Series R Warrant; (f) up to 300,000 shares issuable upon exercise of a Series S-A Warrant; and (g) 16,566,668 shares issuable upon exercise of a Series T Warrant.

 

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

 

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

 

Review, Approval or Ratification of Transactions with Related Persons

 

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

 

54

The Board is responsible for review, approval, or ratification of “related-person transactions” entered into between us and related persons. Under SEC rules (Section 404 (a) of Regulation S-K), a related person is a director, officer, nominee for director, or 5% stockholder of our outstanding shares of common stock since the beginning of the previous fiscal year, and their immediate family members.

 

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

 

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

 

  compensation to executive officers determined by the Board;

 

  compensation to directors determined by the Board;

 

  transactions in which all security holders receive proportional benefits; and

 

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

 

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

 

Transactions with Related Persons

 

The following is a description of each transaction since the beginning of 2018, and each currently proposed transaction, in which:

 

  we have been or are to be a participant;

 

  the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets for the last two completed fiscal years; and

 

  any of our directors, executive officers or holders of more than 5% of any class of our capital stock at the time of the transactions in issue, or any immediate family member of or person sharing the household with any of these individuals, had or will have a direct or indirect material interest.

 

Please refer to Note 9, “Related Party Transactions” in Part II, Item 8 of this Annual Report on Form 10-K for a description of certain related party transactions. All of such disclosure is incorporated herein by reference.

 

Director Independence

 

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

 

55

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

INDEPENDENT PUBLIC ACCOUNTANTS

 

The Board appointed Marcum LLP (“Marcum”) as the company’s independent registered public accounting firm beginning for the fiscal year ending August 31, 2018. Marcum has served as the company’s registered public accountant since October 2018.

 

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

 

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table represents aggregate fees billed to us for services related to the fiscal years ended August 31, 2019 and 2018, by Peterson and Marcum:

 

    2019   2018
Audit Fees (1)   $ 135,335     $ 146,100  
Audit Related Fees (2)     -       12,800  
Tax Fees (3)     8,500       5,300  
Total   $ 143,835     $ 164,200  

 

(1) Audit fees consist of fees billed for professional services performed by Marcum as applicable, for the audit of our annual financial statements, the review of interim financial statements, and related services that are normally provided in connection with registration statements.

 

(2) Audit related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements

 

(3) Tax fees consist of fees for professional services, including tax consulting and compliance.

 

 

56

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

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

 

(a)(1) Financial Statements and Schedules

 

The following financial statements, notes related thereto and report of independent auditors are included in Item 8 of this Form 10-K:

 

Report of Independent Registered Public Accounting Firm;

 

Balance Sheets as of August 31, 2019 and 2018;

 

Statements of Operations for the years ended August 31, 2019 and 2018;

 

Statements of Stockholders’ Equity (Deficit) for the years ended August 31, 2019 and 2018;

 

Statements of Cash Flows for the years ended August 31, 2019 and 2018; and

 

Notes to Financial Statements

 

(a)(2) Financial Statement Schedules:

 

All schedules have been omitted since they are either not applicable or the information is contained within the accompanying financial statements.

 

(b) Exhibit Index

 

The following is a list of exhibits filed as part of this Annual Report on Form 10-K.

 

Exhibit No. Description of Exhibit

 

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

 

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

 

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

 

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

 

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

 

3.6 Certificate of Amendment to the Articles of Incorporation changing name to SolarWindow Technologies, Inc. (Incorporated by reference to Form 8-K filed on March 4, 2015)

 

4.1 $3,000,000 Convertible Promissory Note dated October 7, 2013 (Incorporated by reference to the Form 8-K filed on October 10, 2013)

 

57

4.2 Series I Stock Purchase Warrant (Incorporated by reference to the Form 8-K filed on October 10, 2013)

 

4.3 Registration Rights Agreement dated October 7, 2013, entered into between New Energy Technologies, Inc. and Kalen Capital Corporation (Incorporated by reference to the Form 8-K filed on October 10, 2013)

 

4.4 Amendment to Convertible Promissory Note by and between the Company and Kalen Capital Corporation dated November 10, 2014 (Incorporated by reference to Form 8-K filed on November 17, 2014)

 

4.5 Amendment to Bridge Loan Agreement by and between the Company and Kalen Capital Corporation dated November 10, 2014 (Incorporated by reference to Form 8-K filed on November 17, 2014)

 

4.6 Form of Stock Purchase Warrant granted to Kalen Capital Corporation (Incorporated by reference to Form 8-K filed on November 17, 2014)

 

4.7 Form of Stock Award Agreement (Incorporated by reference to the Form 8-K filed on December 19, 2014

 

4.8 Form of Series L Warrant issued to 1420468 Alberta Ltd. (Incorporated by reference to Form 8-K filed on March 10, 2015)

 

4.9 Bridge Loan Agreement and Promissory Note by and between the Company and Kalen Capital Corporation dated December 7, 2015 (Incorporated by reference to Form 8-K filed on December 11, 2015)

 

4.10 Form of Series M Warrant issued to Kalen Capital Corporation dated December 7, 2015 (Incorporated by reference to Form 8-K filed on December 11, 2015)

 

4.11 Amendment to Bridge Loan Agreement dated December 7, 2015 (Incorporated by reference to Form 8-K filed on December 11, 2015)

 

4.12 Form of Series M Warrant issued to1420468 Alberta Ltd. dated December 7, 2015 (Incorporated by reference to Form 8-K filed on December 11, 2015)

 

4.13 Second Amended Bridge Loan Agreement dated December 31, 2015 (Incorporated by reference to Form 8-K filed on January 7, 2016)

 

4.14 Form of Series N Warrant dated December 31, 2015 (Incorporated by reference to Form 8-K filed on January 7, 2016)

 

4.15 Lock-Up Agreement dated January 5, 2016 (Incorporated by reference to Form 8-K filed on January 7, 2016)

 

4.16 Form of Series O Stock Purchase Warrant (Incorporated by reference to Form 8-K filed on February 24, 2016)

 

4.17 Form of Series P Stock Purchase Warrant (Incorporated by reference to Form 8-K filed on February 24, 2016)

 

4.18 Form of Subscription Agreement (Incorporated by reference to Form 8-K filed on February 24, 2016)

 

4.19 Form of Series Q Stock Purchase Warrant (Incorporated by reference to Form 8-K filed on June 23, 2016)

 

58

4.20 Form of Series R Stock Purchase Warrant (Incorporated by reference to Form 8-K filed on June 23, 2016)

 

4.21 Form of Subscription Agreement (Incorporated by reference to Form 8-K filed on June 23, 2016)

 

4.22 Form of Registration Rights Agreement dated June 20, 2016 (Incorporated by reference to Form 8-K filed on June 23, 2016)

 

4.23 Form of Series S-A Stock Purchase Warrant (Incorporated by reference to Form 8-K filed on July 28, 2017)

 

4.24 Form of Subscription Agreement (Incorporated by reference to Form 8-K filed on July 28, 2017)

 

4.25 Form of Registration Rights Agreement dated July 24, 2017 (Incorporated by reference to Form 8-K filed on July 28, 2017)

 

4.26 Form of Series S Stock Purchase Warrant dated September 29, 2017 (Incorporated by reference to Form 8-K filed on September 29, 2017)

 

4.27 Form of Subscription Agreement (Incorporated by reference to Form 8-K filed on September 29, 2017)

 

4.28 Form of Registration Rights Agreement dated September 29, 2017 (Incorporated by reference to Form 8-K filed on September 29, 2017)

 

4.29 Amendment to the 2014 Amended Bridge Loan Agreement dated November 3, 2017 (Incorporated by reference to Form 8-K filed on November 9, 2017)

 

4.30 Third Amendment to the 2015 Bridge Loan Agreement dated November 3, 2017 (Incorporated by reference to Form 8-K filed on November 9, 2017)

 

4.31 Form of Series T Stock Purchase Warrant dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 29, 2018)

 

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

 

4.33 Amended and Restated Articles*

 

4.34 Amended and Restated Bylaws*

 

10.1 Form of Lock-Up Agreement dated November 15, 2016, between SolarWindow, Inc. and each of John A. Conklin, Alastair Livesey and Joseph Sierchio (Incorporated by reference to the Form 8-K filed on November 18, 2016)

 

10.2 Form of Lock-Up Agreement dated January 5, 2016, between SolarWindow Technologies, Inc. and each of John A. Conklin, Alastair Livesey and Joseph Sierchio (Incorporated by reference to Form 8-K filed on January 7, 2016)

 

10.3 Process Integration and Production Agreement dated August 2, 2017 by and between SolarWindow Technologies, Inc. and TriView Glass Industries, LLC., (Incorporated by reference to Form 8-K filed on August 8, 2017)

 

10.4 Consulting agreements dated July 7, 2017 (Incorporated by reference to Form 8-K filed on July 13, 2017)

 

59

10.5 Modification to the Stevenson-Wydler Cooperative Research and Development Agreement dated December 28, 2015 (Incorporated by reference to Form 8-K filed on January 4, 2016)

 

10.6§ Employment Agreement dated January 1, 2014, between New Energy Technologies, Inc. and John A. Conklin (Incorporated by reference to the Form 8-K filed on January 31, 2014)

 

10.7§ Employment Agreement dated December 27, 2017, between SolarWindow Technologies, Inc. and John A. Conklin (Incorporated by reference to the Form 8-K filed on January 3, 2018)

 

10.8 Redacted copy of the CRADA Modification (Incorporated by reference to the Form 8-K filed on March 22, 2018)

 

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

 

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

 

10.12 Lease dated May 1, 2019 between Rose Claudia of the Vestal Professional Building and Registrant for 300 Main Street, Suite 6, Vestal, New York (Incorporated by reference to Form 10-Q filed on July 9, 2019)

 

23.2 Consent of Marcum, LLP*

 

99.1§ 2006 Incentive Stock Option Plan (Incorporated by reference to the Form S-8 filed on March 15, 2011)

 

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.

 

§ Management contract or compensatory plan.

 

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

 

 

ITEM 16. FORM 10-K SUMMARY

 

None.

 

60

 

SIGNATURES

 

Pursuant to the requirements of Sections 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SolarWindow Technologies, Inc.

 

By: /S/ John A. Conklin
  John A. Conklin
  Chief Executive Officer and Director
  (principal executive officer)
Date: November 18, 2019
   
By: /S/ Steve Yan-Klassen
  Steve Yan-Klassen
  Chief Financial Officer
  (principal financial officer)
Date: November 18, 2019

 

 

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

 

Signature   Title   Date
         
/s/ John A. Conklin   Chief Executive Officer and Director   November 18, 2019
John A. Conklin   (principal executive officer)    
         
/S/ Steve Yan-Klassen   Chief Financial Officer   November 18, 2019
Steve Yan-Klassen   (principal financial officer)    
         
/S/ Justin Frere, CPA   Controller and Secretary   November 18, 2019
Justin Frere, CPA   (principal accounting officer)    
         
/s/ Harmel S. Rayat   Chairman and Director   November 18, 2019
Harmel S. Rayat        
         
/s/ Alastair Livesey   Director   November 18, 2019
Alastair Livesey        
         
/s/ Jatinder Bhogal   Director   November 18, 2019
Jatinder Bhogal        
         
/s/ Bob Levine   Director   November 18, 2019
Bob Levine        
         
/s/Steve Horovitz   Director   November 18, 2019
Steve Horovitz        
         
/s/Gary Parmar, CPA, CA   Director   November 18, 2019
Gary Parmar, CPA, CA        

 

 

61

 

 

 

 

SOLARWINDOW TECHNOLOGIES, INC.

INDEX TO FINANCIAL STATEMENTS

 

Page

 

Report of Independent Registered Public Accounting Firm   F-2
     
Balance Sheets as of August 31, 2019 and 2018   F-3
     
Statements of Operations for the Years Ended August 31, 2019 and 2018   F-4
     
Statements of Stockholders’ Equity (Deficit) for the Years Ended August 31, 2019 and 2018   F-5
     
Statements of Cash Flows for the Years Ended August 31, 2019 and 2018   F-6
     
Notes to Financial Statements   F-7

 

 

 

 

 

 

 

 

F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

SolarWindow Technologies, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of SolarWindow Technologies, Inc., (the “Company”) as of August 31, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the two years in the period ended August 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2019 and 2018, and the results of its operations and its cash flows for each of the one two years in the period ended August 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Marcum llp

Marcum llp

 

We have served as the Company’s auditor since 2018.

 

Melville, NY

November 18, 2019

 

F-2

 

SOLARWINDOW TECHNOLOGIES, INC.

BALANCE SHEETS

 

    August 31,
    2019   2018
ASSETS                
Current assets                
Cash   $ 16,604,011     $ 696,826  
Deferred research and development costs     580,879       133,975  
Prepaid expenses and other current assets     46,832       58,819  
Total current assets     17,231,722       889,620  
                 
Operating lease right-of-use asset     65,646       -  
Equipment, net of accumulated depreciation of $68,858 and $50,509, respectively     1,368,929       39,614  
Security deposit     2,200       -  
Total assets   $ 18,668,497     $ 929,234  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                
                 
Current liabilities                
Accounts payable and accrued expenses   $ 97,549     $ 93,616  
Related party payables     57,933       -  
Current maturities of operating lease     23,169       -  
Total current liabilities     178,651       93,616  
                 
Non-current operating lease     42,564       -  
Bridge note payable to related party     -       600,000  
Convertible promissory note payable to related party, net of discount of $0 and $663,918, respectively     -       2,336,082  
Interest payable to related party     -       1,523,943  
Total long term liabilities     42,564       4,460,025  
Total liabilities     221,215       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 August 31, 2019 and 2018, respectively     52,959       36,293  
Additional paid-in capital     71,166,300       42,223,599  
Retained deficit     (52,771,977 )     (45,884,299 )
Total stockholders' equity (deficit)     18,447,282       (3,624,407 )
Total liabilities and stockholders' equity (deficit)   $ 18,668,497     $ 929,234  

 

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

 

F-3

 

SOLARWINDOW TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

 

    Years Ended August 31
    2019   2018
         
Revenue   $ -     $ -  
                 
Operating expenses                
Selling, general and administrative     4,431,643       3,622,367  
Research and product development     1,979,222       1,931,216  
Total operating expenses     6,410,865       5,553,583  
                 
Loss from operations     (6,410,865 )     (5,553,583 )
                 
Other income (expense)                
Interest income     315,344       -  
Gain on disposal of assets     -       326  
Interest expense     (128,239 )     (477,566 )
Accretion of debt discount     (663,918 )     (823,724 )
Total other income (expense)     (476,813 )     (1,300,964 )
                 
Net loss   $ (6,887,678 )   $ (6,854,547 )
                 
Basic and Diluted Loss per Common Share   $ (0.14 )   $ (0.19 )
                 
Weighted average number of common shares outstanding - basic and diluted     48,986,720       36,020,453  

 

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

 

F-4

 

SOLARWINDOW TECHNOLOGIES, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED AUGUST 31, 2019 AND 2018

 

    Common Stock   Additional   Retained  

Total

Stockholders'

    Shares   Amount   Paid-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 for cash     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     -       -       1,815,325       -       1,815,325  
Discount on convertible promissory note due warrant modifications     -       -       1,074,265       -       1,074,265  
Net loss for the year ended August 31, 2018     -       -       -       (6,854,547 )     (6,854,547 )
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     -       -       3,959,367       -       3,959,367  
Net loss for the year ended August 31, 2019     -       -       -       (6,887,678 )     (6,887,678 )
Balance, August 31, 2019     52,959,323     $ 52,959     $ 71,166,300     $ (52,771,977 )   $ 18,447,282  

 

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

 

F-5

 

SOLARWINDOW TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

 

    Years Ended August 31
    2019   2018
Cash flows from operating activities                
Net loss   $ (6,887,678 )   $ (6,854,547 )
Adjustments to reconcile net loss to net cash flows used in operating activities                
Depreciation     18,349       15,920  
Stock based compensation expense     3,959,367       2,838,025  
Non cash lease expense     87       -  
Security deposits     (2,200 )     -  
Accretion of debt discount     663,918       823,724  
Changes in operating assets and liabilities:                
Decrease (increase) in deferred research and development costs     (446,904 )     (42,771 )
Decrease (increase) in prepaid expenses and other assets     11,987       (42,121 )
Increase (decrease) in accounts payable and accrued expenses     3,933       (136,568 )
Increase (decrease) in related party payable     57,933       -  
Increase (decrease) in interest payable     76,057       477,566  
Net cash flows used in operating activities     (2,545,151 )     (2,920,772 )
                 
Cash flows used in investing activity                
Purchase of equipment     (1,347,664 )     (2,581 )
Net cash flows used in investing activity     (1,347,664 )     (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     15,907,185       25,973  
                 
Cash at beginning of period     696,826       670,853  
                 
Cash at end of period   $ 16,604,011     $ 696,826  
                 
Supplemental disclosure of cash flow information:                
Interest paid in cash   $ 52,182     $ -  
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 financial statements)

 

F-6

 

SOLARWINDOW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2019 AND 2018

 

NOTE 1 – Organization

 

SolarWindow Technologies, Inc. (the “Company”) was incorporated in the State of Nevada on May 5, 1998, under the name “Octillion Corp.” On December 2, 2008, the Company amended its Articles of Incorporation to effect a change of name to New Energy Technologies, Inc. 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.

 

Liquidity and Management’s Plan

 

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 August 31, 2019, the Company had $16,604,011 of cash on hand and current liabilities of $178,651. 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 Annual Report on Form 10-K. 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

 

On July 5, 2019, the Board of Directors voted to dissolve Kinetic Energy Corporation (“KEC”) and New Energy Solar (“NES”). KEC was incorporated on June 19, 2008 and held the patents related to the Company’s MotionPower™ technology, which patents have been assigned to the Company. NES was incorporated on February 9, 2009, during the very early stages of SolarWindow development at the University of South Florida (“USF”). NES intellectual property jointly developed with USF was abandoned due to obsolescence of the early stage technology and due to the Company terminating a research and licensing agreement on February 18, 2015, which originated on June 21, 2010. Neither KEC nor NES has operating activity for the years ended August 31, 2019 and 2018.

 

F-7

 

As a result, the financial statements presented are solely those of SolarWindow Technologies, Inc.

 

Use of Estimates

 

The preparation of the Company’s 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.

 

Cash and Cash Equivalents

 

The Company considers cash deposits to be cash and all highly liquid investment instruments with original maturities of 90 days or less when purchased, to be cash equivalents. Cash deposits are carried at cost which approximates their fair value.

 

The Company had $16,604,011 of cash deposits as of August 31, 2019, including $84,905 in domestic bank accounts and $16,519,106 held in Canadian bank accounts in excess of Canadian Deposit Insurance Corporation insured limits.

 

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 (years)
Computer equipment and software   3
Equipment, furniture and fixtures   5

 

Patent and Trademark Costs

 

Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.

 

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.

 

F-8

 

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 accounts 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.

 

Stock-Based Compensation

 

The Company recognizes compensation expense for all stock-based payment awards made to the Company’s employees, consultants and directors that are expected to vest based on estimated fair values. The valuation of stock option awards is determined at the date of grant using the Black-Scholes Option Pricing Model (the “Black-Scholes Model”). This model requires the use of the following assumptions: expected volatility of our common stock, which is based on our own calculated historical rate; expected life of the option award, which we elected to calculate using the simplified method; expected dividend yield, which is 0%, as we have not paid and do not have any plans to pay dividends on our common stock; and the risk-free interest rate, which is based on the U.S. Treasury rate in effect at the time of grant with maturities equal to the stock option award’s expected life. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation expense for future awards may differ materially compared to awards previously granted previously.

 

The Company records compensation expense for service-based awards over the vesting period of the award on a straight-line basis. Stock-based compensation expense is recorded net of forfeitures as they occur. For awards with performance-based conditions, at the point that it becomes probable that the performance conditions will be met, the Company records a cumulative catch-up of the expense from the grant date to the current date, and then amortizes the remainder of the expense over the remaining service period. Management evaluates when the achievement of a performance-based condition is probable based on the expected satisfaction of the performance conditions as of the reporting date. The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. See “NOTE 6 – Common Stock and Warrants” and “NOTE 7 - Stock Options” for additional information on the Company’s stock-based compensation plans.

 

Income Taxes

 

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

 

F-9

 

Segment Reporting

 

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

 

Net Income (Loss) Per Share

 

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

 

Following is the computation of basic and diluted net loss per share for the years ended August 31, 2019 and 2018:

 

    Years Ended August 31,
    2019   2018
Basic and Diluted EPS Computation                
Numerator:                
Loss available to common stockholders'   $ (6,887,678 )   $ (6,854,547 )
Denominator:                
Weighted average number of common shares outstanding     48,986,720       36,020,453  
Basic and diluted EPS   $ (0.14 )   $ (0.19 )
                 
The shares listed below were not included in the computation of diluted losses
per share because to do so would have been antidilutive for the periods presented:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock options     2,777,334       1,291,334  
Warrants     19,483,517       2,816,850  
Convertible debt     -       3,165,800  
Warrants issuable upon conversion of debt (See "Note 4 - Debt")     -       3,165,800  
Total shares not included in the computation of diluted losses per share     22,260,851       10,439,784  

 

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 Financial Statements.

 

F-10

 

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 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 8 – 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.

 

NOTE 3 – Equipment

 

Equipment consists of the following:

 

    August 31,
    2019   2018
Computers, office equipment and software   $ 18,678     $ 17,119  
Furniture and fixtures     12,634       -  
Product development and manufacturing equipment     113,820       73,004  
In process equipment     1,292,655       -  
Total equipment     1,437,787       90,123  
Accumulated depreciation     (68,858 )     (50,509 )
Equipment, net   $ 1,368,929     $ 39,614  

 

During the year ended August 31, 2019 and 2018, the Company purchased $1,347,664 and $2,581 of equipment, respectively. During 2019, the Company made payments totaling $1,292,655 towards the purchase of manufacturing equipment with an estimated total cost of $1,803,000. 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”. The remaining $510,345 is expected to be paid upon completion of the equipment sometime in January of 2020.

 

F-11

 

NOTE 4 - Debt

 

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

 

    Issue   Maturity       Debt       Interest
    Date   Date   Principal   Discount   Balance   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 years ended August 31, 2019 and 2018, the Company recognized $19,691 and $73,332, 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 years ended August 31, 2019 and 2018, the Company recognized $108,548 and $404,234, respectively, of interest expense. Accretion of the debt discount related to the 2013 Note as amended amounted to $663,918 and $823,724 during the years ended August 31, 2019 and 2018, respectively.

 

F-12

 

NOTE 5 – 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.

 

September 2017 Private Placement

 

On September 11, 2017, the Company initiated and on September 29, 2017, completed a self-directed offering of 821,600 units at a price of $3.11 per unit for $2,555,176 in aggregate proceeds (the “September 2017 Private Placement”). The unit price was based on a 15% discount to the average of the 30-day closing price (last day being Friday September 8, 2017) of the Company's common stock as reported on the OTCQB. Each unit consisted of one share of common stock and one Series S Stock Purchase Warrant (each, a “Series S Warrant”) to purchase one (1) share of common stock at an exercise price of $3.42 per share through September 29, 2022. The warrants may be exercised upon issuance and on a cashless basis. All the units were purchased by unrelated parties.

 

The S Warrants were accounted for pursuant to ASC 470-20-25-2. The relative fair value of the common stock was estimated to be $1,540,000. The relative fair value of the Series S Warrants was estimated to be $1,015,000 as determined based on the relative fair value allocation of the proceeds received. The Series S Warrants were valued using the Black-Scholes option pricing model using the following variables: market price of common stock - $3.95 per share; estimated volatility – 77.96%; 5-year risk free interest rate – 1.71%; expected dividend rate - 0% and expected life - 5 years.

 

NOTE 6 – Common Stock and Warrants

 

Common Stock

 

At August 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 1,064,085 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 7 - Stock Options”).

 

During the year ended August 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 5 – Private Placements”).

 

F-13

 

During the year ended August 31, 2018, we entered into the following securities related transactions:

 

On September 29, 2017, the Company completed the September 2017 Private Placement of 821,600 units at a price of $3.11 per unit for $2,555,176 in aggregate proceeds. Each unit consisted of one share of common stock and one Series S Stock Purchase Warrant to purchase one (1) share of common stock at an exercise price of $3.42 per share through September 29, 2022. The warrants may be exercised on a cashless basis (See “NOTE 5 – Private Placements”).

 

On November 21, 2017 each director was granted 40,000 shares of common stock for a total issuance of 160,000 shares of common stock valued at $4.87 per share, the fair market value of our common stock on the date of issuance. Additionally, on November 21, the Company issued Jatinder Bhogal, Director, an additional 50,000 shares valued at $4.87 per share. 75% of the 210,000 issued shares are subject to a one-year lock-up.

 

From September 6, 2017 through October 30, 2017, holders of our Series O Warrants exercised 80,000 warrants at an exercise price of $3.10 per share resulting in $248,000 to the Company and the issuance of 80,000 shares of common stock.

 

On September 7, 2017, John Conklin, the Company’s President & CEO, exercised 100,000 stock purchase options on a cashless basis resulting in the issuance of 46,097 shares of common stock. On January 4, 2018, Mr. Conklin exercised 50,000 stock purchase options on a cashless basis resulting in the issuance of 34,013 shares of common stock.

 

On December 28, 2017, Alastair Livesey, a Company Director, exercised 36,667 stock purchase options on a cashless basis resulting in the issuance of 19,067 shares of common stock.

 

From September 7, 2017 through April 13, 2018, three other individuals exercised a total of 105,000 stock purchase options on a cashless basis resulting in the issuance of 46,985 shares of common stock.

 

On September 7, 2017, the Investor exercised their outstanding Series Q Warrant to purchase up to 468,750 shares of the Company’s common stock on a cashless basis, resulting in the issuance of 189,940 shares of common stock.

 

On September 7, 2017, a third party exercised their outstanding Series Q Warrant to purchase up to 468,750 shares of the Company’s common stock on a cashless basis, resulting in the issuance of 189,940 shares of common stock.

 

On December 28, 2017, a third party exercised their outstanding Series R Warrant to purchase up to 468,750 shares of the Company’s common stock on a cashless basis, resulting in the issuance of 285,823 shares of common stock.

 

From December 1, 2017 through April 30, 2018, holders of our Series P Warrants exercised 39,500 warrants at an exercise price of $3.70 per share resulting in $146,150 to the Company and the issuance of 39,500 shares of common stock.

 

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 August 31, 2019 and 2018 is as follows:

 

F-14

 

    Shares of Common Stock Issuable from Warrants Outstanding as of   Weighted
Average
       
    August 31,   Exercise   Date of    
Description   2019   2018   Price   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                  

 

NOTE 7 - Stock Options

 

Stock option grants pursuant to the 2006 Plan vest either immediately or over one to five years and expire from six to ten years after the date of grant. Stockholders previously approved 5,000,000 shares for grant under the 2006 Plan, of which 1,064,085 remain available for grant, 1,305,001 have been exercised in total with 629,677 net shares (due to a cashless exercise feature) issued pursuant to such exercises of vested options from inception of the 2006 Plan through August 31, 2019. 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.

 

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

 

    Years Ended August 31,
    2019   2018
Expected dividend yield            
Expected stock price volatility   87.42 87.84%   83.43% 83.55%
Risk-free interest rate     1.84%     2.27% - 2.33%
Expected term (in years)   4.5 5.0     7.67  
Exercise price     $3.54     $4.87 - $5.35
Weighted-average grant date fair-value   $2.35 $2.43   $3.76 - $5.64

 

A summary of the Company’s stock option activity for the years ended August 31, 2019 and 2018 and related information follows:

 

    Number of Shares Subject to Option Grants   Weighted Average Exercise Price ($)   Weighted Average Remaining Contractual Term (years)   Aggregate Intrinsic Value ($)
Outstanding at August 31, 2017     2,125,001       2.84                  
Grants     1,263,000       5.25                  
Exercises     (291,667 )     3.32                  
Forfeitures and cancellations     (1,805,000 )     2.74                  
Outstanding at August 31, 2018     1,291,334       5.22                  
Grants     1,506,000       3.54                  
Forfeitures and cancellations     (20,000 )     4.87                  
Outstanding at  August 31, 2019     2,777,334       4.31       8.33       0  
Exercisable at  August 31, 2019     1,716,234       4.17       9.00       0  

 

F-15

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value for all “in-the-money” options (i.e. the difference between the Company’s closing stock price on the last trading day of the period covered by this report and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all in-the-money option holders exercised their vested options on August 31, 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 $2.71 on August 30, 2019 and no outstanding options have an exercise price below $2.719 per share, as of August 31, 2019, there is no intrinsic value to the Company’s outstanding stock options.

 

Year Ended August 31, 2019

 

On July 5, 2019, the Company’s Board granted 498,000 options to directors and employees with an exercise price of $3.54, vesting at the rate of 1/20th per quarter and six year term. Additionally, on July 5, 2019, the Board granted to Jatinder Bhogal, Director, 1,008,000 stock purchase options with an exercise price of $3.54, exercisable on a cashless basis, ten year term and immediate vesting of the entire grant.

 

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.

 

Year Ended August 31, 2018

 

On November 21, 2017, the Company’s Board granted 255,000 options to directors and employees with an exercise price of $4.87.

 

On December 27, 2017, the Company entered into an employment agreement with John Conklin pursuant to which Mr. Conklin was granted 1,008,000 stock purchase options with an exercise price of $5.35 per share, vesting at the rate of 1/48th per month and exercisable on a cashless basis. Mr. Conklin’s prior employment agreement expired on December 31, 2017 resulting in the forfeiture of 300,000 options with a performance condition that was not achieved.

 

During the year ended August 31, 2018, there were 291,667 options exercised on a cashless basis resulting in the issuance of 146,162 shares of common stock and 5,000 unvested options forfeited resulting in a reduction to stock compensation expense of $5,157. The aggregate intrinsic value of the options exercised was $1,045,135.

 

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 Statements of Operations for the years ended August 31, 2019 and 2018:

 

    Years ended August 31,
    2019   2018
Stock based compensation expense related to the following:                
Stock Options:                
SG&A   $ 2,993,532     $ 1,018,351  
R&D     965,835       796,974  
Total     3,959,367       1,815,325  
Restricted stock issuances:                
SG&A     -       1,022,700  
R&D     -       -  
Total     -       1,022,700  
Total stock based compensation expense   $ 3,959,367     $ 2,838,025  

 

As of August 31, 2019, the Company had $4,427,233 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 4.75 years.

 

F-16

 

The following table summarizes information about stock options outstanding and exercisable at August 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       7.21       3.28       7,500       7.21       3.28  
3.46     35,000       6.35       3.46       35,000       6.35       3.46  
3.54     1,506,000       8.53       3.54       1,032,900       9.76       3.54  
4.87     187,500       8.23       4.87       187,500       8.23       4.87  
5.35     1,008,000       8.35       5.35       420,000       8.35       5.35  
5.94     33,334       1.32       5.94       33,334       1.32       5.94  
Total     2,777,334       8.33       4.31       1,716,234       9.00       4.17  

 

NOTE 8 – 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 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 August 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:

 

    Years Ended August 31,
    2019   2018
Operating lease cost   $ 8,888     $ -  
Short-term lease costs     -       12,000  
Total net lease costs   $ 8,888     $ 12,000  

 

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

 

    As of August 31, 2019
     
Operating lease right-of-use asset   $ 65,646  
         
Current maturities of operating lease   $ 23,169  
Non-current operating lease     42,564  
     Total operating lease liabilities   $ 65,733  
         
Weighted Average remaining lease term (in years):     2.9  
Discount rate:     5.85 %

 

F-17

 

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 balance sheets as of August 31, 2019 are as follows:

 

    Amount
2020   $ 26,400  
2021     26,664  
2022     18,128  
Total lease payments     71,192  
Less: Imputed interest     (5,458 )
Total lease obligation     65,733  
Less: current lease obligations     23,169  
Long term lease obligations   $ 42,564  

 

NOTE 9 - 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 former 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 as the Company’s General Counsel. During our fiscal year ended August 31, 2019 (from September 1, 2018 through October 22, 2018, the date of Mr. Sierchio’s resignation from the Board) and 2018, the Company recognized $3,480 and $257,983, respectively of fees for legal services billed by firms associated with Mr. Sierchio.

 

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.

 

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 years ended August 31, 2019 and 2018, the Company recognized $183,750 and $60,000 of expense in connection with the Consulting Agreement.

 

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 6 – Common Stock and Warrants”. For additional information related to our debt, please see “NOTE 4 – Debt”.

 

F-18

 

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 10 – Income Taxes

 

On December 22, 2017, the Tax Cuts and Jobs Act (“The Act”) was enacted into law. The Act applies to corporations generally beginning with taxable years starting after December 31, 2017 and reduces the corporate tax rate from a graduated set of rates with a maximum 35% tax rate to a flat 21% tax rate. Additionally, the Act introduced other changes that impacted corporations, including a net operating loss (“NOL”) deduction annual limitation, an interest expense deduction annual limitation, elimination of the alternative minimum tax, and immediate expensing of the full cost of qualified property. The Act also introduced an international tax reform that moved the U.S. toward a territorial system, in which income earned in other counties will generally not be subject to U.S. taxation. However, the accumulated foreign earnings of certain foreign corporations were subject to a one-time transition tax, which can be elected to be paid over an eight-year tax transition period, using specified percentages, or in one lump sum. NOL and foreign tax credit (“FTC”) carryforwards can be used to offset the transition tax liability. This change had no impact on the Company as it has not earned taxable income in the past and it has significant NOL carryforwards. As a result of the Tax Act, deferred tax assets decreased by approximately $4,074,000 during the year ended August 31, 2018, with an offsetting decrease to the valuation allowance with no effect on the Statement of Operations.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets at August 31, 2019 and 2018 are as follows:

 

    2019   2018
Deferred tax assets:                
Net operating loss carryforwards   $ 5,901,666     $ 4,955,211  
Capitalized research and development     1,014,380       992,354  
Depreciation     (7,353 )     (6,314 )
Stock based compensation     1,983,425       1,151,958  
Interest expense     -       283,307  
Research and development credit carry forward     599,646       520,665  
Total deferred tax assets     9,491,764       7,897,181  
Less: valuation allowance     (9,491,764 )     (7,897,181 )
Net deferred tax asset   $ -     $ -  

 

The net increase in the valuation allowance for deferred tax assets was $1,594,583 during the year ended August 31, 2019 compared to a decrease of $2,550,704 for the year ended August 31, 2018. During the year ended August 31, 2018, the decrease in the valuation allowance was primarily due to the change in the corporate tax rate from 34% to 21%. The Company evaluates its valuation allowance requirements on an annual basis based on projected future operations. When circumstances change and this causes a change in management’s judgment about the realizability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current operations.

 

For federal income tax purposes, the Company has net U.S. operating loss carry forwards at August 31, 2019 available to offset future federal taxable income, if any, of $28,103,171. Accordingly, there is no tax expense for the years ended August 31, 2019 and 2018. In addition, the Company has research and development tax credit carry forwards of $599,646 at August 31, 2019, which are available to offset federal income taxes.

 

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

 

F-19

 

The effects of state income taxes were insignificant for the years ended August 31, 2019 and 2018.

 

The following is a reconciliation between expected income tax benefit and actual, using the applicable statutory income tax rate of 21% for the year ended August 31, 2019 and 2018:

 

    2019   2018
Income tax benefit at statutory rate   $ 1,446,412     $ 1,737,285  
Permanent differences     69,190       (296,092 )
Change in federal statutory rate     -       (4,074,264 )
Research and development credit     78,981       82,367  
Change in valuation allowance     (1,594,583 )     2,550,704  
    $ -     $ -  

 

The fiscal years 2017 through 2019 remain open to examination by federal authorities and other jurisdictions in which the Company operates.

 

The Company does not have any uncertain tax positions at August 31, 2019 and 2018 that would affect its effective tax rate. The Company does not anticipate a significant change in the amount of unrecognized tax benefits over the next twelve months. Because the Company is in a loss carryforward position, the Company is generally subject to US federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available. If and when applicable, the Company will recognize interest and penalties as part of income tax expense.

 

NOTE 11 – Quarterly Financial Data (Unaudited)

 

The following is the quarterly financial data for the years ended August 31, 2019 and 2018:

 

    2019
    First Quarter   Second Quarter   Third Quarter   Fourth Quarter   Year
Revenue   $ -     $ -     $ -     $ -     $ -  
Net loss     (1,686,916 )     (826,836 )     (987,342 )     (3,386,584 )     (6,887,678 )
Basic and diluted loss per share   $ 0.03     $ 0.02     $ 0.02     $ 0.06     $ 0.14  

 

    2018
    First Quarter   Second Quarter   Third Quarter   Fourth Quarter   Year
Revenue   $ -     $ -     $ -     $ -     $ -  
Net loss     (2,699,153 )     (1,489,463 )     (1,444,896 )     (1,221,035 )     (6,854,547 )
Basic and diluted loss per share   $ (0.08 )   $ (0.04 )   $ (0.04 )   $ (0.03 )   $ (0.19 )

 

NOTE 12 – Subsequent Events

 

Management has reviewed material events subsequent of the period ended August 31, 2019 and through the date of filing of financial statements in accordance with FASB ASC 855 “Subsequent Events”. In managements opinion, no material subsequent events have occurred as of the dte of this annual report.

 

 

F-20

 

 

SolarWindow Technologies, Inc. (USOTC:WNDW)
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