Item1A. Risk Factors
RISK FACTORS
The following risk factors and the forward-looking statements
elsewhere in this Report on Form 10-K 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 These risk factors may be amended, supplemented or superseded from time to time in filings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.
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 $7,353,062 and
$6,887,678 for our fiscal years ended August 31, 2020 and 2019.
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 August 31, 2020, we had 52,959,323 shares
issued and outstanding, of which 31,306,805 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 has sufficient cash to meet its funding requirements over the next twelve months following the issuance
of this Annual Report, 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 financial or strategic investors. 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 SolarWindowTM 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. We have come to the point where larger, faster, and more precise equipment
is necessary for all facets of technology and product development to continue and to be able to come to market with a commercially
viable product. We, however, cannot accurately predict the amount of funding or the time required to successfully commercialize
the SolarWindowTM 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.
Due to the fact that all but one of our
five 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 five directors, only one
of whom is an employee. Mr. Jatinder S. Bhogal, our President and Chief Executive Officer, does and will continue to provide his
full-time efforts to our business activities. While our four (4) other Directors intend to devote as much time as necessary to
the success and development of SolarWindowTM 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 impact 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 SolarWindowTM
technology will require significant further research, development and testing as we must ascertain whether the SolarWindowTM
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 SolarWindowTM 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 remaining engaged in technology and
initial product development for (a) specific product(s) through at least December 2021.
The development of the SolarWindowTM
technology is subject to the risks of failure inherent to the development of any novel technology.
Ultimately, the development and commercialization
of the SolarWindowTM 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:
If we ultimately do not obtain the necessary
regulatory and safe operation approvals for the commercialization of the SolarWindowTM technology, we will not achieve profitable
operations and your investment may be lost.
In order to commercialize the SolarWindowTM
technology, we may need to obtain regulatory approval from various local, state, federal or international agencies; or approval
from global safety certifying organizations that will certify safe operation of our products. At this time, we do not have a product
to be submitted for regulatory or safe operating approval. The process for obtaining these 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 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 SolarWindowTM 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 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 SolarWindowTM technologies, applications, processes, and products, as we deem appropriate. We may, however, fail to apply
for patents on important technologies, products, or processes in a timely manner, 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, processes, or 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 and regulations or policies 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 file patent applications for these inventions;
· any of our pending patent applications will result in issued patents;
· any of our patents will be valid or enforceable;
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 may 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.
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 SolarWindowTM
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 to human health and/or the environment.
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 unintentionally 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, environmental, or safety & health 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, or failing to plan for possible
changes in these laws could harm our business, financial condition and results of operations. Currently, 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;
· has the ability to endure potentially prolonged patent litigation.
As a result, we may not be able to compete
effectively against these companies or their products.
Any products developed from our SolarWindowTM
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 Solar, Sharp,
GE, Mitsubishi, Solar World AG, Sanyo, Ubiquitous Energy, Oxford PV, ONYX Solar, Next Energy Technologies, and 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 SolarWindowTM 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 additional technology research & development, 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 hindered or rendered obsolete by the technological advances of others, and other technologies may prove more advantageous
for the commercialization of transparent electricity-generating products.
To the extent we are able to develop
and commercialize products based upon or derived from the SolarWindowTM 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, architectural and engineering acceptance of our products;
If our products fail to gain market acceptance, we will be
unable to achieve sales, market share, or profitability.
If organic solar photovoltaic light energy
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 SolarWindowTM 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 well established.
The success of products for these markets is uncertain.
If our SolarWindowTM OPV solar power or
light 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:
· fluctuations in the prices of fossil fuels or their derivatives;
Our growth and success, and that of the
SolarWindowTM 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,
technical, and scientific personnel (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 SolarWindowTM technologies and products. A key risk is our ability to anticipate our needs for
certain key competences and to implement human resource solutions to recruit and hire, or improve these competences. If we are
not successful in hiring and retaining qualified Personnel our ability to execute on our business model and strategy will be adversely
affected and our ability to achieve profitability compromised.
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 control and assurance procedures, SolarWindowTM products may not operate properly or could contain design or fabrication
faults or defects, which could give rise to disputes in respect of its performance, degradation and reliability 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 SolarWindowTM technology and
products will be subject to environmental, occupational safety & health, Underwriter Laboratory (UL) Certification, European
Conformity (CE) Certification, electrical codes, and other state and federal, European Union (EU), and other Country regulations.
Our SolarWindowTM 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 have a structured finance program, or 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 SolarWindowTM technology or related product deployment.
Our financial model may prove to be inaccurate
and our SolarWindowTM technology or related products may not be cost effective.
Although our independently verified Model has
shown that our SolarWindowTM 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 SolarWindowTM technology or related product may not provide potential customers
with sufficient ROI or IRR to be a cost-effective alternative when compared to other 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 SolarWindowTM technologies or products.
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 SolarWindowTM 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 SolarWindowTM 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 SolarWindowTM processes and
technologies is a crucial strategic concern, with mounting pressure to meet anticipated power, financial, and ROI and IRR for our
manufacturers, or sales and distribution channels. If we are unable to integrate of process and/or technologies into industry,
SolarWindowTM product innovation can rapidly become obsolete. SolarWindowTM processes and supply chains are highly complex
and continuously exposed to a variety of risks such as microeconomics, macroeconomic, face geopolitical pressures, regulatory requirements,
environmental risk and responsibilities, construction risk, and emerging markets. Integration of the company SolarWindowTM
processes is critical to product development and revenue generation. If the process cannot be integrated into industry, products,
or brought to market in a timely manner, the Company, its potential SolarWindowTM products, and ability to operate may be
threatened. At this time, the integration of SolarWindowTM 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.
A novel strain of coronavirus,
the COVID-19 virus, may adversely affect our business operations and financial condition.
In December 2019, an outbreak of the COVID-19 virus was reported
in Wuhan, China. On March 11, 2020, the World Health Organization declared the COVID-19 virus a global pandemic and on March 13,
2020, President Donald J. Trump declared the virus a national emergency in the United States. This highly contagious disease has
spread to most of the countries in the world and throughout the United States, creating a serious impact on customers, workforces
and suppliers, disrupting economies and financial markets, and potentially leading to a world-wide economic downturn. It has caused
a disruption of the normal operations of many businesses, including the temporary closure or scale-back of business operations
and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or
on a voluntary basis. The pandemic may adversely affect our operations, our employees and our employee productivity. It may also
impact the ability of our subcontractors, partners, and suppliers to operate and fulfill their contractual obligations, and result
in an increase in costs, delays or disruptions in performance. Our employees are working remotely and using various technologies
to perform their functions. In reaction to the spread of COVID-19 in the United States, many businesses have instituted social
distancing policies, including the closure of offices and worksites and deferring planned business activity. The disruption and
volatility in the global and domestic capital markets may increase the cost of capital and limit our ability to access capital.
Both the health and economic aspects of the COVID-19 virus are highly fluid and the future course of each is uncertain. For these
reasons and other reasons that may come to light if the coronavirus pandemic and associated protective or preventative measures
expand, we may experience a material adverse effect on our business operations, revenues and financial condition, and development;
however, its ultimate impact is highly uncertain and subject to change.
We have recently expanded our operations
to Asia and have established offices in the Republic of Korea, where we have limited experience in intellectual property, manufacturing,
regulatory compliance, and sales, thus exposing us to certain risks inherent in doing business internationally, which may adversely
affect our business, results of operations or financial condition.
Having established
offices in the Republic of Korea from which we will endeavor to expand into other Asian countries, we will now be faced with risks
which previously were of little or no import to us but which now could have a material impact on our overall operations and ultimate
success. These new risks, include:
· disruptions in or inadequate infrastructure of the countries where we operate;
· difficulties in staffing and managing international operations; and
· the burden of complying with foreign and international laws and treaties.
Changes in regulatory,
geopolitical, social, economic, or monetary policies and other factors, if any, may have a material adverse effect on our business
in the future, or may require us to exit a particular market or significantly modify our current business practices. Abrupt political
change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, which could also
result in an adverse effect on our business and results of operations.
Moreover, as we move
forward with our strategy of expanding into Asian markets, our operations and performance will become significantly more dependent
on worldwide economic conditions. Uncertainty about global economic conditions ultimately could have a material negative effect
on demand for our products and services and, accordingly, on our business, results of operations or financial condition.
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.
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:
· submit an application to OTCQB and pay an application and annual fee; and
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.
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 August 31, 2020, we had 52,959,323 shares
issued and outstanding, of which 31,306,805 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, our former Chairman and former director, beneficially owns approximately
75.78% 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 54,200,849
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 75.78%, of our outstanding common stock, on a fully
diluted basis.
As a result, Mr. Rayat, having voting control
of 35,638,931 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 of Director (“Board”)
proposals that are subject to stockholder approval, such as the adoption of employee stock plans and significant unregistered financing
transactions.
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 (“SOX”),
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 SOX, 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.
A significant requirement that applies to accelerated
and large accelerated filers under SOX 404(c), but not to non-accelerated filers, is the requirement that accelerated and large
accelerated filers have an internal control over financial reporting (“ICFR”) auditor attestation. An ICFR auditor
attestation requires the independent accounting firm that prepares or issues the issuer’s financial statement audit report
to also attest to, and report on, management’s assessment of the effectiveness of the issuer’s ICFR. SOX Section 404(c),
however, exempts non-accelerated filers from the ICFR auditor attestation requirement. As a result of our public float exceeding
$75 million (prior to the rule change described below) on February 28, 2018, for our year ended August 31, 2018, the Company was
subject to SOX 404(b).
On March 12, 2020, the SEC approved amendments
to Rule 12b-2 that excludes from the definitions of “accelerated filer” and “large accelerated filer” any
issuer that is eligible to be a smaller reporting company (“SRC”) and had revenues of less than $100 million in the
most recent fiscal year for which audited financial statements are available. These amendments align the June 2018 amendments to
Rule 12b-2 that raised the cap for status as an SRC from less than $75 million in public float to less than $250 million.
The June 2018 amendments also designated as SRCs companies with less than $100 million in annual revenues if they also had either
no public float or a public float of less than $700 million. As a result of the recent amendments to the definition of an SRC and
the resulting increase in the thresholds in revenue and public float value, the Company is not subject to the attest requirements
of SOX 404(b). However, should our fiscal year revenues exceed $100 million and our second quarter public float exceed $250 million,
the Company will again be subject to SOX 404(b).
There are options to purchase shares
of our common stock currently outstanding.
As of August 31, 2020, 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 7,804,734
shares of our common stock. The exercise prices of these options range from $2.32 to $8.00 per share. 7,279,334 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 August 31, 2020, 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
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 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.
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 SOX, 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