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
SolarWindow Technologies, Inc. is a developer
of transparent electricity-generating coatings (“LiquidElectricityTM Coatings”). When applied in ultra-thin layers
to rigid glass, and flexible glass and plastic surfaces our LiquidElectricityTM Coatings transform otherwise ordinary surfaces
into photovoltaic devices capable of generating electricity from natural sun, artificial light, and low, shaded, or reflected light
conditions while maintaining transparency.
We have overcome major technical challenges
and achieved many important milestones resulting in an expansion of the potential applications of LiquidElectricityTM Coatings.
Potential applications of LiquidElectricityTM Coatings span multiple industries, including architectural, automotive, agrivoltaic,
aerospace, commercial transportation and marine. Our LiquidElectricityTM Coatings and SolarWindowTM products are under
development with support from commercial contract firms and at the U.S. Department of Energy’s National Renewable Energy
Laboratory, through Cooperative Research and Development Agreements.
Research and Related Agreements
We are a party to certain agreements related
to the development of our SolarWindowTM 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 SolarWindowTM technology. Under terms of the NREL CRADA, NREL researchers 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, established by the Company. 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 March 6, 2013, we entered into Phase II of
our NREL CRADA. Under the terms of the agreement, researchers will additionally work towards:
· further improving SolarWindowTM technology efficiency and transparency;
· optimizing electrical power (current and voltage) output;
· optimizing SolarWindowTM coating performance on flexible substrates; and
On December 28, 2015, we entered into another
modification to the NREL CRADA (the “Modification”). Under the Modification, (i) the date of completion was
extended to December 2019; and (ii) the Company and the NREL will work jointly towards achieving specific product development goals
and objectives for the purpose of preparing to commercialize our OPV-based SolarWindowTM transparent electricity-generating
coatings for various applications, including BIPV, glass and flexible plastics.
Over the course of our collaborative research
and development efforts with the NREL under the CRADA, both parties have agreed to modifications to extend the date of completion.
The Company and NREL have entered into eight such No Cost Time Extensions (“NCTE”). Under the terms of each
NCTE, all terms and conditions of the NREL CRADA remain in full force and effect without change. The current NCTE was executed
on September 15, 2020 and extends the date of completion to December 31, 2021. As of August 31, 2020, the Company had a capitalized
asset balance of $574,731 related to deferred research and development costs for advances to Alliance for Sustainable Energy for
work to be performed under the NREL CRADA.
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 it’s
first-ever AMM CRADA by the DOE EERE AMO. SolarWindow was awarded the AMM 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 ORNL and
partnering with ANL, LBNL, and NREL. The AMM CRADA will be carried out with the DOE by SolarWindow, ANL, and NREL.
On September 15, 2020, we entered into NCTE
that extends the date of completion to December 31, 2021 pursuant to which researchers work towards specific product development
goals outlined in the AMM CRADA.
Through the developments of AMM CRADA, the Company
accomplished initiatives to improve and optimize its laser patterning system and methods of fabrication for our electricity-generating
coatings on flexible plastics. Once optimized for industry, this advancement is expected to reduce process time, improve device
performance, and reduce costs of SolarWindowTM electricity-generating plastic products. Another objective of the AMM CRADA
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, 2020 compared to the year ended August 31, 2019
Operating Expenses
A summary of our operating expenses for the years ended August 31,
2020 and 2019 follows:
Year Ended August 31, Increase / Percentage
Operating expenses:
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, 2020 compared to the year ended August 31, 2019, SG&A costs increased due primarily to a $121,554 increase in personnel
costs and $72,612 increase in other administrative costs offset by a decrease of $97,236 of professional costs.
Research and Product Development
Research and Product Development (“R&PD”)
costs represent costs incurred to develop our SolarWindowTM 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&D personnel, allocated overhead, contract services and other costs. R&PD costs are
expensed when incurred, except for non-refundable advance payments for future research and development activities which are capitalized
and recognized as expense as the related services are performed. During the year ended August 31, 2020 compared to the year ended
August 31, 2019, R&PD costs increased primarily as a result of a $272,860 increase in personnel costs and $88,053 increase
in CRADA costs offset by a decrease of $178,787 in other R&PD related costs.
Stock Based Compensation
The Company grants stock options to its Directors,
employees and consultants. Stock compensation represents the expense associated with the amortization of our stock options. Expense
associated with equity-based transactions is calculated and expensed in our financial statements as required pursuant to various
accounting rules and is non-cash in nature. Stock based compensation expense increased due primarily to the Company entering into
an Executive Consulting Agreement with each of Mr. Jatinder S. Bhogal, President and CEO and Mr. John Rhee, Director, pursuant
to which each party was granted 2,500,000 stock purchase options.
Other Income (Expense)
A summary of our other income (expense) for
the years ended August 31, 2020 and 2019 follows:
Year Ended August 31, 2020 compared
Other income (expense)
“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. As a result
of the financing received by the Company on November 26, 2018, all outstanding debt was converted 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 – November 2018 Private Placement”
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, 2020, the Company had $14,151,523 of cash compared to $16,604,011 as of August 31, 2019. We have financed
our operations primarily from the sale of equity and debt securities. We expect the cost of funding the South Korea office to be
approximately $850,000 over the twelve months ended August 31, 2021.
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, 2020 compared
Operating Activities
Net cash used in operating activities decreased
3.8% to $2,447,457 for the year ended August 31, 2020 as compared to $2,545,151 for the year ended August 31, 2019.
Investing Activities
Net cash used in investing activities totaled
$5,031 for the year ended August 31, 2020 as compared to $$1,347,664 for the year ended August 31, 2019. The $1,342,633 decrease
was the result of prior year purchases of computer and equipment, furniture and various production and R&D equipment, including
payments totaling $1,292,655 towards the purchase of manufacturing equipment with an estimated total cost of $1,803,000. The finalization
of that equipment to meet our process and product fabrication standards and requirements has been pushed out due to the effects
of the pandemic on our ability to secure a development and manufacturing partner.
Financing Activities
Net cash provided by financing activities totaled
$0 for the year ended August 31, 2020, compared to $19,800,000 for the year ended August 31, 2019. During the year ended August
31, 2019, the Company received proceeds of $19,800,000 from the November 2018 Private Placement.
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.
In September 2020, the Company, through its
wholly owned subsidiaries, SolarWindow Asia (USA) Corp. and SolarWindow Asia Co., Ltd., entered a lease for office space in South
Korea. The lease has a term of one year from September 23, 2020 through September 23, 2021 with monthly payments of approximately
$1,200.
During fiscal 2019 the Company made payments
totaling $1,292,655 towards the purchase of manufacturing equipment with an estimated total cost of $1,803,000. The remaining $510,345
will be paid upon the completion of the equipment once the final specifications have been determined pending optimization of the
Company’s product iteration specific to this equipment. 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, 2020 and 2019.
Recently Issued Accounting Standards
For more information regarding recent accounting
standards and their impact to our results of operations and financial position, see “Note 2- Summary of Significant Accounting
Policies” to our Financial Statements.
Critical Accounting Policies
Our discussion and analysis of our financial
condition and results of operations are based upon our Financial Statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and
the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on its 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.
We believe the following critical accounting
policies and estimates affect the preparation of our financial statements:
Stock Based Compensation
Pursuant to the provisions of the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 718-10, Compensation-Stock
Compensation, which establishes accounting for share-based payment transactions for acquiring goods and services from employees
and nonemployees, we utilize the Black-Scholes option pricing model to estimate the fair value of employee stock option awards
at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life.
Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation.
These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value,
some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical
experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment,
based on relevant facts and circumstances.
New Accounting Standards to be Adopted Subsequent to August
31, 2020
In August 2020, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update No. 2020-06, “Debt—Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible
instruments by removing major separation models required under current U.S. GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings
per share calculation in certain areas. ASU 2020-06 is effective for the Company for fiscal years beginning after August 31, 2021,
including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after
December 15, 2020 and adoption must be as of the beginning of the Company’s annual fiscal year. The Company will early adopt
ASU 2020-06 beginning with our fiscal year starting on September 1, 2021. We do not expect the adoption of ASU 2020-06 to have
a material impact on our consolidated financial statements.
Related Party Transactions
For a discussion of our Related Party Transactions,
see “Note 9 - Transactions With Related Persons” to our Financial Statements included elsewhere in this Annual
Report on Form 10-K.
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.
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, 2020. 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, 2020.
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, 2020, 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, 2020.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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 the controls over our financial reporting and disclosure processes, as applicable, in order to meet the needs of
our organization.
ITEM 9B. OTHER
INFORMATION
None.
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 five 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
John A. Conklin 61 Chief Technology Officer August 9, 2010
Gary Parmar, CPA, CA 49 Director, Audit Committee Chair June 14, 2019
Bob Levine 71 Director December 7, 2018
Joseph Sierchio 71 Director October 1, 2020
Business Experience
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
Jatinder S. Bhogal. Mr. Jay (Jatinder)
S. Bhogal 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. Mr. Bhogal serves as our
President, Chief Executive Officer and Chairman.
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.
Justin Frere, CPA. Mr. Frere has served
as the Company’s Controller since August of 2011 and was appointed Secretary and Interim Chief Financial Officer on July
5, 2019 and July 22, 2020, respectively. 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 for numerous
public entities. 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 and interacting with auditors and the SEC in support of public company
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 and MBA from San Diego State University.
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.
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.
John Rhee. Mr. Rhee has more than 20
years of experience helping businesses in a variety of industries in the areas of strategic financing, mergers and acquisitions
and portfolio management. Since 2013, Mr. Rhee has served as Chairman and Managing Director of Stratis Impact a Private Equity
firm located in Hong Kong. From 2009 to 2013, Mr. Rhee served the Korean Ministry of Culture as a Senior Adviser and from 2004
to 2010 in various roles including Executive Director for Investment at Softbank. Mr. Rhee holds a J.D from Yale Law School and
undergraduate degree from Cornell University.
Joseph Sierchio. Mr. Sierchio
has been engaged in the practice of law as the principal of Sierchio Law LLP, our general corporate counsel since August 2019;
prior thereto Mr. Sierchio provided legal services to the Company as a partner of Satterlee Stephens LLP, our counsel, from September
2016 to August 2019. Since 1975, Mr. Sierchio has continuously practiced corporate and securities law in New York City, representing,
in the United States, domestic and foreign private and public corporations, investors, brokerage firms, and entrepreneurs. Mr.
Sierchio is admitted in all New York state courts and federal courts in the Eastern, Northern, and Southern Districts of the State
of New York as well as the federal Court of Appeals for the Second Circuit. Mr. Sierchio was invited to join the Board due to his
experience representing corporations (public and private) and individuals in numerous and various organizational, compliance, administrative,
governance, finance (equity and debt private and public offerings), regulatory and legal matters as well as his familiarity with
the Company’s business and operations. Mr. Sierchio also served as a director of RenovaCare, Inc. from August 26, 2010 to
June 22, 2018. Mr. Sierchio earned his J.D. at Cornell University Law School in 1974, and a B.A., with Highest Distinction in Economics
from Rutgers College at Rutgers University in 1971, and where he was also named a Henry Rutgers Scholar.
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.
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 and 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 two of our five directors, including Bob Levine and Gary Parmar, qualify as “independent” directors.
Board Leadership Structure
We currently have three
executive officers and five directors; two of which are independent. At present, Mr. Bhogal serves as our Chief Executive Officer
and Chairman of the Board, Mr. Frere serves as our Interim Chief Financial Officer, Mr. Conklin serves as our Chief Technology
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 consists of a Chief Executive Officer and Chairman is appropriate.
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.
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. 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. Jatinder S. Bhogal, President and CEO or Mr. Justin
Frere, Interim CFO and Secretary, 430 Park Avenue, Suite 702, New York, NY 10022, that includes 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.
Board of Directors Meetings, Committees of the Board of Directors,
and Annual Meeting Attendance
During the fiscal year ended August 31,
2020, all directors attended at least 75% or more of the aggregate of the meetings of the Board. The Board met two (2) times and
acted by written consent Ten (10) times during the fiscal year ended August 31, 2020; the Audit Committee was established in July
2019, met one (1) time and did not act by written consent during the fiscal year ended August 31, 2020. We did not have an
annual meeting of shareholders during the fiscal year ended August 31, 2020 or 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.
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:
· reward performance; and
Summary Compensation Table
The following table summarizes the total compensation
paid to or earned by each named executive officer for Fiscal 2020 and Fiscal 2019:
(1) The amounts in this column represent employer sponsored
and paid health coverage, vacation pay and health insurance premium reimbursement for Mr. Conklin who maintained private insurance
coverage and was reimbursed an agreed upon amount each month to offset his out-of-pocket medical insurance premiums through December
31, 2019 and prior to the Company established Health benefit plans. With regard to Mr. Bhogal, the amount in this column represents
fees for his service on the Board during fiscal 2020.
(2) On August 7, 2017, the Company appointed Jatinder
Bhogal to the Board of Directors. Mr. Bhogal has provided consulting services to the Company since 2011. Pursuant to Mr. Bhogal’s
consulting agreements in effect prior to July 1, 2020, Mr. Bhogal received compensation of $18,750 per month. Effective July 1,
2020, the Company, Mr. Bhogal, and Vector Asset Management, Inc., a Canadian entity wholly-owned by Mr. Bhogal (“VAMI”),
entered into an Executive Consulting Agreement (the “ECA”) whereby Mr. Bhogal, in addition to Mr. Bhogal’s current
role as a Director, will serve the Company as its President and Chief Executive Officer (Principle Executive Officer). Pursuant
to the ECA, which has an initial term of three years with one year extensions thereafter unless otherwise terminated, VAMI 1) will
be paid an annual salary of $410,000 (the “Annual Base Fee”); 2) is eligible for a discretionary performance-based
annual bonus of up to 40% of the then annual base fee in effect; 3) received a stock option grant to purchase up to 2,500,000 shares
of the Company’s common stock with an exercise price of $2.60 per share, exercisable on, among other methods, a cashless
basis prior to up-listing to a national exchange and exercisable for cash thereafter. The stock option vests as to 50% on July
1, 2020 and as to the remaining 50% on July 1, 2021. The Stock Option is subject to the terms and conditions of the Stock Option
Grant and Grant Agreement dated June 29, 2020 with an effective date of July 1, 2020. The aggregate grant date fair value of the
stock option award, determined in accordance with FASB ASC Topic 718, was $1.54 per share. For additional information, see “NOTE
7 – Stock Options” and “NOTE 9 - Transactions with Related Persons” of our notes to financial statements
contained in this annual report.
(3) On December 27, 2017, the Company 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 up until the company established an employer based medical insurance plan that became effective on
January 1, 2020. 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. Effective July 1, 2020, Mr. John Conklin resigned as the Company’s
President and Chief Executive Officer and as a Director and assumed a new executive role with the Company as its Chief Technology
Officer. The terms and conditions of Mr. Conklin’s current employment agreement remain in full force and effect.
(4) Mr. Frere has served as the Company’s Controller
since August of 2011 and was appointed Secretary on July 5, 2019. Effective July 23, 2020, Mr. Frere was appointed to also serve
as the Company’s Interim Chief Financial Officer (principal financial officer) and Interim Treasurer. Mr. Frere is providing
his services on an as needed basis; Mr. Frere’s engagement is at will and can be terminated by either party on notice. Mr.
Frere’s aggregate fee for his services is $8,000 per month.
(5) Effective October 22, 2018, the Company appointed
Steve Yan-Klassen to serve as our Chief Financial Officer. Mr. Yan-Klassen had no employment agreement. Mr. Yan-Klassen resigned
effective July 22, 2020 to pursue other business. Mr. Yan-Klassen received an annual salary of $31,500 Canadian dollars.
(6) On July 1, 2020, the Company appointed John Rhee
to the Board of Directors. On August 31, 2020, the Company and Mr. John Rhee entered into an Executive Services Consulting Agreement
(the “ESCA”). Pursuant to the ESCA, Mr. Rhee will provide executive consulting services to the Company, and it’s
directly and indirectly owned subsidiaries, in connection with the Company’s efforts to establish an operating presence in
the Republic of Korea. The Initial Term of the ESCA is three years, but may be extended annually thereafter. Mr. Rhee’s
engagement pursuant to the ESCA is an “at-will” engagement. It is acknowledged that Mr. Rhee’s engagement is
on a part-time basis; however, he has agreed to devote as much of his time, efforts, professional attention, knowledge, and experience
as may be necessary to carry on fully his duties and responsibilities under the ESCA. Pursuant to the ESCA, which has an initial
term of three years, Mr. Rhee 1) will be paid a monthly base fee of $10,000; 2) received a stock option grant to purchase up to
2,500,000 shares of the Company’s common stock with exercise prices as follows: as to 1,000,000 options, $3.66 per share;
as to 800,000 options, $6.00 per share and as to 700,000 options, $8.00 per share, exercisable on, among other methods, a cashless
basis prior to up-listing to a national exchange and exercisable for cash thereafter. The stock option vests as to 500,000 on the
date of grant; as to the next 800,000 shares on the six month anniversary of the date of grant; as to the next 700,000 shares on
the 12 month anniversary of the date of grant; and as to the last 500,000 shares on the eighteen month anniversary of the date
of grant. The Stock Option is subject to the terms and conditions of the Non-Statutory Stock Option Agreement dated August 31,
2020. The aggregate grant date weighted average fair value of the stock option award, determined in accordance with FASB ASC Topic
718, was $1.51 per share. For additional information, see “NOTE 7 – Stock Options” of our notes to financial
statements contained in this annual report.
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, 2020.
Option Awards
(1) On November 21, 2017, pursuant the grant of stock
options to our Board and certain personnel for their services, we granted a stock option to purchase 90,000 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 1,008,000 and 50,000 shares of our common stock. On July 1, 2020, pursuant to an Executive Consulting Agreement
and Stock Option Grant and Grant Agreement both dated June 29, 2020 we granted a stock option to purchase 2,500,000 shares of our
common stock.
(2) 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.
(3) On November 21, 2017, pursuant the grant of stock
options to our Board and certain personnel for their services, we granted a stock option to purchase 20,000 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.
(4) 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.
(5) On August 31, 2020, pursuant to an Executive Services
Consulting Agreement and Non-Statutory Stock Option Agreement, we granted a stock option to purchase 2,500,000 shares of our common
stock.
Employee directors, which include Mr. Conklin
until his resignation from the Board on July 1, 2020 and Mr. Bhogal, 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 June 29, 2020, we entered into the Executive
Consulting Agreement with Mr. Jatinder S. Bhogal. Pursuant to the terms of the ECA, Mr. Bhogal will receive an annual salary of
$410,000, is eligible for a discretionary performance-based annual bonus of up to 40% of the then Annual Base Fee in effect, and
a grant to purchase 2,500,000 stock options. Additionally, in the event that Mr. Bhogal’s employment is terminated without
cause, he will be entitled to receive the Annual Base Fee in effect at termination paid over the subsequent 12 months. In the event
that, following a change of control, the ECA is terminated by the Company without cause prior to the later of (a) June 29, 2021,
or (b) within twelve (12) months of the change of control, then VAMI shall be entitled to receive an amount equal to the Annual
Base Fee in effect on the termination date multiplied by 1.5, which amount is payable in a lump sum within thirty (30) days; and
if the termination without cause occurs prior to June 29, 2021, the remaining unvested 1,250,000 stock options shall vest as of
the date of such termination. Upon termination, the portion of the stock option, if any, which is vested and exercisable at the
time of such termination may be exercised prior to the first to occur of (a) the expiration of the a two year period which commences
on the date of termination and expires on the second anniversary of such date of termination or (b) the expiration date of the
term of this stock option. There shall be no further vesting after the date termination. As of August 31, 2020, in the event of
termination for reasons other than cause, death or disability or for good reason the cash severance due to Mr. Bhogal would be
$410,000.
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 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 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. Upon termination, the portion
of the stock option, if any, which is vested and exercisable at the time of such termination may be exercised prior to the first
to occur of (a) the expiration of the a two year period which commences on the date of termination and expires on the second anniversary
of such date of termination or (b) the expiration date of the term of this stock option. There shall be no further vesting after
the date termination. As of August 31, 2020, 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 $68,750.
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 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 and 2020, pro-rated to the date they join the Board of Directors.
Beginning on September 1, 2019, the audit committee members will each receive an additional $750 per quarter.
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 S. Bhogal for a total issuance of 1,264,000 stock options
(of 1,506,000 total stock options granted in fiscal 2019) with a weighted average value of $2.40 per share using the Black-Scholes
Option Pricing Model, or $3,051,540 in aggregate. No equity based grants were awarded to the Board in fiscal 2020.
Director Compensation Table
The following table sets forth the compensation
earned and paid to each non-employee director for service as a director during Fiscal 2020 and Fiscal 2019:
Name Fees Earned or Paid in Cash ($) Option Awards ($) (1) Total ($)
Harmel S. Rayat (7) 1 - 1