Item 7. Management’s Discussion and Analysis
of Financial condition and results of operations
The following Management’s Discussion and
Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of SolarWindow
Technologies, Inc. The MD&A is provided as a supplement to, and should be read in conjunction with financial statements and the accompanying
notes to the financial statements included in this Form 10-K.
Our discussion and analysis of our financial condition
and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. Management
bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Overview
We are a developer of transparent electricity-generating
coatings, and methods for their application to various materials (collectively, “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 which span multiple
industries, including architectural, automotive, agrivoltaic, aerospace, commercial transportation and marine. Our LiquidElectricityTM
Coatings 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 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 our 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 our technology efficiency and transparency;
· optimizing electrical power (current and voltage) output;
· optimizing LiquidElectricityTM Coating performance on flexible substrates; and
29
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
2017; 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 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 nine 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, 2021, the Company had a capitalized asset balance of $122,332 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 was carried out with the DOE by SolarWindow, ANL, and NREL. Work under the AMM CRADA was completed in April
2021
Through the developments of AMM CRADA, the Company
accomplished initiatives to improve and optimize its laser patterning system and methods of fabrication for application of our electricity-generating
coatings on flexible plastics. Once optimized for industry, this advancement is expected to reduce process time, improve device performance,
and reduce the costs of LiquidElectricityTM Coating based plastic products. Another objective of the AMM CRADA was 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, 2021 compared to the year ended August 31, 2020
A summary of our operating expenses for the years ended August 31, 2021
and 2020 follows:
Years Ended August 31, Increase / Percentage
Operating expenses:
30
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, 2021
compared to the year ended August 31, 2020, SG&A costs increased due primarily to inclusion of our South Korean operations and resulting
in a $302,440 increase in personnel costs, $247,952 increase in other administrative costs and $55,671 increase in professional costs.
Research and Product Development
Research and Development (“R&D”)
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&D cost allocations. Payments under these agreements include salaries and benefits
for R&D personnel, allocated overhead, contract services and other costs. R&D 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, 2021 compared to the year ended August 31, 2020, R&D costs decreased primarily as
a result of a $124,266 decrease in personnel costs, $75,703 decrease in other R&D related costs offset by an $11,252 increase in CRADA
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 primarily relates to 2,500,000 stock purchase options issued to each of Mr.
Jatinder S. Bhogal, CEO and Director and Mr. John Rhee, President and Director, pursuant to an Executive Consulting Agreement with each
entered into in our fiscal quarter ending August 31, 2020.
Liquidity and Capital Resources
Our primary cash needs are for personnel, professional
and R&D related fees and other administrative costs. Our principal sources of liquidity are cash and short-term investments. As of
August 31, 2021 and 2020, the Company had cash and short-term investments of $12,127,456 and $14,151,523, respectively. We have financed
our operations primarily from the sale of equity and debt securities.
The following table presents a summary of our cash
flows for the periods indicated:
Years Ended August 31, 2021 compared
Operating Activities
Operating activities consist of net loss adjusted
for certain non-cash items, including depreciation, stock-based compensation expense, realized gains or losses on disposal of property
and equipment and the effect of working capital changes. Net cash used in operating activities increased 8.7% to $2,659,240 for the year
ended August 31, 2021 as compared to $2,447,457 for the year ended August 31, 2020 mainly due to a $385,000 reduction in cash used in
our US operations offset by a $597,000 increase in cash used in our Korea operations.
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Investing Activities
We have used cash primarily for short-term investments,
investments in property and equipment, furniture, office equipment, leasehold improvements to our Korean offices and computers and software.
Net investment activities for capital expenditures were $76,338 during the year ended August 31, 2021, compared to $5,031 during the year
ended August 31, 2020. During 2021, we purchased a twelve-month term deposit in the amount of $5,000,000.
Financing Activities
Cash flows from financing activities totaled $724,872
as a result of the exercise of 201,600 Series S Warrants with a strike price of $3.42 per share and the exercise of 10,000 stock options
at a strike price of $3.54 per share.
Indebtedness
None.
Other Contractual Obligations
In September 2020, the Company, through its wholly owned direct and indirect
subsidiaries, SolarWindow Asia (USA) Corp. and SolarWindow Asia Co., Ltd., entered a lease for office space in South Korea. The office
lease expires on September 23, 2022. Monthly rent is approximately $1,200.
On February 26, 2021, SolarWindow Asia Co., Ltd. entered
into an apartment lease for the purposes of housing foreign personnel. The apartment lease expires on March 7, 2022. Monthly rent is approximately
$950.
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, 2021 and 2020.
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:
32
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.
Related Party Transactions
For a discussion of our Related Party Transactions,
see “Note 7 - 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 for
the Company and its subsidiaries as of August 31, 2021. 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, 2021.
33
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, 2021, 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, 2021.
Changes in Internal Control over Financial Reporting
There were no changes to the Company’s
internal control over financial reporting that occurred during the Company’s most recent fiscal quarter ended August 31, 2021, that
materially affected, or would be reasonably likely to materially affect, the Company’s internal control over financial reporting.
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
Gary Parmar, CPA, CA, ICD.D 50 Director, Audit Committee Chair June 14, 2019
Bob Levine 72 Director December 7, 2018
Joseph Sierchio 72 Director and General Counsel October 1, 2020
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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 Chief Executive Officer and Chairman.
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.
Mr. Rhee serves as our President, Director and President and CEO of SolarWindow Asia Co. Ltd.
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.
Gary P. Parmar, CPA, CA, ICD.D Mr. Parmar is
MNP’s Private Enterprise Technology Media Telecommunications Regional Leader in Kelowna. A trusted advisor with more than two-and-a-half
decades of experience, Gary understands his clients’ unique challenges and delivers creative solutions to help them maximize their
wealth while keeping taxes to a minimum. He is committed to building and nurturing long-term relationships, helping his clients increase
profits, grow their operations and achieve their business goals. Mr. Parmar provides accounting, tax, financial planning and business
management advice to private enterprises and family-owned businesses. He works with a broad range of clients, including real estate developers,
builders, agricultural and cannabis producers, professionals and companies in the technology, media telecommunications industries. His
services include helping with tax planning related to incorporation, income management, succession planning, business management, the
purchase and sale of businesses and estate planning. Mr. Parmar also delivers an MNP employee benefit program that helps business owners
develop customized solutions to keep team members engaged and rewarded. Mr. Parmar helps his clients structure their businesses to facilitate
projects and transactions, assess the validity of deals and arrange financing. Mr. Parmar provides ongoing management consulting to help
with job costing, managing working capital and maximizing profitability. Mr. Parmar earned a Bachelor of Commerce (BComm) in accounting
from the University of Alberta in 1994. He is a Chartered Professional Accountant (CPA) qualifying as a Chartered Accountant (CA) in 1999.
35
Bob Levine. Mr. Levine has been with Avison
Young since 1994 and is one of the founding partners of the company which has 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 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.
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.
36
Corporate Governance Guidelines; Code of Conduct and Ethics; Amended
and Restated Insider Trading Policy
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 adopted an Amended and Restated Insider Trading
Policy (the “ITP”) that applies to all officers, directors, employees and other persons, such as contractors or consultants
who have access to material nonpublic information. The ITP also applies to family members, other members of a person’s household
and entities controlled by a person covered by the ITP. The purpose of the ITP is to provide guidelines with respect to transactions in
the Company’s securities and the handling of material nonpublic information about the Company and the companies with which the Company
does business. The Company’s Board of Directors has adopted this Policy to promote compliance with federal, state and foreign securities
laws that prohibit certain persons who are aware of material nonpublic information about a company from: (i) trading in securities of
that company; or (ii) providing material nonpublic information to other persons who may trade on the basis of that information. Oversight
and implementation of the ITP is performed by the ITP Compliance Committee which is comprised of Joseph Sierchio, Director and General
Counsel, Gary Parmar, Director and Justin Frere, Interim CFO and Secretary.
We have posted a copy of
our Corporate Governance Guidelines, Code of Ethics and Business Conduct, and Amended and Restated Insider Trading Policy 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. Rhee serves as our President, Director and President and CEO of SolarWindow Asia Co., Ltd, and .Mr. Frere serves as
our Interim Chief Financial Officer and Secretary.
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.
37
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, CEO or Mr. Justin Frere, Interim CFO and Secretary, 9375 E. Shea Blvd., Suite
107-B, Scottsdale, AZ 85260, 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.
38
Board of Directors Meetings, Committees of the Board of Directors, and
Annual Meeting Attendance
During the fiscal year ended August 31, 2021,
all directors attended at least 75% or more of the aggregate of the meetings of the Board. The Board met four (4) times and acted by written
consent Eleven (11) times during the fiscal year ended August 31, 2021; 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, 2021. We did not have an annual meeting of shareholders
during the fiscal year ended August 31, 2021 or 2020.
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
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Summary Compensation Table
The following table summarizes the total compensation
paid to or earned by each named executive officer for Fiscal 2021 and Fiscal 2020 :
(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 his role as a Director, will
serve the Company as its President (On March 1, 2021, Mr. Bhogal resigned as President and Mr. Rhee was appointed 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) is 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 5 – Stock Options” and “NOTE 7 - 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 was 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. Effective
November 19, 2020, Mr. Conklin resigned all positions.
(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 $10,000 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”), which was amended effective March 1, 2021 to appoint Mr. Rhee to the office of President and increase
his monthly fee from $10,000 to $22,000. Pursuant to the ESCA as amended, 1) Mr. Rhee provides 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; 2) the Initial Term of the ESCA is three years, but may be extended annually thereafter; 3) Mr. Rhee’s
engagement pursuant to the ESCA is an “at-will” engagement; 4) Mr. Rhee is paid a monthly base fee of $22,000; and 5) Mr.
Rhee 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 5 – Stock Options” of our notes to financial statements
contained in this annual report.
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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, 2021.
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 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. Vesting of these awards ceased upon the resignation of Mr.
Conklin and Mr. Yan-Klassen.
(3) 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. Bhogal and Mr. Rhee, 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.
Termination and Change of Control
On August 31, 2020, the Company and Mr. John Rhee entered
into an Executive Services Consulting Agreement as amended on March 1, 2021. Pursuant to the terms of the ESCA as amended, Mr. Rhee will
receive an annual salary of $264,000, and a grant to purchase 2,500,000 stock options. Pursuant to the ESCA, if the executive’s
termination is voluntary, involuntary, for cause or without cause, the Company will be obligated to pay only the monthly base fee through
the date of termination. Regarding the 2,500,000 options granted pursuant to the ESCA of which 500,000 remain unvested as of August 31,
2021 and are scheduled to vest on February 28, 2022, if the executive is terminated for cause, the right to exercise all of their options
shall terminate immediately and vesting shall cease. If termination is for poor performance, the right to exercise their options, to the
extent vested, shall continue until the option expiration date, but there shall be no further vesting of the options. If termination is
without cause or not for poor performance, these options shall continue to vest and shall continue to be exercisable through the option
expiration date. If termination is by the executive, the right to exercise the options, to the extent vested, shall continue until the
option expiration date, but there shall be no further vesting of the options.
41
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. 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 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.
Upon termination, the stock option may be exercised prior to the first to occur of (a) the expiration of the 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. As of August 31, 2021, 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. All 2,500,000 options are vested. The payments due on termination and termination
following a Change of Control are subject to the requirement that Mr. Bhogal execute a release agreement in a form requested by the Company.
Option Exercises and Stock Vested
The following table provides information on stock option
exercises and shares acquired on the vesting of stock awards by our executive officers during fiscal year 2021:
Option Awards Stock 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 20,000 shares
of our common stock. On January 13, 2021, Mr. Frere exercised the remaining 10,000 stock options on a cashless basis and received 6,943
shares of restricted common stock.
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.
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For their services as directors, non-employee directors
received cash compensation of $1,750 per quarter during 2021 and 2021, pro-rated to the date they join the Board of Directors. Beginning
on September 1, 2019, the audit committee chairperson receives an additional $750 per quarter.
During fiscal 2021, the Company granted 50,000 options
to Joesph Sierchio in connection with his appointment to the Board. The options fair value is $2.16 per share using the Black-Scholes
Option Pricing Model. No equity-based grants were awarded to the other Board members in fiscal 2021 and no awards were granted in fiscal
2020.
Director Compensation Table
The following table sets forth the compensation earned
and paid to each non-employee director for service as a director during Fiscal 2021 and Fiscal 2020:
Name Fees Earned or Paid in Cash ($) Option Awards ($) (1) Total ($)
Jatinder S. Bhogal - - -
Gary Parmar (audit committee chairman) 10,000 - 10,000
Gary Parmar (audit committee chairman) 10,000 - 10,000
Harmel S. Rayat (5) 1 - 1
(1) The amounts in this column
represent the aggregate grant date fair value of stock option awards granted by the Board, determined in accordance with FASB ASC Topic
718. All awards are amortized over the vesting life of the award. No options were granted in fiscal 2020. See “NOTE 5 – Stock
Options” of our notes to financial statements contained in this annual report.
(2) Mr. Rhee became a director of the Company effective
July 1, 2020. On August 31, 2020, the Company and Mr. John Rhee entered into an ESCA. Pursuant to the ESCA, Mr. Rhee received a stock
option grant of 2,500,000 shares. Those shares were granted in conjunction with the ESCA and not for Mr. Rhee’s service on the
Board. See the “Summary Compensation Table” above for additional information. Upon his appointment to the position of President
on March 1, 2021, Mr. Rhee became ineligible to receive cash compensation.
(3) Mr. Sierchio resigned from the Board effective
October 22, 2018 and was re-appointed on October 1, 2020. Pursuant to his reappointment to the Board, on October 19, 2021, we granted
Mr. Sierchio an option to purchase 50,000 shares of common stock valued at $108,000.
(4) Dr. Livesey and Mr. Horovitz both resigned from
the Board effective July 1, 2020.
(5) Mr. Rayat became a director of the Company effective
March 15, 2018. Mr. Rayat’s annual compensation for serving as Chairman of the Board of Directors was $1.00 per year. Mr. Rayat
resigned from the Board effective October 1, 2020.
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Director Compensation - Equity
The following table shows the total number of unvested and total option awards held by each
of our non-employee directors as of August 31, 2021:
Name Vested Stock Options Outstanding (#) Unvested Stock Options Outstanding (#)
(1) On July 5, 2019, we granted stock options to our
Board and executives for their services, including we granted a stock option to purchase 50,000 shares of our common stock to Mr. Sierchio
and 52,000 shares of our common stock to Mr. Levine and Mr. Parmar.
(2) Includes 50,000 options described above, a stock
option to purchase 20,000 shares of our common stock granted on November 21, 2017 and a stock option to purchase 50,000 shares of our
common stock granted on October 19, 2021 pursuant to his appointment to the Board.
Limitation on Directors' Liabilities; Indemnification of Officers and Directors
Our Amended and Restated Bylaws designate the relative duties and responsibilities
of our officers and establish procedures for actions by directors and stockholders and other items. Our bylaws also contain extensive
indemnification provisions, which will permit us to indemnify our officers and directors to the maximum extent provided by Nevada law.
For additional information, see Exhibit 4.34 to this Annual Report.
Directors' and Officers' Liability Insurance