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, “LiquidElectricity® Coatings”).
When applied in ultra-thin layers to rigid glass, and flexible glass and plastic surfaces our LiquidElectricity® 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 LiquidElectricity® Coatings which span multiple
industries, including architectural, automotive, agrivoltaic, aerospace, commercial transportation and marine. Our LiquidElectricity®
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 LiquidElectricity® Coating performance on flexible substrates; and
On December 28, 2015, we executed 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 eleven 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 December 6, 2021, and extends
the date of completion to December 31, 2024. As of August 31, 2022, the Company had a capitalized asset balance of $153,799 related to
deferred research and development costs for advances to Alliance for Sustainable Energy for work to be performed under the NREL CRADA.
Results of Operations
Year ended August 31, 2022, compared to the year ended August 31, 2021
A summary of our operating expenses for the years ended August 31, 2022
and 2021 follows:
Years Ended August 31, Change 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, 2022,
compared to the year ended August 31, 2021, SG&A costs increased due to our South Korean operations ($106,000), increase in personnel
costs ($217,000), increase in professional fees ($195,000), offset by net decreases in in other administrative costs ($59,000).
Research and Product Development
Research and Development (“R&D”)
costs represent costs incurred to develop our SolarWindow® technology and are incurred pursuant to our research agreements and agreements
with other third-party providers and certain internal R&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, 2022, compared to the year ended August 31, 2021, R&D costs decreased primarily as
a result of a decrease in CRADA and costs ($79,000), offset by net increases in personnel and Korea based R&D costs ($75,000).
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 decreased primarily due to current year expense excluding compensation related
to the prior year which included expense related to 2,500,000 stock purchase options granted in the fourth quarter of fiscal year ended
August 31, 2020, to each of Mr. Jatinder S. Bhogal, former CEO and Chairman and Mr. John Rhee, former President, CEO and Chairman.
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, 2022, and 2021, the Company had cash and short-term investments of $8,077,849 and $12,127,456, 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,
Net cash provided by financing activities - 724,872 (724,872 )
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, impairments and the effect of changes in working capital. The increase in cash used in operating activities over
the prior period is mainly due to an approximate increase in cash layouts related to the CRADA ($450,000), Korea operations ($223,000),
US based personnel ($217,000), professional fees ($108,000) offset by decreases in other general costs ($16,000).
Investing Activities - We have used cash primarily for liquid short-term
investments, purchases of furniture, equipment, leasehold improvements, and computers. Excluding the effects of the short term, $5,000,000
investment, $280,000 was used to purchase equipment by the Korean Subsidiary.
Financing Activities - Cash flows from financing activities totaled
$719,400 in 2021 as a result of the exercise of 200,000 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 Korean Subsidiary entered a lease for office space
in South Korea. Monthly rent was approximately $1,200. . As of December 2022, this lease was terminated.
On February 26, 2021, the Korean Subsidiary entered
in an apartment lease for the purposes of housing foreign personnel. Monthly rent was approximately $950. As of December 2022 this lease
was terminated.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements for the
years ended August 31, 2022 and 2021.
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
Management’s discussion and analysis of financial condition and results
of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these consolidated financial statements required the use of estimates and judgments that affect
the reported amounts of our assets, liabilities, and expenses. Management bases estimates on historical experience and other assumptions
it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis. Actual results may differ from
these estimates. For more information regarding our critical accounting policies, see “Note 2- Summary of Significant Accounting
Policies” to our Financial Statements.
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 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, 2022. Based on that evaluation, our Acting Principal Executive Officer and Principal Financial
Officer concluded that our disclosure controls and procedures at the subsidiary level were not effective at a reasonable assurance level as
of August 31, 2022, as discussed and defined in Management’s Report on Internal Control over
Financial Reporting referred to below.
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 Acting 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, 2022, our Acting 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 (COSO). Based on this assessment, our management concluded that our internal control over financial reporting was
not effective on August 31, 2022 because of the material weaknesses described below.
As of our fiscal year ended August 31, 2022, management
identified control deficiencies at the subsidiary level that constituted material weaknesses. A “material weakness”, as defined
by COSO, is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is more than a
reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented
or detected on a timely basis. Management identified the following material weaknesses in our internal control over financial reporting
as of August 31, 2022:
The degree of compliance with established policies
and procedures had deteriorated at the Korean Subsidiary. Due to jurisdictional challenges of operating the Korean Subsidiary from the
U.S., the Company relied upon the cooperation of the Korean Subsidiaries management to maintain adherence to and comply with the documented
internal control procedures, including the dissemination of its financial results and support thereof to SolarWindow Technologies, Inc,
the parent company, for purposes of consolidating the Company’s financial results. Management is unable to assess compliance with
the Korean Subsidiary’s documented and established policies and procedures due to the management of the Korean Subsidiary failing
to provide the financial information required for consolidation since May 2022 thereby resulting in the inability of the Company’s
auditors to complete their audit of the Korean Subsidiary.
Also, due to reductions in staffing during 2022 at
the Korean Subsidiary, there is inadequate segregation of duties consistent with control objectives. The Korean Subsidiary’s management
is comprised of a single individual resulting in a situation where limitations of segregation of duties exist. To remedy this situation,
the Korean Subsidiary would need to hire additional staff to provide greater segregation of duties.
Accordingly, because of identifying the above material
weaknesses we have concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.
Management believes that the material weaknesses set
forth above are intrinsic to our small size and that these weaknesses are limited to the Korean Subsidiary.
Remedies Employed as of August 31, 2022
Management has retained counsel in South Korea to
provide legal services with respect to the recovery of assets.
Remedies Employed as of the
Date of this Annual Report
Management has retained counsel in South Korea to
provide legal services with respect to the recovery of assets, and with the dissolution of the Korean Subsidiary as resolved by the Board
on January 13, 2023.
On April 25, 2023, management formally removed the
Korean Subsidiary management and installed persons affiliated with the Company thus providing management with the authority, not previously
held, to direct and oversee the Korean Subsidiary.
On May 25, 2023, management engaged a Korean accounting
firm to provide accounting services, financial reporting, and assist with the dissolution of the Korean subsidiary.
Changes in Internal Control over Financial Reporting
This annual
report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the
permanent exemption from section 404(b) of the Sarbanes-Oxley Act of 2002 for non-accelerated filers.
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, 2022, 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 three members. Each director holds office until a successor
is duly elected or appointed. Executive officers serve at the discretion of the Board and are appointed by the Board. Also provided herein
are brief descriptions of the business experience of each of the directors and officers during the past five years, and an indication
of directorships held by each director in other companies subject to the reporting requirements under the Federal securities law.
Name Age Current Position With Us Director or Officer Since
Harmel S. Rayat 62 Chairman and Director January 13, 2023
Bob Levine 73 Director December 7, 2018
Joseph Sierchio 73 Director October 1, 2020
Amit Singh 43 Vice President (Acting Principal Executive Officer) February 2021
Business Experience
Set forth below are the names of all our directors
and executive officers, all positions and offices held by each person, the period during which each has served as such, and the principal
occupations and employment of such persons during at least the last five years, and other director positions held currently or during
the last five years:
Current Directors and Officers
Harmel S. Rayat. Mr. Rayat was appointed to the Board of
Directors on January 13, 2023. Mr Rayat previously served the Company in several capacities, including, at various times, as its President
and Chief Executive Officer, Chairman and as a member of the Company’s Board of Directors. Mr. Rayat has been a long-time majority
stockholder and financial supporter of the Company. Mr. Rayat currently holds a 66.99% ownership of the Company’s issued and outstanding
common stock. Mr Rayat’s support has been key to advancing SolarWindow’s technology. Beginning his career in the financial
industry as a messenger and mail-room clerk in a stock brokerage firm in 1981, Mr. Rayat has since invested in a wide range of businesses
and sectors, including auto wreckers, resource exploration, technologies, artificial liver devices, commercial and retail buildings,
and raw land development opportunities. In recent years, Mr. Rayat has narrowed his focus to impact investing, despite the high risks
associated with early stage, pre-revenue, and pre-clinical companies. His goal is to help inventors, entrepreneurs, and scientists to
create and commercialize products and technologies that will have a beneficial impact on society at large.
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.
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 Bachelor of Science in accounting and finance from California Polytechnic State University in San
Luis Obispo and MBA from San Diego State University.
Amit Singh. Has served as the Company’s
Vice President since February 2021. Mr. Singh has diverse experience with incubating and developing ventures in cleantech and renewables,
biomedical devices, drug discovery and development, and financial marketing and advertising. From June 2006 to May 2008, Mr. Singh served
as a Risk and Strategy Consultant at Crowe, where he specialized in identifying high-risk areas for public and private companies, specifically
detecting weaknesses in business models and helping develop, re-engineer, and implement core business processes. From September 2007 to
March 2018, Mr. Singh served as the Executive Director of Sikhcess, a non-profit, where he coordinated the efforts of more than 5,000
global volunteers to break the cycle of homelessness by providing meals, basic needs, education, mentoring, tutoring, and support. Mr.
Singh earned his MBA from the University of Michigan in 2006, and an undergraduate business degree from Wayne State University in 2003.
All 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 between any of our
officers and directors.
Legal Proceedings
None of our 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
the Company and our stockholders.
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 Acting Principal Executive 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 one of our three directors, including
Bob Levine, qualify as an “independent” director.
Board Leadership Structure
We currently have one executive
officer and three directors; one of which is independent. At present, Mr. Frere serves as our Acting Executive Officer, Interim Chief
Financial Officer and Secretary, Mr. Sierchio serves as the Representative Director of SolarWindow Asia Co., Ltd. Actions taken by SolarWindow
Asia Co., Ltd. are performed by Lab Partners, the Company’s South Korean law firm, pursuant to powers of attorney provided by Mr.
Sierchio and SolarWindow Asia (USA) Corp.
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 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
The Board does not currently have a standing Audit
Committee. The full Board oversees our accounting and financial reporting processes and the audits of our annual financial statements.
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. 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 Board reviews compensation levels and makes
adjustments based on their personal knowledge of competition in the marketplace, 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, 2022,
all directors attended at least 75% or more of the aggregate of the meetings of the Board. The Board met nine (9) times and acted by written
consent six (6) times during the fiscal year ended August 31, 2022. We did not have an annual meeting of shareholders during the fiscal
year ended August 31, 2022, or 2021.
The Audit Committee was established in July 2019 and
was suspended in December 2021. The full Board is responsible for performing the functions of: (i) the Audit Committee, (ii) 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 2022 and Fiscal 2021 :
John A. Conklin (3) Former Chief Technology Officer 2021 82,676 - - - 82,676
(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, served 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). On January 18, 2022, Mr. Bhogal resigned all of his positions with the Company, including as Chairman
and CEO. Pursuant to the ECA, which had an initial term of three years with one year extensions thereafter, VAMI 1) was paid an annual
salary of $410,000 (the “Annual Base Fee”); 2) was 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 which was fully vested as of August 31, 2022.
(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 Principal Accounting 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. On October 27, 2021, the Board granted Mr. Frere a stock option to purchase up to
50,000 shares of the Company’s common stock with an exercise price of $6.21 per share and which vests as to 50% on April 27, 2022
and 50% on October 27, 2022. The aggregate grant date fair value of the stock option award, determined in accordance with FASB ASC Topic
718, was $4.92 per share. For additional information, see “NOTE 5 – Stock Options” of our notes to financial statements
contained in this annual report.
(5) 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 provided executive consulting services to the Company, and it’s directly and
indirectly owned subsidiaries; 2) Mr. Rhee’s engagement pursuant to the ESCA was an “at-will” engagement; and 3) Mr.
Rhee received a stock option grant to purchase up to 2,500,000 shares of the Company’s common stock which was fully vested as of
August 31, 2022. On September 1, 2021, the Board approved an increase in Mr Rhee’s monthly salary to $24,640. On January 19, 2022,
the Board appointed Mr. Rhee to serve as the Company’s Chief Executive Officer. By letter dated May 8, 2022, the Board terminated
ESCA as amended effective May 9, 2022. Termination of the ESCA resulted in the automatic termination of Mr. Rhee’s positions as
the President, Chief Executive Officer and Chairman of the Company and all positions held at the Company’s subsidiaries. However,
due lack of jurisdiction in Korea, the Company was unable to effect Mr. Rhee’s termination with the Korean Subsidiary and he maintained
his position as Representative Director and President of SolarWindow Asia Co., Ltd. through April 25, 2023, the date Mr. Rhee was removed
pursuant to an Extraordinary Shareholder Meeting. Additionally, termination of the ESCA did not constitute termination of Mr. Rhee’s
tenure as a member of the Board. Mr. Rhee resigned from the Board effective December 18, 2022.
(6) Effective July 28, 2020, the Company, Amit Singh, and Damaak
Group, LLC, a U.S. entity wholly-owned by Mr. Singh (“Damaak”), entered into a Business Consulting Agreement (the “BCA”)
whereby Mr. Singh supports the executive management team with corporate finance, business development, media & public relations, brand
positioning, technology, and investor engagement. Pursuant to the BCA, which had an initial term of two years, Damaak was paid a monthly
fee of $9,250 which was raised to $10,175 effective March 2021 and again raised to $15,000 effective January 2021. On October 27, 2021,
the Board granted Mr. Singh a stock option to purchase up to 15,000 shares of the Company’s common stock with an exercise price
of $6.21 per share and which vests as to 50% on April 27, 2022, and 50% on October 27, 2022. The aggregate grant date fair value of the
stock option award, determined in accordance with FASB ASC Topic 718, was $4.92 per share. For additional information, see “NOTE
5 – Stock Options” of our notes to financial statements contained in this annual report. Although the term of the BCA was
through June 30, 2022, Damaak continues to provide services under the BCA.
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, 2022.
Option Awards
(1) On November 21, 2017, pursuant to the grant of stock options
to our Board and certain personnel for their services, the Company 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, the Company 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, the Company 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, the Company 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, the Company granted a stock option to purchase 50,000 shares
of our common stock.
(3) On July 5, 2019, pursuant to a grant of stock options to
our Board and executives for their services, the Company granted a stock option to purchase 50,000 shares of our common stock. On October
27, 2021, pursuant to a grant of stock options for services, the Company granted a stock option to purchase 50,000 shares of our common
stock.
(4) 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.
Termination and Change of Control
Not applicable.
Option Exercises and Stock Vested
Not applicable.
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 $2,500 per quarter during fiscal 2022 and $1,750 per quarter during fiscal 2021. Beginning on September
1, 2019, and prior to the suspension of the Audit Committee on December 3, 2021, the audit committee chairperson received 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. During fiscal 2022, the Company granted 15,000 options to Joesph Sierchio
and 30,000 options to Bob Levine. The options fair value was calculated to be $4.92 per share using the Black-Scholes Option Pricing Model.
No equity-based grants were awarded to the other Board members in fiscal 2022.
Director Compensation Table
The following table sets forth the compensation earned
and paid to each non-employee director for service as a director during Fiscal 2022 and Fiscal 2021:
Name Fees Earned or Paid in Cash ($) Option Awards ($) Total ($)
Gary Parmar (1) (former director and audit committee chairman) 1,944 - 1,944
(1) Mr. Parmar resigned from the Board on November 10, 2021.
(2) For their services on the Board, the Company granted Mr. Levine an option to
purchase 30,000 shares of common stock with an exercise price of $6.21 per share and which vests as to 50% on April 27, 2022, and 50%
on October 27, 2022. The aggregate grant date fair value of the stock option award, determined in accordance with FASB ASC Topic 718,
was $4.92 per share. For additional information, see “NOTE 5 – Stock Options” of our notes to financial statements contained
in this annual report.
(3) Mr. Sierchio resigned from the Board effective October 22, 2018, and was re-appointed
on October 1, 2020. For their services on the Board, the Company granted Mr. Sierchio an option to purchase 15,000 shares of common stock
with an exercise price of $6.21 per share and which vests as to 50% on April 27, 2022, and 50% on October 27, 2022. The aggregate grant
date fair value of the stock option award, determined in accordance with FASB ASC Topic 718, was $4.92 per share. For additional information,
see “NOTE 5 – Stock Options” of our notes to financial statements contained in this annual report.
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, 2022:
Name Vested Stock Options Outstanding (#) Unvested Stock Options Outstanding (#)
(1) On July 5, 2019, the Company granted stock options to our
Board and executives for their services, including 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.
(2) Includes 50,000 options described above, a stock option
to purchase 20,000 shares of our common stock granted on November 21, 2017, a stock option to purchase 50,000 shares of our common stock
granted on October 19, 2020 pursuant to his appointment to the Board, and a stock option to purchase 15,000 shares of our common stock
granted on October 27, 2021.
(3) Pursuant to the ESCA, on August 31, 2020, 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 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.
Limitation on Directors' Liabilities; Indemnification of Officers and Directors
Our Amended and Restated Bylaws designate the relative
duties and responsibilities of our officers and establish procedures for actions by directors and stockholders and other items. Our bylaws
also contain extensive indemnification provisions, which will permit us to indemnify our officers and directors to the maximum extent
provided by Nevada law. For additional information, see Exhibit 4.34 to this Annual Report.
Directors' and Officers' Liability Insurance
We have obtained directors' and officers' liability insurance, which expires
on December 22, 2023.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table sets forth certain information
as of August 14, 2023 by (i) all persons who are known by us to beneficially own more than 5% of our outstanding shares of common stock,
(ii) each director, director nominee, and Named Executive Officer; and (iii) all executive officers and directors as a group. To our knowledge,
no other person beneficially owns more than 5% of our common stock.
Directors and Officers
5% Shareholders
* less than 1%
(1) Beneficial ownership is determined in accordance with SEC
rules and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct
ownership of and sole voting power and investment power with respect to the shares of our common stock and except as indicated the address
of each beneficial owner is 9375 E Shea Blvd., Suite 107-B, Scottsdale, AZ 85260.
(2) Calculated pursuant to rule 13d-3(d) of the Exchange Act.
Beneficial ownership is calculated based on 53,198,399 shares of common stock issued and outstanding as of August 14, 2023. Under Rule
13d-3(d) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights, or conversion privileges exercisable
within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed
outstanding for the purpose of calculating the percentage owned by each other person listed.
(3) Kalen Capital Corporation is a private Alberta corporation
wholly owned by Mr. Harmel Rayat, our Chairman. In such a capacity, Mr. Rayat may be deemed to have beneficial ownership of these shares.
The number of shares reflected above based upon the review of our transfer records and information provided to us by Kalen Capital Corporation
and includes 35,638,931 shares owned by Kalen Capital Corporation and its wholly owned subsidiary, and 16,566,667 shares issuable upon
exercise of a Series T Warrant.
(4) Includes 26,000 shares of common stock, 33,333 shares of
common stock reserved for issuance upon the exercise of a Series T Warrant and 74,200 shares of common stock reserved for issuance upon
the exercise of vested stock options granted under the 2006 Plan. Does not include 7,800 shares of common stock reserved for issuance
upon exercise of stock options granted under the 2006 Plan that have not yet vested.
(5) Includes 196,567 shares of common stock and 115,000 shares
of common stock reserved for issuance upon the exercise of vested stock options granted under the 2006 Plan. Does not include 20,000 shares
of common stock reserved for issuance upon exercise of stock options granted under the 2006 Plan that have not yet vested.
(6) Includes 6,493 shares of common stock and 92,500 shares
of common stock reserved for issuance upon the exercise of vested stock options granted under the 2006 Plan. Does not include 7,500 shares
of common stock reserved for issuance upon exercise of stock options granted under the 2006 Plan that have not yet vested.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
The Board establishes policies and procedures, and
sets standards regarding operations and governance. Accordingly, the Company adopted a policy and procedures pertaining to related-party
transactions (“RPTs”) as they relate to the Company’s employees, officers and directors.
The Board recognizes that RPTs must be managed to
prevent the risk of perceived or actual conflicts of interest. The Company’s RPT policy and procedures addresses these transactions
as they may occur. The Board is responsibe for reviewing and approving RPTs in accordance with the adopted policy and procedures. The
Board may review the RPT policy and procedures from time to time and accordingly recommend amendments for consideration and/or implementation.
The Board will review and approve all RPTs over $25,000
with the option to review and approve all RPTs if, in their judgment, it would be in the best interests of the Company for the proposed
transaction to be reviewed.
Under SEC rules (Section 404 (a) of Regulation S-K),
a related person is a director, officer, nominee for director, or 5% stockholder of our outstanding shares of common stock since the beginning
of the previous fiscal year, and their immediate family members. Immediate family members include spouses, parents, stepparents, children,
stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing
in such person’s home (other than a tenant)
The Board has determined that, barring additional
facts or circumstances, a related person does not have a direct or indirect material interest in the following categories of transactions:
· compensation to executive officers determined by the Board;
· compensation to directors determined by the Board;