SolarWindow Technologies: I'm Not A Believer

Summary

WNDW's financials appear to be insufficient to support the company's stated goals.

Management compensation vastly exceeds the investment in R&D and equipment.

The biggest shareholder was previously fined by the SEC and controls most of the company's stock.

I have attempted to contact management, but have not heard back yet.

Background

SolarWindow Technologies, Inc. (OTCQB:WNDW) is a development-stage company that claims to be developing see-through solar panels that can be used in place of standard glass windows as a source of renewable energy. The company claims that these products can be used as an alternative-energy solution which can be used to replace conventional glass in buildings. It sounds like an intriguing concept, but if one examines the company's public filings and history, and compares them with the statements presented by the company, it's clear that there is a discontinuity between the information presented on the company's website at solarwindow.com and what its filings disclose.

SolarWindow Technologies, Inc. was originally incorporated in Nevada in 1998 under the name Octillion Corp. It changed its name to New Energy Technologies, Inc. in December of 2008 and again changed its name to SolarWindow Technologies, Inc. on March 9, 2015.

Business and Corporate Website

As mentioned before, SolarWindow Technologies is engaged in developing see-through solar panels that can replace standard glass windows and be used as a source of power generation. From page 15 of the company's most recent 10-K, WNDW describes its business as follows,

We are a pre-revenue developer of transparent electricity-generating SolarWindow™ coatings. Our SolarWindow™ technology provides the ability to harvest light energy from the sun and artificial sources and generate electricity from a see-through, semi-transparent, coating of OPV solar cells applied to glass and plastics. Our SolarWindow™ technology is the subject of a patent pending technology. Our MotionPower™ technology harvests "kinetic" or "motion" energy from vehicles when they slow down before coming to a stop and converts this captured energy into electricity. Our MotionPower™ technology is the subject of fifty-nine (59) patent filings.

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

Our product development programs involve ongoing research and development ("R&D") and product development efforts, and the commitment of significant resources to support the extensive invention, design, engineering, testing, prototyping, and intellectual property initiatives carried-out by our contract engineers, scientists, and consultants.

Ultimately, we plan to market any SolarWindow™ technology products through co-marketing, co-promotion, licensing and distribution arrangements with third party collaborators. We believe that this approach could provide immediate access to pre-existing distribution channels, therefore potentially increasing market penetration and commercial acceptance of our products and enabling us to avoid expending significant funds for development of a large sales and marketing organization.

We cannot accurately predict the amount of funding or the time required to successfully commercialize our SolarWindow™ technology. The actual cost and time required to commercialize our SolarWindow™ technology may vary significantly depending on, among other things, the results of our R&D efforts, the cost of developing, acquiring, or licensing various enabling technologies, changes in the focus and direction of our R&D programs, competitive and technological advances, the cost of filing, prosecuting, defending and enforcing claims with respect to patents, the regulatory approval process and manufacturing, marketing and other costs associated with commercialization of these technologies. Because of this uncertainty, even if financing is available to us, we may secure insufficient funding to effectuate our business plan.

From this description, the company tells us that they are currently developing the technology, and that it has filed for patents, but it's clear that any production-ready product is a long way off, and the company readily admits that they have no timetable or funding estimates to complete its projects.

With respect to MotionPower, very little detail is given about this product -- it seems extremely similar to what hybrid cars are doing right now with regenerative braking and there is no detail about what makes it unique. While the company boasts of 59 patent filings, it is unclear whether there is any possibility of these becoming monetized, and the company does not explain why it switched from working on this technology to solely investing in its SolarWindow product.

The company's corporate website is slick and polished with an aesthetically pleasing presentation. However, there is little factual material information there - there are a lot of references to the company's press releases and pictures of people in white lab coats gawking at tinted glass, but no hard details or data about any progress that the company has made on its product. Additionally, there is no Careers section on the website - I'd expect that a company that is still developing a product would be in need of scientists, researchers, and skilled craftsmen in order to make its vision a reality, but there is no information about getting a job there.

Financials

The company's financials indicate that the company is operating on a shoestring budget, and is quickly running out of cash. Additionally, management's compensation seems extremely generous for a publicly traded company that is in such poor financial shape.

Balance Sheet

From the company's most recent 10-Q filed on April 14, 2015, the company has $167,068 in cash and cash equivalents, and total assets of $382,057. It's important to note that of these assets, only $35,967 constitute "equipment." On the liabilities side, the company has $239,452 in accounts payable, $303,955 in interest payable, and convertible debt in the amount of $193,268 totaling $1,347,675 in current liabilities. Not looking too good…how's the income statement look?

Income Statement

The company's most recent income statement lists a net loss of $1.52 million, zero revenue (no surprise, as it doesn't have a marketable product yet) and operating expenses of $815,832 of which $662,473 constitute Selling, General, and Administrative, and $153,359 are Research and Development.

If we scroll further down to Page 17 of the 10-Q, the Results of Operations section lists $466,623 in SG&A, $143,901 in R&D, and $205,308 in Stock Compensation for the three months ended February 28, 2015, which lets us know that some of the expense for SG&A and R&D was paid in stock. While it's nice that the company disclosed this, it really highlights WNDW's cash shortfall if they feel the need to pay for things this way.

Cash Flow

The cash flow statement for the six months ended February 28, 2015 is rather interesting -- it shows that the company used $1.1 million in its operations, but only spent $15,560 on equipment which seems like a minimal sum for a company that claims to be developing cutting-edge technology. Additionally, the cash flow statement shows that the company also received $501,242 in proceeds from issuance of stock.

Given that the company has only just over $167k in the bank, and its operations used over $1.1 million in six months, it's clear that it can't continue down the current path, and the company's auditors agree with me. On Page 8 of the 10-Q, there is a Going Concern notice which reads,

The Company does not have any commercialized products and has not generated any revenue since inception. The Company has an accumulated deficit of $25,726,465 as of February 28, 2015, and does not have positive cash flow from operating activities. Included in the deficit are non-cash expenses totaling $9,208,014 relating to the issuance of stock for services, compensatory stock options, warrants granted for value and accretion of debt discounts. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern, which is dependent upon the Company's ability to establish itself as a profitable business.

In its report with respect to the Company's financial statements for the year ended August 31, 2014, the Company's independent auditors expressed substantial doubt about the Company's ability to continue operations as a going concern. Because the Company has not generated revenues from its operations and does not expect to do so in the near future, its ability to continue as a going concern is wholly dependent upon its ability to obtain additional financing. Currently, the Company is seeking additional financing but has no commitments to obtain any such financing, and there can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all.

As of February 28, 2015, the Company had cash of $167,068. On March 4, 2015, subsequent to its quarter end, the Company entered into a bridge loan agreement pursuant to which the Company borrowed $600,000. Based upon its current and near term anticipated level of operations and expenditures, the Company believes that cash on hand should be sufficient to enable it to continue operations through June 2015.

If adequate funds are not available on reasonable terms, or at all, it would result in a material adverse effect on the Company's business, operating results, financial condition and prospects. In particular, the Company may be required to delay, reduce the scope of or terminate its research programs, sell rights to its SolarWindow™ technology and/or MotionPowerTM technology or other technologies or products based upon such technologies, or license the rights to such technologies or products on terms that are less favorable to the Company than might otherwise be available.

In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. These consolidated financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements."

This seems pretty bleak -- only enough cash to continue operations until June. In the Liquidity and Capital Resources section on page 18 of the 10-Q, it states,

Management recognizes that in order for us to meet our capital requirements, and continue to operate, additional financing will be necessary. We expect to raise additional funds through private or public equity investment in order to maintain and/or expand the range and scope of our business operations.

Indicating that management's plan to remedy the situation is to go further into debt and to issue more stock, thereby diluting current shareholders even further.

Management compensation and major shareholders

The company's most recent 10-K states that for 2014, the President, CEO, CFO, and Director received a salary of $214,325 in cash, $29,000 in stock awards, $1,862,000 in option awards, and $25,702 in "all other compensation", totaling $2,137,245.

It seems troubling that a company which admits that it will have enough cash to carry its operations for a few months would be so generous with its compensation -- the CEO's salary alone exceeds the company's current cash holdings of $167,068, and all of the additional stock and option compensation make it look like the CEO is more concerned with immediate financial rewards than long-term success. How is the company supposed to pay for R&D and additional employees if so much is being spent on the CEO's compensation?

Beyond the outrageous executive compensation, it's important to note that there are several significant shareholders of the company's common stock beyond the executives and/or directors. These include two entities identified as Kalen Capital Corporation, which owns 24.05 million shares, or 62.3%, and 1420524 Alberta, Ltd., which owns 4.4 million shares or 17.1% on a fully-diluted basis. If one looks at the most recent 10-Q, there are 24.9 million shares outstanding, indicating that there are shares from the company's convertible note that have not been converted to common shares yet. If one looks at page 46 of the most recent S-1/A, it explains that an additional 14.29 million shares would become outstanding following the conversion of the Convertible Note.

Kalen Capital Corporation

A quick Google search for Kalen Capital Corporation yields an interesting result -- the first hit is for http://harmelrayat.com/, a website which reads, "Harmel Rayat is an investor, entrepreneur and business owner based in Vancouver, Canada. He is the owner of and Kalen Capital Corporation."

The second is a wikipedia page for Harmel S Rayat, which appears to be directly copy-and-paste of the content of the harmelrayat.com website mentioned previously.

Interesting, but it gets even more intriguing. Looking deeper into Harmel S Rayat, there is an SEC order imposing a cease-and desist action from 2003 which names him; he was charged with running EquityAlert.com, which the SEC identified as a stock promotion email list.

Remember when we noted that the company was founded as Octillion? If we dig a bit deeper, further there is some decent investigative coverage on it from another Seeking Alpha writer covering the company's previous involvement with Mr. Rayat, among other issues.

1420524 Alberta, Ltd

On page 52 of the company's most recent 10-K filed on August 31, 2014 it reads, "3,101,304 shares beneficially owned by 1420524 Alberta Ltd. for the benefit of Kalen Jai Rayat. Kalen Jai Rayat is Mr. Rayat's son (see footnote 7 for additional information), or (2) the 933,334 shares beneficially owned by 1420468 Alberta Ltd., a private Alberta corporation, wholly owned by Jasbinder Chohan, as the trustee under the TJR Family Trust dated August 28, 2008, for the benefit of Talia Jevan Rayat, Mr. Rayat's daughter. Mr. Rayat is not a beneficiary or trustee of the aforementioned trusts and disclaims beneficial ownership of all shares owned by each of his children's trusts.

So it appears that over 79% of the company's stock is controlled by Harmel Rayat or his family, someone who has previously been accused of the SEC by wrongdoing.

In looking for greater detail regarding the company and its past, looked through all of the company's Form 10-K's filed with the SEC going back to 2008. Through all of these filings, there were several major consistencies between them. The employee count has always been extremely low (the maximum number of employees that the company has ever disclosed in any of them is four) and executive compensation has always been extremely high, typically being at least six figures in salary and millions in stock and/or options for the top executive. And yet, all the company has to show for it is a $25 million accumulated deficit and no material progress beyond an abandoned project.

Employees and Business Location

Additionally, the company disclosed that as of August 31, 2014, it only has three full-time employees and is operating out of an office which it shares with a law firm at 10632 Little Patuxent Parkway, Suite 406 Columbia, Maryland 21044.

The company does list an additional office in Tampa, Florida. A Google search for the address (8875 Hidden River Parkway, Suite 300, Tampa, Florida 33637) reveals several different tenants and businesses, but no reference to SolarWindow Technologies or its predecessor, New Energy Technologies, Inc.

Beyond the ambiguous tenant situation, the office is described as being 600 square feet, and pictures show that it appears to be a standard office which appears to have insufficient workspace and equipment and space for conducting the research that WNDW claims to be doing, at least without major renovations which would likely cost far more than the amount that the company spent on equipment.

While management states, "We believe that our office facilities are sufficient and adequate for our purposes given our present staff and research objective" It seems incredibly limited for a $52 million publicly-traded company that claims to be developing cutting-edge technology. The company makes no other mention of any other significant workspaces in its filings.

While the company does have one post-doc research employee, I find it difficult to believe that he alone is capable of designing, developing, and testing such cutting-edge technology in an office shared with a law firm, and with such a limited amount of funding for equipment.

Recent publicity

On April 8, 2015, the company issued a press release announcing that an "Independent Validation Confirms One-Year SolarWindow Financial Payback." However, there is little given as proof that the company's technology works or is even close to being ready -- the entire "financial model" in the press release appears to be based on assumptions from an undeveloped and untested product. Given this context, the press release reads as if it is begging potential shareholders to buy stock rather than a material update on the company's development progress. Claim such as,

Compared to conventional rooftop solar systems, SolarWindow™ technology installed on a 50-story building could generate up to 50-times greater power while delivering 15-times the environmental benefits, according to Company engineers. For conventional solar systems to produce the equivalent amount of power as SolarWindow™ would require at least 10-12 acres of valuable urban land at least 5-11 years for payback.

Sound great, but are not given any context and are not backed by any data in the press release.

Conclusion

Given the company's financial situation, past history, and current resources, it is my opinion that WNDW's current valuation of over $52 million at the time of this writing is not justified. The company is burning through cash at an untenable rate, and its workforce is too limited in experience and manpower to achieve its goals. The company has been issued a Going Concern notice by its auditors, and management admits that it plans to raise capital through equity issuances which will lead to further dilution of current shareholders.

The fact that management has, for years, been extremely generous with their own compensation in cash, stock, and warrants (shareholders' money, in effect) while spending little on equipment needed for research is a major problem, and they have little to show for it except for a massive accumulated deficit. While the company's principal scientist does have a PhD in Organic/Materials Chemistry, the company has been investing very little in equipment that he could use to advance its projects.

Beyond the material woes and excessive executive compensation, the biggest red flag is the company's largest shareholder has previously been involved in stock promotions and was even previously fined by the SEC for $20,000.

Ironically, the only red flag that I haven't seen from this company is a series of promotional emails in an attempt to boost the stock price, but it would not surprise me at all if I were to see some hit my inbox in the future.

Disclosure: The author is short WNDW.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have attempted to reach management through the contact information posted on the company's website, but have not heard back. I will update the article to reflect a response from management.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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