(Address, including zip code, and telephone
number, including area code, of registrant’s principal executive offices)
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Approximate date of commencement of proposed
sale to the public: From time to time after the effective date of this registration statement.
If any of the securities being registered on
this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box: [X]
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment
filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same offering. [ ]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions
of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
This Post-Effective Amendment No. 1 relates
to the Registrant’s Registration Statement on Form S-1 (File No. 333-208959) initially filed by the Registrant on January
11, 2016 and declared effective by the U.S. Securities and Exchange Commission (“SEC”) on January 20, 2016 (the or
this “Registration Statement”). This Post-Effective Amendment No. 1 to the Registration Statement is being filed (1)
to register additional securities in the amount of 300,000 shares of the Company’s common stock issued in connection with
the Company’s final closing of the November 2015 Stock Offering, as further described herein, and (2) pursuant to the undertakings
in Item 17 of the Registration Statement to update and supplement the information contained in the Registration Statement to include
the financial statements and other material information concerning the Registrant contained in the Registrant’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2015, that was filed with the SEC on March 30, 2016 and the Company’s
Quarterly Report on Form 10-Q for the period ending March 31, 2016, that was filed with the SEC on May 16, 2016.
The information included in this filing updates
and supplements the Registration Statement and the Prospectus contained therein.
The information in this prospectus is not
complete and may be changed. These securities may not be sold until the Registration Statement filed with the Securities
and Exchange Commission of which this prospectus is a part becomes effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
This prospectus relates to the resale of up
to 4,582,666 shares of our common stock (this “Offering”). We are not selling any shares of our common stock in this
offering and will not receive any proceeds from this offering.
The selling security holders named in this
prospectus are offering to sell shares of our common stock through this prospectus and they may be deemed “underwriters”
as that term is defined in Section 2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”).
The selling security holders named in this
prospectus may, from time to time, offer the shares of common stock covered by this prospectus at prevailing market or privately
negotiated prices, in one or more transactions that may take place by ordinary broker's transactions, privately negotiated transactions
or through sales to one or more dealers for resale. The selling security holders will pay all brokerage commissions and discounts
attributable to the sale of the shares plus brokerage fees. The selling security holders will receive all of the net proceeds
from this Offering. We bear all costs associated with the registration of the shares covered by this prospectus; provided, however,
we will not be required to pay any underwriters' discounts or commissions relating to the securities covered by this prospectus.
Shares of the Company’s common stock
are quoted on the OTC Pink marketplace under the symbol “SQFL”. To the Company's knowledge, only a small percentage
of our total issued and outstanding shares of common stock have been deposited with broker/dealers as of the date of this prospectus,
and no shares of our common stock have yet been offered for sale. Therefore, while our shares of common stock are eligible for
trading, a liquid public market has not yet developed. We cannot predict the future prices at which our shares will trade, or
the liquidity of a public market for our shares of common stock, should one develop.
We qualify as an “emerging growth company”
as defined in the Jumpstart our Business Startups Act (“JOBS Act”). See sub-section “Emerging Growth Company”
of section “Prospectus Summary” of this prospectus for additional information.
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
|
2
|
THE
OFFERING
|
5
|
SOURCE
OF OFFERING SECURITIES
|
5
|
SUMMARY
FINANCIAL DATA
|
7
|
RISK
FACTORS
|
8
|
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
|
19
|
TAX
CONSIDERATIONS
|
19
|
USE
OF PROCEEDS
|
19
|
CAPITALIZATION
|
19
|
DETERMINATION
OF THE OFFERING PRICE
|
20
|
MARKET
FOR COMMON STOCK
|
20
|
DIVIDEND
POLICY
|
20
|
THE
STOCK OFFERINGS
|
21
|
OTHER
NOTABLE SECURITY ISSUANCES
|
22
|
SELLING
SECURITY HOLDERS
|
23
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
27
|
BUSINESS
|
39
|
PROPERTIES
|
44
|
LITIGATION
|
44
|
MANAGEMENT
|
45
|
EXECUTIVE
COMPENSATION
|
48
|
PRINCIPAL
SHAREHOLDERS
|
55
|
RELATED
PARTY TRANSACTIONS
|
59
|
DESCRIPTION
OF SECURITIES
|
59
|
PLAN
OF DISTRIBUTION
|
62
|
LEGAL
MATTERS
|
63
|
EXPERTS
|
64
|
ADDITIONAL
INFORMATION
|
64
|
FINANCIAL
STATEMENTS
|
65
|
SIGNATURES
|
129
|
EXHIBIT
INDEX
|
130
|
You should rely only on information contained
in this prospectus. We have not authorized anyone to provide you with information that is different from that contained
in this prospectus. No selling security holder is offering to sell, or seeking offers to buy, shares of common stock
in jurisdictions where such offers and sales are not permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. We
are responsible for updating this prospectus to ensure that all material information is included and will update this prospectus
to the extent required by law.
PROSPECTUS SUMMARY
This summary highlights certain information
appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider
prior to investing in the securities offered hereby. After you read this summary, you should read and consider carefully the more
detailed information and financial statements and related notes that we include in this prospectus, especially the sections entitled
“Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
If you invest in our securities, you are assuming a high degree of risk.
Unless we have indicated otherwise or the
context otherwise requires, references in this prospectus to the “Company,” “we,” “us” and
“our” or similar terms are to Safety Quick Lighting & Fans Corp.
Our Company
Safety Quick Light LLC was formed in the State
of Florida on May 14, 2004. On November 6, 2012, the Company’s board of directors converted Safety Quick Light LLC under
the laws of the State of Florida into Safety Quick Lighting & Fans Corp.
We are a company engaged in the business of
developing proprietary technology that enables a quick and safe installation by the use of a weight-bearing power plug for electrical
fixtures, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes. Our patented technology consists
of a fixable socket and a revolving plug for conducting electric power and supporting an electrical appliance attached to a wall
or ceiling. The socket is comprised of a non-conductive body that houses conductive rings connectable to an electric power supply
through terminals in its side exterior. The plug, also comprised of a non-conductive body that houses corresponding conductive
rings, attaches to the socket via a male post and is capable of feeding electric power to an appliance. The plug also includes
a second structural element allowing it to revolve with a releasable latching which, when engaged, provides a retention force
between the socket and the plug to prevent disengagement. The socket and plug can be detached by releasing the latch, disengaging
the electric power from the plug. The socket is designed to replace the support bar incorporated in electric junction boxes, and
the plug can be installed in light fixtures, ceiling fans, wall sconce fixtures and other electrical devices. The combined socket
and plug technology is referred to throughout this prospectus as “the SQL Technology”.
We currently manufacture and sell ceiling
fans and lighting fixtures branded with the General Electric logo and manufactured under General Electric’s guidance. Our
ceiling fans and lighting fixtures offer unique designs, and are manufactured with and without the SQL Technology.
Our independent registered public accounting
firm has issued an audit opinion which includes an explanatory paragraph expressing doubt as to our ability to continue as a going
concern. This means there is substantial doubt that we can continue as an on-going business unless we can support our working
capital and ongoing operational cost requirements through increased revenue or additional capital raising efforts. Management’s
plans regarding those matters are further described below in the subsection titled “Our Business.”
Our Business
Safety Quick Light LLC began marketing the
SQL Technology in 2007 for installation in light fixtures and ceiling fans during manufacturing and as a kit for installing the
SQL Technology in existing light fixtures and ceiling fans. The Company sold 800,000 units of the SQL Technology OEM (“Original
Equipment Manufacturer”) to lighting manufacturers and retailers who installed the socket and plug technology into their
lighting fixtures for sale at retail stores. The Company also sold, directly to the retailers, 100,000 ceiling fans with the SQL
Technology embedded into the product. Our management team determined that it could improve its gross margins if it were to market
light fixtures and ceiling fans with and without the SQL Technology already installed on fixtures (our “Business Model”),
instead of marketing the SQL Technology as an add-on device. During the first quarter of 2010, the Company’s management
took the first of several steps toward implementing our Business Model and discontinued marketing the SQL Technology as an add-on
device; however, existing orders were honored through 2010 and 2011, resulting in revenues through 2012.
Company management then took the next step
in furtherance of our Business Model and sought the endorsement of the SQL Technology from General Electric. During 2010 and 2011,
GE tested the SQL Technology and in June 2011, GE and SQL Lighting & Fans, LLC, a subsidiary of the Company, entered into
a trademark licensing agreement (the “License Agreement”) under which SQL Lighting & Fans, LLC was licensed to
use the GE monogram logo on its devices and certain other trademarks on its ceiling fans and light fixtures through December 31,
2017. The License Agreement requires the Company to pay a percent of revenue generated on our products using the GE monogram logo
as a license fee, including a minimum license fee payment during the term. The License Agreement enables the Company to market
ceiling fans and light fixtures with and without the SQL Technology using the GE logo. The License Agreement imposes certain manufacturing
and quality control conditions that we must maintain. In addition to marketing ceiling fans and light fixtures under the GE logo
and trademarks, the Company has the right to offer private label ceiling fans and light fixtures with its technology installed
to retailers that market private label products. We amended the License Agreement in April 2013, and again in August 2014, pursuant
to which the Company agreed to pay a minimum total of $12,000,000 in licensing fees, which will be due in December 2018.
In furtherance of our Business Model, the
Company sought to establish trade distribution channels with key retailers. In July 2012, the Company entered into a sales and
marketing agreement with Design Solutions International, Inc. (“DSI”), a privately held, lighting industry design
and marketing firm (the “DSI Agreement”). In 2015, DSI was acquired by NBG Home, a leading global designer, manufacturer
and marketer of home décor products owned by Kohlberg & Company. Under the terms of the DSI Agreement, which remains
in effect, DSI serves as the Company’s exclusive sales representative for all its products and goods in the United States
and Canada. For its services, DSI receives a commission based on net sales. In addition to DSI’s sales and marketing support,
the Company’s products will also be sold through GE’s lighting sales group as a condition of the License Agreement.
The Company’s Business Model entails
the use of third party manufactures to produce the SQL Technology and the ceiling fans and light fixtures in which SQL Technology
is imbedded. The manufacturers currently used by the Company are located in Guangdong province of China and, as required by the
Licensing Agreement with GE, must be approved by GE to ensure quality standards are met. To further ensure that quality specifications
are maintained, the Company maintains an office in the Guangdong province staffed with GE trained auditors who will regularly
inspect its products produced by the third party manufacturer.
The Company obtained the capital resources
necessary to implement its Business Model pursuant to the Notes Offering. On November 26, 2013, May 8, 2014 and June 25, 2014
we concluded closings of the Notes Offering with certain accredited investors, as defined under Regulation D, Rule 501 of the
Securities Act. See subsection “The Notes Offering” of section “Other Notable Security Issuances” of this
prospectus for additional information.
During 2014, the Company experienced unanticipated
delays in the facility approval process noted above, which delayed sample availability and thus, sales activity. The Company has
since obtained the necessary qualification and approval of the third party manufacturer’s facilities. The Company also enhanced
its Business Model to include an additional, parallel revenue path providing for the design and manufacture of a smaller, less
customized, and more unique product line which incorporates the GE branding and the SQL Technology.
In February 2015, we received an updated United
Laboratory (“UL”) Listing for the SQL Technology. This listing expands the type of products that we will be able to
use with the SQL Technology. This listing expanded the voltage and amperage that our product is rated for and will allow for additional
fixtures, such as heating elements to be incorporated into our ceiling fans.
During 2015, the Company continued to develop
its Business Model, following the initial development of its first two channels of business which involved selling its products
to big box retailers as well as launching its on-line product sales. The Company is working to develop additional vertical channels
and has expanded its marketing and selling efforts to a broader base of customers within each market channel.
On September 15, 2015, the Financial Industry
Regulatory Authority (“FINRA”) cleared a request to establish a market in shares of our common stock. On October 8,
2015, OTC Markets Group announced that the Company was verified for trading, and shares of our common stock are currently quoted
under the symbol “SQFL” on the OTC Pink marketplace. Presently, shares of our common stock not subject to restriction
are eligible for trading in the OTC Pink marketplace. However, to the Company's knowledge, only a small percentage of our total
issued and outstanding shares of common stock have been deposited with broker/dealers as of the date of this prospectus, and no
shares of our common stock have yet been offered for sale. Therefore, while our shares of common stock are eligible for trading,
a liquid public market has not yet developed.
During 2015 and early 2016, the Company obtained
additional capital resources to implement its Business Model. See section “The Stock Offerings” of this prospectus
for additional information.
The Company is registering up to 4,582,666
shares of its common stock, which may be offered and sold by certain selling security holders. Purchasers who purchase shares
from the selling security holders who are not officers and directors of the Company will likewise receive the selling security
holder prospectus.
Corporate Information
We are a Florida corporation. Our
principal executive offices are located at 4400 North Point Parkway, Suite 154, Alpharetta, Georgia, 30022. Our phone
number is (770) 754-4711, and our website can be found at www.safetyquicklight.com. The information on our website
does not form a part of this prospectus.
Emerging Growth Company
We are an “emerging growth company,”
as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable
to other public companies.
Section 107(b) of the JOBS Act provides that
an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company”
can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have
irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section
107(b) of the JOBS Act.
THE OFFERING
Securities
offered
|
|
Up
to 4,582,666 shares of our common stock by the selling security holders.
|
|
|
|
Terms of offering
|
|
The
selling security holders will determine when and how they will sell the common stock of the Company offered in this prospectus.
|
|
|
|
Common stock issued
and outstanding as of this prospectus
|
|
46,553,343
shares.
|
|
|
|
Use
of proceeds
|
|
We
will not receive any proceeds from this offering.
|
|
|
|
Dividend policy
|
|
We
have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such
dividends for the foreseeable future.
|
|
|
|
Risk factors
|
|
See
the section titled “Risk Factors” and the other information set forth in this prospectus for a discussion of factors
you should consider before deciding to invest in our securities.
|
|
|
|
Market for common
stock
|
|
Shares
of the Company’s common stock are quoted on the OTC Pink marketplace under the symbol “SQFL”. To
the Company's knowledge, only a small percentage of our total issued and outstanding shares of common stock have been deposited
with broker/dealers as of the date of this prospectus, and no shares of our common stock have yet been offered for sale. Therefore,
while our shares of common stock are eligible for trading, a liquid public market has not yet developed. We cannot
predict the future prices at which our shares will trade, or the liquidity of a public market for our shares of common stock,
should one develop.
|
SOURCE OF OFFERING SECURITIES
46,553,343 shares of our common stock were
issued and outstanding as of the date of this prospectus, which includes (i) the 4,582,666 shares of our common stock offered pursuant
to this offering issued in connection with the May 2015 Stock Offering and the November 2015 Stock Offering, (ii) 35,665,486 shares
registered by the Company pursuant to its Registration Statement filed on August 1, 2014 and declared effective on October 22,
2014, as post-effectively amended (the “2014 Registration Statement”), and (iii) 6,305,191 shares of our common stock
which have not been registered and were issued in connection with the Interest and Penalty Issuances, CEO Agreement, Hills Agreement,
Director Compensation Issuances, stock awards under the Incentive Plan, April 2016 Stock Offering and May 2016 Private Placement.
In addition, the shares offered pursuant to
this offering do not include up to 28,392,586 shares of our common stock which may be obtained by the conversion or exercise of
certain notes, warrants, or options currently outstanding, of which (i) up to 24,225,919 have been registered by the 2015 Registration
Statement, and (ii) up to 4,166,667 which have not been registered and are issuable upon the exercise of options and warrants issued
in connection with the Director Compensation Issuances, Incentive Plan Issuances, April 2016 Stock Offering and May 2016 Private
Placement.
All capitalized terms referenced above have
the meanings given to such terms as defined in this prospectus.
Beginning in May 2015, we conducted an offering
of up to $4,000,000 of restricted shares of the Company’s common stock, no par value per share (the “May 2015 Offering
Shares”), at $0.60 per share to certain accredited and non-accredited investors (the “May 2015 Stock Offering”),
in reliance upon the exemptions provided in the Securities Act of 1933, as amended, including Regulation D, Rule 501. The May
2015 Stock Offering consisted of one or more closings and ended on November 6, 2015, pursuant to two extension authorized by the
Company’s Board of Directors (the “Board”). The Company engaged a broker-dealer to assist in the May 2015 Stock
Offering.
Beginning in November 2015, we conducted an
offering of up to $2,000,000 of restricted shares of the Company’s common stock, no par value per share (the “November
2015 Offering Shares”), at $1.00 per share to certain accredited and non-accredited investors (the “November 2015
Stock Offering”), in reliance upon the exemptions provided in the Securities Act of 1933, as amended, including Regulation
D, Rule 501. The November 2015 Stock Offering will consist of one or more closings and will end on March 31, 2016, pursuant to
an extension authorized by the Company’s Board. The Company engaged a broker-dealer to assist in the November 2015 Stock
Offering.
The May 2015 Offering Shares and the November
2015 Offering Shares will hereinafter be collectively referred to as the “Offering Shares”, and the May 2015 Stock
Offering and November 2015 Stock Offering will hereinafter be collectively referred to as the “Stock Offerings”.
The Offering Shares in both Stock Offerings
were offered pursuant to subscription agreements with each investor (each, a “Subscription Agreement”). In connection
with each Subscription Agreement, the Company entered into a registration rights agreement with each investor (each, a “2015
Registration Rights Agreement”), whereby the Company agreed to prepare and file a registration statement with the SEC to
register the Offering Shares within one hundred fifty (150) days after date of the applicable 2015 Registration Rights Agreement.
If the Company could not file the registration statement by such date using its reasonable efforts for each applicable 2015 Registration
Rights Agreement, the Company would have been required to pay a filing default penalty to the applicable investor equal to two
percent (2%) of the gross proceeds paid by such investor. The 2015 Registration Rights Agreement shall collectively refer to substantively
identical registration rights agreements entered into in both Stock Offerings.
On June 12, 2015, the Company completed an
initial closing of the May 2015 Stock Offering and entered into Subscription Agreements and 2015 Registration Rights Agreements
with investors representing aggregate gross proceeds to the Company of $1,280,000, and thereafter issued 2,133,333 shares of its
common stock. On August 14, 2015, the Company completed a second closing of the offering and entered into Subscription Agreements
and 2015 Registration Rights Agreements with investors representing aggregate gross proceeds to the Company of $729,600, and issued
1,216,000 shares of its common stock in connection therewith. On November 6, 2015, the Company completed a second closing of the
offering and entered into Subscription Agreements and 2015 Registration Rights Agreements with investors representing aggregate
gross proceeds to the Company of $260,000, and issued 433,333 shares of its common stock in connection therewith. The May 2015
Stock Offering ended on November 6, 2015, resulting in aggregate gross proceeds to the Company of $2,269,600.40.
On December 24, 2015, the Company completed
an initial closing of the November 2015 Stock Offering and entered into Subscription Agreements and 2015 Registration Rights Agreements
with investors representing aggregate gross proceeds to the Company of $500,000, and thereafter issued 500,000 shares of its common
stock. On February 19, 2016, the Company closed on aggregate gross proceeds to the Company of $300,000, and thereafter issued
300,000 shares of its common stock. The November 2015 Stock Offering ended on February 19, 2016, resulting in aggregate gross
proceeds to the Company of $800,000.
SUMMARY FINANCIAL DATA
The following summary of our financial data
should be read in conjunction with, and is qualified in its entirety by reference to “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, appearing elsewhere
in this prospectus.
Statements of Operations Data
|
|
For
the year ended December 31, 2014
(1)
|
|
For
the year ended
December
31, 2015
|
Revenue
|
|
$
|
—
|
|
|
$
|
2,885,007
|
|
Loss from Operations
(2)
|
|
$
|
(4,799,696
|
)
|
|
$
|
(5,236,747
|
)
|
Other
Income/(Expense)
|
|
$
|
(2,494,047
|
)
|
|
$
|
(22,061,219
|
)
(3)
|
Net
Income/(Loss)
(2)
|
|
$
|
(7,293,743
|
)
|
|
$
|
(26,890,210
|
)
(4)
|
Balance Sheet Data
|
|
December
31, 2014
(1)
|
|
December
31, 2015
|
Current
Assets
|
|
$
|
1,271,130
|
|
|
$
|
985,028
|
|
Total Assets
|
|
$
|
11,243,035
|
|
|
$
|
8,399,788
|
|
Total
Liability
|
|
$
|
20,605,210
|
|
|
$
|
41,149,195
|
(4)
|
Total
Stockholders' (Deficit)
(2)
|
|
$
|
(9,362,175
|
)
|
|
$
|
(32,749,407)
|
(4)
|
|
(1)
|
The
Company’s Annual Report on Form 10-K filed with the SEC on March 20, 2016 included
a restatement of certain financials, as more fully described in the Financial Statements
filed herewith.
|
|
(2)
|
Includes
the amortization of the trademark license under the GE Agreement of $2,441,471 and $2,434,783
for 2015 and 2014, respectively.
|
|
(3)
|
Includes
a change in fair value of derivative liabilities of $19,416,295 in 2015.
|
|
(4)
|
Includes
$24,157,838 in derivative liabilities, and $11,795,855 in trademark license obligations
under the GE Agreement.
|
RISK FACTORS
Investing in our common stock involves
a high degree of risk. You should carefully consider the following risk factors before deciding whether to invest in
the Company. If any of the events discussed in the risk factors below occur, our business, financial condition, results of
operations or prospects could be materially and adversely affected. In such case, the value and marketability of the
common stock could decline. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial
may also impair our business, financial condition, operating results and prospects.
Risks Relating to our Business
Our ability to generate revenue to support
our operations is uncertain.
We are in the early stage of our business
and have a limited history of generating revenues. We have a limited operating history upon which you can evaluate our potential
for future success, and we are subject to the additional risks affecting early-stage businesses. Rather than relying on historical
information, financial or otherwise, to evaluate our Company, you should evaluate our Company in light of your assessment of the
growth potential of our business and the expenses, delays, uncertainties, and complications typically encountered by early-stage
businesses, many of which will be beyond our control. Early-stage businesses in rapidly evolving markets commonly face risks,
such as the following:
•
|
|
unanticipated
problems, delays, and expenses relating to the development and implementation of their business plans;
|
•
|
|
operational
difficulties;
|
•
|
|
lack
of sufficient capital;
|
•
|
|
competition
from more advanced enterprises; and
|
•
|
|
uncertain
revenue generation.
|
Our limited operating history may make
it difficult for us to accurately forecast our operating results.
Our planned expense levels are, and will continue
to be, based in part on our expectations, which are difficult to forecast accurately based on our stage of development and factors
outside of our control. We may be unable to adjust spending in a timely manner to compensate for any unexpected developments.
Further, business development expenses may increase significantly as we expand operations. To the extent that any unexpected expenses
precede, or are not rapidly followed by, a corresponding increase in revenue, our business, operating results, and financial condition
may be materially and adversely affected.
We have a history of losses that may
continue, which may negatively impact our ability to achieve our business objectives.
We have incurred net losses since our inception.
The Company’s net loss from inception to December 31, 2015, is approximately $32,713,965. We cannot assure you that we can
achieve or sustain profitability on a quarterly or annual basis in the future. There can be no assurance that future operations
will be profitable. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact
on us.
Our independent registered accounting
firm has expressed concerns about our ability to continue as a going concern.
The report of our independent registered accounting
firm expresses concern about our ability to continue as a going concern based on insufficient working capital, a stockholders’
deficit and recurring net losses. This means there is substantial doubt that we can continue as an on-going business unless we
can support our working capital and ongoing operational cost requirements through increased revenue or additional capital raising
efforts. It is not possible at this time for us to predict with assurance the potential success of our management’ business
plan. The revenue and income potential of our business and operations are unknown. If we cannot continue as a viable entity, we
may be unable to continue our operations and you may lose some or all of your investment in our common stock.
We operate in a highly competitive industry
and if we are unable to compete successfully our revenue and profitability will be adversely affected.
We face strong competition from manufacturers
and distributors of lighting and fan fixtures, worldwide. Many of our competitors have stronger capitalization than we do, have
strong existing customer relationships and more extensive engineering, manufacturing, sales and marketing capabilities. Competitors
could focus their substantial resources on developing a competing technology that may be potentially more attractive to customers
than our products or services. In addition, we may face competition from other products with existing technologies. Our competitors
may also offer competitive products at reduced prices in order to improve their competitive positions. Any of these competitive
factors could make it more difficult for us to attract and retain customers, require us to lower our prices in order to remain
competitive, and reduce our revenue and profitability, any of which could have a material adverse effect on our results of operations
and financial condition.
Our success depends on our ability to
expand, operate, and successfully manage our operations.
Our success depends on our ability to design
products popular with customers and consumers, effectively market our products, manage third party manufacturing operations in
China, and successfully manage our operations. Our ability to successfully accomplish these objects will depend upon a number
of factors, including the following:
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signing
with strategic distribution partners with established retail and wholesale relationships;
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the
continued development of our business;
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the
hiring, training, and retention of competent personnel;
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the
ability to design products that generates customer demand;
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the
ability to enhance our operational, financial, and management systems;
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the
availability of adequate financing;
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competitive
factors; and
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general
economic and business conditions.
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If we are unable to obtain additional
capital, our business operations could be harmed.
The expansion of our business will require
additional funds to support inventories and accounts receivable. In the future, we expect to seek additional equity or debt financing
to provide for our working. Such financing may not be available or may not be available on satisfactory terms to us. If financing
is not available on satisfactory terms, we may be unable to expand our operations to achieve our objectives. While debt financing
will enable us to expand our business more rapidly than we otherwise would be able to do, debt financing increases expenses and
we must repay the debt regardless of our operating results. Future equity financings could result in dilution to our stockholders.
The recent global financial crisis, which
has included, among other things, significant reductions in available capital and liquidity from banks and other providers of
credit, substantial reductions or fluctuations in equity and currency values worldwide, and concerns that the worldwide economy
may enter into a prolonged recessionary period, may make it difficult for us to raise additional capital or obtain additional
credit, when needed, on acceptable terms or at all.
Our inability to obtain adequate capital resources,
whether in the form of equity or debt, to fund our business and growth strategies, may require us to delay, scale back, or eliminate
some or all of our operations, which may adversely affect our financial results and ability to operate as a going concern.
The success of our business depends
on the market acceptance of products with our proprietary technology.
Our future success depends on the market acceptance
of our proprietary safety quick technology and our products in which our technology is imbedded. If we are unable to convince
current and potential customers of the advantages of our proprietary technology, then our ability to sell our lighting and fan
products will be limited. If the market for our proprietary technology does not develop, or if the market does not accept our
products, then our ability to grow our business could be limited.
We depend on a limited number of third
party manufacturers.
We depend on certain key manufacturers for
our current products. If these relationships become strained, our results of operations and financial condition could be materially
adversely affected.
We may depend upon a limited number
of customers in any given period to generate a substantial portion of our revenue.
Our industry does not lend to long-term customer
contracts, and our dependence on individual key customers can vary from period to period as a result of consumer demands among
others variables. As a result, we may experience more customer concentration in any given future period. The loss of, or substantial
reduction in sales to, any of our significant customers could have a material adverse effect on our results of operations in any
given future period.
We may need to raise additional financing
to support our operations, but we cannot be sure that we will be able to obtain additional financing on terms favorable to us
when needed. If we are unable to obtain additional financing to meet our needs, our operations may be adversely affected or terminated.
We have limited financial resources. There
can be no assurance that we will be able to obtain financing to fund our operations in light of factors beyond our control such
as the market demand for our securities, the state of financial markets, generally, and other relevant factors. Any sale of our
common stock in the future may result in dilution to existing stockholders. Furthermore, there is no assurance that we will not
incur debt in the future, that we will have sufficient funds to repay any future indebtedness or that we will not default on our
future debts, which would thereby jeopardize our business viability. Finally, we may not be able to borrow or raise additional
capital in the future to meet our needs or to otherwise provide the capital necessary to continue the development of our technology,
which might
result in the loss of some or all of your
investment in our common stock.
If we obtain debt financing, we will
face risks associated with financing our operations.
If we obtain debt financing, we will be subject
to the normal risks associated with debt financing, including the risk that our cash flow will be insufficient to meet required
payments of principal and interest and the risk that we will not be able to renew, repay, or refinance our debt when it matures
or that the terms of any renewal or refinancing will not be as favorable as the existing terms of that debt. If we enter into
secured lending facilities and are unable to pay our obligations to our secured lenders, they could proceed against any or all
of the collateral securing our indebtedness to them.
We may acquire
other businesses, license rights to technologies or products, form alliances, or dispose of or spin-off businesses, which could
cause us to incur significant expenses and could negatively affect profitability.
We may pursue acquisitions, technology-licensing
arrangements, and strategic alliances, or dispose of or spin-off some of our businesses, as part of our business strategy. We
may not complete these transactions in a timely manner, on a cost-effective basis, or at all, and may not realize the expected
benefits. If we are successful in making an acquisition, the products and technologies that are acquired may not be successful
or may require significantly greater resources and investments than originally anticipated. We may not be able to integrate acquisitions
successfully into our existing business and could incur or assume significant debt and unknown or contingent liabilities. We could
also experience negative effects on our reported results of operations from acquisition or disposition-related charges, amortization
of expenses related to intangibles and charges for impairment of long-term assets.
We depend on our officers, key employees
and agents who would be difficult to replace, and our business will likely be harmed if we lose their services or cannot hire
additional qualified personnel.
Our success depends substantially on the efforts
and abilities of our officers, and other key employees and agents. The Company has an employment agreement with its chief executive
officer but we do not think this agreement limits such employee’s ability to terminate his employment; the Company also
has a consulting agreement with Rani Kohen, the Company’s founder. We do not have key person life insurance on chief executive
officer; we do not have key person life insurance covering any of our other officers or other key employees or agents, including
Mr. Kohen. The loss of services of one or more of our officers or key employees or agents or the inability to add key personnel
could have a material adverse effect on our business. Competition for experienced personnel in our industry is substantial. Our
success depends in part on our ability to attract, hire, and retain qualified personnel. In addition, if any of our officers or
other key employees join a competitor or form a competing company, we may lose some of our customers.
If we experience rapid growth and we
are not able to manage this growth successfully, this inability to manage the growth could adversely affect our business, financial
condition, and results of operations.
Rapid growth places a significant strain on
our financial, operational, and managerial resources. While we engage in strategic and operational planning to adequately manage
anticipated growth, there can be no assurance that we will be able to implement and subsequently improve operations and financial
systems successfully and in a timely manner to fully manage our growth. There can be no assurance that we will be able to manage
our growth and any inability to successfully manage growth could materially adversely affect our business, financial condition,
and results of operation.
We rely on third party manufacturers
to produce our products. We may be unable to achieve our growth and profitability objectives if we cannot secure acceptable third
party manufacturers or existing third party manufacturer relationships dissolve.
We do not know whether our current or future
manufacturing arrangements will be able to develop efficient, low-cost manufacturing capabilities and processes that will enable
us to meet the quality, price, engineering, design and production standards, or production volumes required to successfully mass
market such products. Even if we are successful in developing manufacturing capabilities and processes, we do not know whether
we will do so in time to meet market demand. Our failure to develop these manufacturing processes and capabilities, if necessary,
in a timely manner could prevent us from achieving our growth and profitability objectives.
Our business may become substantially
dependent on contracts that are awarded through competitive bidding processes.
We may sell a significant portion of our products
pursuant to contracts that are subject to competitive bidding, including contracts with municipal authorities. Competition for,
and negotiation and award of, contracts present varied risks, including, but not limited to:
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investment
of substantial time and resources by management for the preparation of bids and proposals with no assurance that a contract
will be awarded to us;
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the
requirement to certify as to compliance with numerous laws (for example, socio-economic, small business, and domestic preference)
for which a false or incorrect certification can lead to civil and criminal penalties;
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the
need to estimate accurately the resources and cost structure required to service a contract; and
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the
expenses and delays that we might suffer if our competitors protest a contract awarded to us, including the potential that
the contract may be terminated and a new bid competition may be conducted.
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If we are unable to win contracts awarded
through the competitive bidding process, we may not be able to operate in the market for products and services that are provided
under those contracts for a number of years. If we are unable to consistently win new contract awards over any extended period,
or if we fail to anticipate all of the costs and resources that will be required to secure and perform such contract awards, our
growth strategy and our business, financial condition, and results of operations could be materially and adversely affected.
We sell, or will sell, products and
services to companies in industries which tend to be extremely cyclical; downturns in those industries would adversely affect
our results of operations.
The growth and profitability of our business
will depend on sales to industries that are subject to cyclical downturns. Slowdowns in these industries may adversely affect
sales by our businesses, which in turn would adversely affect our revenues and results of operations.
We are, or in the future may be, subject
to substantial regulation related to quality standards applicable to our quality processes. Our failure to comply with applicable
quality standards could have an adverse effect on our business, financial condition, or results of operations.
The Environmental Protection Agency regulates
the registration, manufacturing, and sales and marketing of products in our industry, and those of our distributors and partners,
in the United States. Significant government regulation also exists in overseas markets. Compliance with applicable regulatory
requirements is subject to continual review and is monitored through periodic inspections and other review and reporting mechanisms.
Failure by us or our partners to comply with
current or future governmental regulations and quality assurance guidelines could lead to product recalls or related field actions,
or product shortages. Efficacy or safety concerns with respect to our products or those of our partners could lead to product
recalls, fines, withdrawals, declining sales, and/or our failure to successfully commercialize new products or otherwise achieve
revenue growth.
The success of our businesses will depend
on our ability to effectively develop and implement strategic business initiatives.
We are currently implementing various strategic
business initiatives. In connection with the development and implementation of these initiatives, we will incur additional expenses
and capital expenditures to implement the initiatives. The development and implementation of these initiatives also requires management
to divert a portion of its time from day-to-day operations. These expenses and diversions could have a significant impact on our
operations and profitability, particularly if the initiatives prove to be unsuccessful. Moreover, if we are unable to implement
an initiative in a timely manner, or if those initiatives turn out to be ineffective or are executed improperly, our business
and operating results would be adversely affected.
Failure to successfully reduce our current
or future production costs may adversely affect our financial results.
A significant portion of our strategy will
rely upon our ability to successfully rationalize and improve the efficiency of our operations. In particular, our strategy relies
on our ability to reduce our production costs in order to remain competitive. If we are unable to continue to successfully implement
cost reduction measures, especially in a time of a worldwide economic downturn, or if these efforts do not generate the level
of cost savings that we expect going forward or result in higher than expected costs, there could be a material adverse effect
on our business, financial condition, results of operations, or cash flows.
If we are unable to make necessary capital
investments or respond to pricing pressures, our business may be harmed.
In order to remain competitive, we need to
invest in research and development, customer service and support, and marketing. From time to time, we may have to adjust the
prices of our products and services to remain competitive. We may not have available sufficient financial or other resources to
continue to make investments necessary to maintain our competitive position.
We have limited product distribution
experience and we expect to rely on third parties who may not successfully sell our products.
We have limited product distribution experience
and currently rely, and plan to rely primarily, on product distribution arrangements with third parties. We may also license our
technology to certain third parties for commercialization of certain applications. We expect to enter into distribution agreements
and/or licensing agreements in the future, and we may not be able to enter into these agreements on terms that are favorable to
us, if at all. In addition, we may have limited or no control over the distribution activities of these third parties. These third
parties could sell competing products and may devote insufficient sales efforts to our products. As a result, our future revenues
from sales of our products, if any, will depend on the success of the efforts of these third parties.
We could face significant liabilities
in connection with our technology, products, and business operations, which if incurred beyond any insurance limits, would adversely
affect our business and financial condition.
We are subject to a variety of potential liabilities
connected to our technology development and business operations, such as potential liabilities related to environmental risks.
As a business which markets products for use by consumers and institutions, we may become liable for any damage caused by our
products, whether used in the manner intended or not. Any such claim of liability, whether meritorious or not, could be time-consuming
and/or result in costly litigation. Although we intend to obtain insurance against certain of these risks, no assurance can be
given that such insurance will be adequate to cover related liabilities or will be available in the future or, if available, that
premiums will be commercially justifiable. If we were to incur any substantial liability and related damages were not covered
by our insurance or exceeded policy limits, or if we were to incur such liability at a time when we are not able to obtain liability
insurance, our business, financial conditions, and results of operations could be materially adversely affected.
Our inability to protect our intellectual
property, or our involvement in damaging and disruptive intellectual property litigation, could adversely affect our business,
results of operations and financial condition or result in the loss of use of the product or service.
We attempt to protect our intellectual property
rights through a combination of patent, trademark, copyright and trade secret laws, as well as third-party nondisclosure and assignment
agreements. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have
a material adverse effect on our business, results of operations and financial condition.
We own United States and international patents
and patent applications for our technologies. We offer no assurance about the degree of protection which existing or future patents
may afford us. Likewise, we offer no assurance that our patent applications will result in issued patents, that our patents will
be upheld if challenged, that competitors will not develop similar or superior business methods or products outside the protection
of our patents, that competitors will not infringe our patents, or that we will have adequate resources to enforce our patents.
To protect our trade secrets and other proprietary
information, we generally require employees, consultants, advisors and collaborators to enter into confidentiality agreements.
We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary
information. If we are unable to maintain the proprietary nature of our technologies, our business could be materially adversely
affected.
We rely on our trademarks, trade names, and
brand names to distinguish our company and our products and services from our competitors.
Some of our trademarks may conflict with trademarks
of other companies. Failure to obtain trademark registrations could limit our ability to protect our trademarks and impede our
sales and marketing efforts. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will
have adequate resources to enforce our trademarks.
In addition, third parties may bring infringement
and other claims that could be time-consuming and expensive to defend. In addition, parties making infringement and other claims
may be able to obtain injunctive or other equitable relief that could effectively block our ability to provide our products, services
or business methods and could cause us to pay substantial damages. In the event of a successful claim of infringement, we may
need to obtain one or more licenses from third parties, which may not be available at a reasonable cost, or at all. It is possible
that our intellectual property rights may not be valid or that we may infringe existing or future proprietary rights of others.
Any successful infringement claims could subject us to significant liabilities, require us to seek licenses on unfavorable terms,
prevent us selling products, services and business methods and require us to redesign or, in the case of trademark claims, rebrand
our company or products, any of which could have a material adverse effect on our business, financial condition or results of
operations.
The expiration or loss of patent protection
and licenses may affect our future revenues and operating income.
Much of our business relies on patent and
trademark and other intellectual property protection. Although most of the challenges to our intellectual property would likely
come from other businesses, governments may also challenge intellectual property protections. To the extent our intellectual property
is successfully challenged, invalidated, or circumvented, or to the extent it does not allow us to compete effectively, our business
will suffer. To the extent that countries do not enforce our intellectual property rights or to the extent that countries require
compulsory licensing of our intellectual property, our future revenues and operating income will be reduced.
Our research and development efforts
may not succeed in developing commercially successful products and technologies, which may cause our revenue and profitability
to decline.
To remain competitive, we must continue to
launch new products and technology, and enhance our current products and technology. To accomplish this, we must commit substantial
efforts, funds, and other resources to research and development. A high rate of failure is inherent in the research and development
of new products and technology. We must make ongoing substantial expenditures without any assurance that its efforts will be commercially
successful. Failure can occur at any point in the process, including after significant funds have been invested. We cannot state
with certainty when or whether any of our products or technology under development will be launched or whether any products or
technologies will be commercially successful. Failure to launch successful new products or technology, or enhance existing products
or technology may cause our products or technology to become obsolete, causing our revenues and operating results to suffer.
New products and technological advances
by our competitors may negatively affect our results of operations.
Our products and technology face intense competition
from our competitors’ products and technology. Competitors’ products and technology may be more effective, more effectively
marketed or sold, or have lower prices or superior performance features than our products or technology. We cannot predict with
certainty the timing or impact of the introduction of competitors’ products or technology.
Our costs may grow more quickly than
our revenue, harming our business and profitability.
Providing our products or technology to our
customers is costly and we expect our expenses to continue to increase in the future. We expect to continue to invest in our infrastructure
in order to provide our products and technology rapidly and reliably to all customers. Our expenses may be greater than we anticipate,
and our investments to make our business and our infrastructure more efficient may not be successful. In addition, we may increase
marketing, sales, and other operating expenses in order to grow and expand our operations and to remain competitive. Increases
in our costs may adversely affect our business and profitability.
The loss of our License Agreement with
General Electric could negatively affect our results of operations.
We currently have a License Agreement with
General Electric whereby we may market GE Branded ceiling fans and light fixtures with the SQL Power Plug Technology installed
on the product. Through our License Agreement, we have received order indications from major retailers. The loss of this arrangement
or the termination of the License Agreement could limit our ability to secure additional customers and thereby could have a material
adverse effect on our profitability and financial condition.
Other factors can have a material adverse
effect on our future profitability and financial condition.
Many other factors can affect our profitability
and financial condition, including:
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changes
in, or interpretations of, laws and regulations including changes in accounting standards and taxation requirements;
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changes
in the rate of inflation, interest rates and the performance of investments held by us;
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changes
in the creditworthiness of counterparties that transact business with;
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changes
in business, economic, and political conditions, including: war, political instability, terrorist attacks in the U.S. and
other parts of the world, the threat of future terrorist activity in the U.S. and other parts of the world and related military
action; natural disasters; the cost and availability of insurance due to any of the foregoing events; labor disputes, strikes,
slow-downs, or other forms of labor or union activity; and, pressure from third-party interest groups;
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changes
in our business and investments and changes in the relative and absolute contribution of each to earnings and cash flow resulting
from evolving business strategies, changing product mix, changes in tax rates and opportunities existing now or in the future;
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difficulties
related to our information technology systems, any of which could adversely affect business operations, including any significant
breakdown, invasion, destruction, or interruption of these systems;
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changes
in credit markets impacting our ability to obtain financing for our business operations; or
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legal difficulties,
any of which could preclude or delay commercialization of products or technology or adversely affect profitability, including
claims asserting statutory or regulatory violations, adverse litigation decisions, and issues regarding compliance with any
governmental consent decree.
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Risks Related to our Operation and Structure
We can provide no assurances as to our
future financial performance or the investment result of a purchase of our common stock.
Any projected results of operations involve
significant risks and uncertainty, should be considered speculative, and depend on various assumptions which may not be correct.
The future performance of our Company and the return on our common stock depends on a complex series of events that are beyond
our control and that may or may not occur. Actual results for any period may or may not approximate any assumptions that are made
and may differ significantly from such assumptions. We can provide no assurance or prediction as to our future profitability or
to the ultimate success of an investment in our common stock.
We are subject to corporate governance
and internal control reporting requirements, and our costs related to compliance with, or our failure to comply with existing
and future requirements, could adversely affect our business.
We face corporate governance requirements
under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations subsequently adopted by the SEC and the Public Company
Accounting Oversight Board. These laws, rules, and regulations continue to evolve and may become increasingly stringent in the
future. We will be required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley
Act of 2002 (“Section 404”). We are a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Section 404 requires us to include an internal control report with our
Annual Report on Form 10-K. The prospectus must include management’s assessment of the effectiveness of our internal control
over financial reporting as of the end of the fiscal year. This prospectus must also include disclosure of any material weaknesses
in internal control over financial reporting that we have identified. Failure to comply, or any adverse results from such evaluation,
could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price of our
securities. We will strive to continuously evaluate and improve our control structure to help ensure that we comply with Section
404. The financial cost of compliance with these laws, rules, and regulations is expected to remain substantial. We cannot assure
you that we will be able to fully comply with these laws, rules, and regulations that address corporate governance, internal control
reporting, and similar matters. Failure to comply with these laws, rules, and regulations could materially adversely affect our
reputation, financial condition, and the value of our securities.
As a public company, we have significant
operating costs relating to compliance requirements and our management is required to devote substantial time to compliance initiatives.
Our management has only limited experience
operating as a public company. To operate effectively, we will be required to continue to implement changes in certain aspects
of our business and develop, manage, and train management level and other employees to comply with on-going public company requirements.
Failure to take such actions, or delay in the implementation thereof, could have a material adverse effect on our business, financial
condition, and results of operations.
The Sarbanes-Oxley Act, as well as rules subsequently
implemented by the SEC, impose various requirements on public companies, including requiring establishment and maintenance of
effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel
will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will
increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Risks Related to our Common Stock
Future issuances of our common stock
could dilute current stockholders or adversely affect the market.
Future issuances of our common stock could
be at values substantially below the price paid by the current holders of our common stock. In addition, common stock could be
issued to fend off unwanted tender offers or hostile takeovers without further stockholder approval. Sales of substantial amounts
of our common stock, or even just the prospect of such sales, could depress the prevailing price of our common stock and our ability
to raise equity capital in the future.
A liquid public market for our common
stock has not developed, and we cannot predict the future prices or the amount of liquidity of our common stock
.
On September 15, 2015, FINRA cleared a request
to establish a market in shares of our common stock. On October 8, 2015, OTC Markets Group announced that the Company was verified
for trading , and shares of our common stock are currently quoted under the symbol “SQFL” on the OTC Pink marketplace.
Presently, shares of our common stock not subject to restriction are eligible for trading in the OTC Pink marketplace. However,
to the Company's knowledge, only a small percentage of our total issued and outstanding shares of common stock have been deposited
with broker/dealers as of the date of this registration statement, and no shares of our common stock have yet been offered for
sale. Therefore, while our shares of common stock are eligible for trading, a liquid public market has not yet developed. We cannot
predict the future prices at which our shares will trade, or the liquidity of a public market for our shares of common stock,
should one develop.
We will be subject to the “penny
stock” rules which will adversely affect the liquidity of our common stock
.
The SEC, has adopted regulations which generally
define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific
exemptions. We expect the market price of our common stock will be less than $5.00 per share and therefore we will be considered
a “penny stock” according to SEC rules. This designation requires any broker-dealer selling these securities to disclose
certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser
is reasonably suitable to purchase the securities. These rules limit the ability of broker-dealers to solicit purchases of our
common stock and therefore reduce the liquidity of the public market for our shares should one develop.
Terms of subsequent financings may adversely
impact your investment
.
We may have to raise equity and/or debt financing
in the future. Your rights and the value of your investment in our common stock could be reduced. For example, if we issue secured
debt securities, the holders of the debt would have a claim against our assets that would be prior to the rights of stockholders
until the debt is paid. Interest on these debt securities would increase costs and negatively impact operating results.
It is not likely that we will pay dividends
on the common stock or any other class of stock.
We intend to retain any future earnings for
the operation and expansion of our business. We do not anticipate paying cash dividends on our common stock, or any other class
of stock, in the foreseeable future. Stockholders should look solely to appreciation in the market price of our common shares
to obtain a return on investment.
A significant number of our shares will
be eligible for sale and their sale or potential sale may depress the market price of our common stock.
Sales of a significant number of shares of
our common stock in the public market could harm the market price of our common stock. This prospectus covers 4,582,666 shares
of our common stock, and an additional 59,891,405 shares were registered pursuant to our registration statement filed on August
1, 2014 and declared effective on October 22, 2014, as post-effectively amended, which collectively represents over 85% of our
current issued and outstanding shares of our common stock, as well as common stock underlying certain options, warrants and the
Notes. As additional shares of our common stock become available for resale in the public market pursuant to this offering, and
otherwise, the supply of our common stock will increase, which could decrease its price. In addition some or all of
the shares of common stock may be offered from time to time in the open market pursuant to Rule 144, and these sales may have
a depressive effect on the market for our shares of common stock.
Our stockholders may experience significant
dilution from the conversion of the Notes and exercise of Warrants and options to purchase shares of our common stock
.
We currently have outstanding Notes convertible
into 14,296,935 shares of our common stock at an exercise price of $0.25 per share. Further, we currently have outstanding warrants
and options to purchase up to an aggregate of 14,095,651 shares of our common stock. Accordingly, if such Notes, warrants and
options are exercised, in whole or part, prior to their expiration dates, you may experience substantial dilution upon the conversion
or exercise of these Notes, warrants or options. In addition, the likelihood of such dilution may be accelerated if the price
of our common stock increases to a level greater than the exercise price of these warrants.
Our common stock will not remain eligible
for quotation on the OTC markets if we do not remain current in our filings with the Securities and Exchange Commission (the “SEC”).
We must remain current in our filings with
the SEC in order for shares of our common stock to remain eligible for quotation on the OTC marketplace. In the event that we
become delinquent in our required filings with the SEC, quotation of our common stock will be terminated following a 30 day grace
period if we do not make our required filing during that time. If our common stock becomes ineligible for quotation on the OTC
marketplace, investors in our common stock may find it difficult to sell their shares. Regardless of whether our common stock
is quoted on an over-the-counter bulletin board, under Section 15(d) of the Exchange Act, we are required to file periodic reports
with the SEC.
We are classified as an “emerging
growth company” as well as a “smaller reporting company” and we cannot be certain if the reduced disclosure
requirements applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive
to investors.
We are an “emerging growth company,”
as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable
to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports
and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common
stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result,
there may be a less active trading market for our common stock and our stock price may be more volatile.
Section 107 of the JOBS Act provides that
an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company”
can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have
irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section
107(b) of the JOBS Act.
We could remain an “emerging growth
company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross
revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under
the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million
as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more
than $1 billion in non-convertible debt during the preceding three-year period.
Notwithstanding the above, we are also currently
a “smaller reporting company.” Specifically, similar to “emerging growth companies,” “smaller reporting
companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions
of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation
report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations
in their SEC filings. Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or
“smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements,
within the meaning of Section 27A of the Securities Act and the Exchange Act, that involve risk and uncertainties. Any statements
contained in this prospectus that are not statements of historical fact may be forward-looking statements. When we use the words
such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,”
“continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,”
“intends” and similar expressions are intended to identify forward-looking statements. Forward-looking statements
involve risks and uncertainties which may cause our actual results, performance or achievements to be materially different from
those expressed or implied by forward-looking statements. These factors include, among others:
•
|
|
current
or future financial performance;
|
•
|
|
management’s
plans and objectives for future operations;
|
•
|
|
uncertainties
associated with product research and development;
|
•
|
|
uncertainties
associated with dependence upon the actions of government regulatory agencies;
|
•
|
|
product
plans and performance;
|
•
|
|
management’s
assessment of market factors; and
|
•
|
|
statements
regarding our strategy and plans.
|
TAX CONSIDERATIONS
We are not providing any tax advice as to
the acquisition, holding or disposition of the securities offered herein. In making an investment decision, investors are strongly
encouraged to consult their own tax advisor to determine the U.S. federal, state and any applicable foreign tax consequences relating
to their investment in our securities.
USE OF PROCEEDS
We will not receive any proceeds from the
sale of the common stock by the selling security holders pursuant to this prospectus. The selling security holders named herein
will receive all proceeds from the sale of the shares of our common stock in this offering. Please see the section “Selling
security holders” of this prospectus for more information. We will pay all expenses (other than transfer taxes)
of the selling security holders in connection with this offering.
CAPITALIZATION
The following table sets forth our capitalization
as of December 31, 2015. The table should be read in conjunction with the consolidated financial statements and
related notes included elsewhere in this prospectus:
|
|
As of
December 31, 2015
|
Stockholders’ Deficit:
|
|
|
|
|
Common stock, $0 par value;
|
|
$
|
2,892,078
|
|
Common stock to be issued
|
|
|
625,000
|
|
Additional paid-in capital
|
|
|
6,472,427
|
|
Accumulated deficit
|
|
|
(42,703,470
|
) (1)
|
Total stockholders’ deficit
|
|
$
|
(32,713,965
|
) (1)
|
Noncontrolling interest
|
|
|
(35,442
|
)
|
Total Deficit
|
|
|
(32,749,407
|
) (1)
|
|
(1)
|
Includes $24,157,838 in derivative
liabilities, and $11,795,855 in trademark license obligations under the GE Agreement.
|
DETERMINATION OF THE OFFERING PRICE
Shares of the Company’s common stock
are quoted on the OTC Pink marketplace under the symbol “SQFL”. However, while our shares of common stock are eligible
for trading, a liquid public market has not yet developed. The selling security holders will offer common stock of the Company
at the prevailing market price at the time of sale, or at privately negotiated prices. The offer price of our common stock does
not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established
criteria of value.
MARKET FOR COMMON STOCK
Shares of the Company’s common stock
are quoted on the OTC Pink marketplace under the symbol “SQFL”. To the Company's knowledge, only a small percentage
of our total issued and outstanding shares of common stock have been deposited with broker/dealers as of the date of this prospectus,
and no shares of our common stock have yet been offered for sale. Therefore, while our shares of common stock are eligible for
trading, a liquid public market has not yet developed. We cannot predict the future prices at which our shares will trade, or
the liquidity of a public market for our shares of common stock, should one develop.
As of July 15, 2016, there were 97 holders
of record of the Company’s common stock.
As of July 15, 2016, 500,000,000 shares of
common stock, no par value per share, and 20,000,000 shares of preferred stock, no par value per share, were authorized. As of
July 15, 2016, there were 46,553,343 shares of common stock issued and outstanding and no shares of preferred stock issued and
outstanding.
In addition, as of July 15, 2016, (i) up to
14,296,935 shares of our common stock were convertible pursuant to the Notes, not including an indeterminate number of shares issuable
as outstanding interest due upon conversion of the Notes, (ii) up to 9,062,234 shares of our common stock were exercisable pursuant
to the Warrants, (iii) up to 3,683,417 shares of our common stock were exercisable pursuant to other warrants, and (iv) up to 1,350,000
shares of common stock are issuable upon the exercise of options. In addition, grants of up to 2,660,000 options to purchase shares
of our common stock, vesting in part immediately and entirely over the next two years have been authorized by the Board under the
Incentive Plan, but have not yet been issued, and certain volume warrants to purchase up to 1,350,000 shares of our common stock
are issuable upon the occurrence of certain events, as described in subsection “May 2016 Private Placement” of section
“Other Notable Security Issuances” of this prospectus.
DIVIDEND POLICY
We have never paid any cash dividends on our
common stock and anticipate that, for the foreseeable future, no cash dividends will be paid on our common stock.
THE STOCK OFFERINGS
Beginning in May 2015, we conducted the May
2015 Stock Offering of up to $4,000,000 of restricted shares of the Company’s common stock, no par value per share, at $0.60
per share to certain accredited and non-accredited investors, in reliance upon the exemptions provided in the Securities Act of
1933, as amended, including Regulation D, Rule 501. The May 2015 Stock Offering consisted of one or more closings and ended on
November 6, 2015, pursuant to two extension authorized by the Company’s Board. The Company engaged a broker-dealer to assist
in the May 2015 Stock Offering.
Beginning in November 2015, we conducted the
November 2015 Stock Offering of up to $2,000,000 of restricted shares of the Company’s common stock, no par value per share,
at $1.00 per share to certain accredited and non-accredited investors, in reliance upon the exemptions provided in the Securities
Act of 1933, as amended, including Regulation D, Rule 501. The November 2015 Stock Offering will consist of one or more closings
and will end on March 31, 2016, pursuant to an extension authorized by the Company’s Board. The Company engaged a broker-dealer
to assist in the November 2015 Stock Offering.
The May 2015 Offering Shares and the November
2015 Offering Shares are collectively referred to as the “Offering Shares”, and the May 2015 Stock Offering and November
2015 Stock Offering are collectively referred to as the “Stock Offerings”.
The Offering Shares in both Stock Offerings
were offered pursuant to a Subscription Agreement with each investor. In connection with each Subscription Agreement, the Company
entered into a 2015 Registration Rights Agreement with each investor, whereby the Company agreed to prepare and file a registration
statement with the SEC to register the Offering Shares within one hundred fifty (150) days after date of the applicable 2015 Registration
Rights Agreement. If the Company could not file the registration statement by such date for each applicable 2015 Registration
Rights Agreement, the Company would have been required to pay a filing default penalty to the applicable investor equal to two
percent (2%) of the gross proceeds paid by such investor. The 2015 Registration Rights Agreement shall collectively refer to substantively
identical registration rights agreements entered into in both Stock Offerings.
On June 12, 2015, the Company completed an
initial closing of the May 2015 Stock Offering and entered into Subscription Agreements and 2015 Registration Rights Agreements
with investors representing aggregate gross proceeds to the Company of $1,280,000, and thereafter issued 2,133,333 shares of its
common stock. On August 14, 2015, the Company completed a second closing of the offering and entered into Subscription Agreements
and 2015 Registration Rights Agreements with investors representing aggregate gross proceeds to the Company of $729,600, and issued
1,216,000 shares of its common stock in connection therewith. On November 6, 2015, the Company completed a second closing of the
offering and entered into Subscription Agreements and 2015 Registration Rights Agreements with investors representing aggregate
gross proceeds to the Company of $260,000, and issued 433,333 shares of its common stock in connection therewith. The May 2015
Stock Offering ended on November 6, 2015, resulting in aggregate gross proceeds to the Company of $2,269,600.40.
On December 24, 2015, the Company completed
an initial closing of the November 2015 Stock Offering and entered into Subscription Agreements and 2015 Registration Rights Agreements
with investors representing aggregate gross proceeds to the Company of $500,000, and thereafter issued 500,000 shares of its common
stock. On February 19, 2016, the Company closed on aggregate gross proceeds to the Company of $300,000, and thereafter issued
300,000 shares of its common stock. The November 2015 Stock Offering ended on February 19, 2016, resulting in aggregate gross
proceeds to the Company of $800,000.
Net proceeds from the Stock Offerings were
used for the Company’s general working capital. Additional information concerning the use of proceeds from the Stock Offerings
can be found in the subsection titled “Liquidity and Capital Resources” found in the section “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, which is incorporated by reference into this
section.
The Company sold the Offering Shares in a
private placement in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and Regulation
D promulgated thereunder since, among other things, the Stock Offerings did not involve a public offering. Additionally, the Company
relied on similar exemptions under applicable state laws. The investors in the Stock Offerings had access to information about
the Company and their investments, took the Offering Shares for investment and not resale, and the Company took appropriate measures
to restrict the transfer of the Offering Shares. Upon issuance, the Offering Shares were not registered under the Securities Act
and could not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
The foregoing is only a brief description
of the material terms of the Subscription Agreements and 2015 Registration Rights Agreements, both of which are filed as an exhibit
hereto, and does not purport to be a complete description of the rights and obligations of the parties thereunder; such descriptions
are qualified in their entirety by reference to such exhibits. The representations, warranties and covenants contained in the
Subscription Agreement were made solely for the benefit of the parties to the agreement and may be subject to limitations agreed
upon by the contracting parties. Accordingly, the Subscription Agreements are referenced herein only to provide investors with
information regarding its terms and not to provide investors with any other factual information regarding the Company or its business,
and should be read in conjunction with the disclosures in the Company’s periodic reports and other SEC filings.
OTHER NOTABLE SECURITY ISSUANCES
The Notes Offering
From November 2013 through June 2014, the
Company raised the capital resources necessary to implement its Business Model pursuant to an offering (the “Notes Offering”)
of our Secured Convertible Promissory Notes, convertible into shares of our common stock at $0.25 per share (each a “Note”
and collectively, the “Notes”), and five (5) year common stock warrants to purchase our common stock at $0.375 per
share (each a “Warrant” and collectively, the “Warrants”). On November 26, 2013, May 8, 2014 and June
25, 2014 we concluded closings of the Notes Offering with certain accredited investors, as defined under Regulation D, Rule 501
of the Securities Act.
Note Offering Related Issuances
In connection with the Agreements and Waiver
and the Letter Agreements to Convert entered into with certain investors in the Notes Offering, the Company issued 2,343,191 shares
of its common stock representing $585,798 to such investors in compounded interest, interest due under the Notes, and filing default
damages and effectiveness default damages related to their Notes Registration Rights Agreements (the “Interest and Penalty
Issuances”).
During 2015, five Investors requested that
the Company withhold payments of interest due under their Notes and allow the interest to accumulate without penalty, so that
such Investors could convert said interest upon maturity of their Note. Each of said Notes remains outstanding, and shares of
our common stock have not yet been issued in connection therewith.
In February 2016, the Company issued 165,486
shares of its common stock upon full conversion of a Note, such shares representing the full principal balance and outstanding
interest due under such Note, by a 2013 Investor.
April 2016 Stock Sale
On April 4, 2016, the Company entered into
a Securities Subscription Agreement with an accredited investor, as defined under Regulation D, Rule 501 of the Securities Act,
pursuant to which the Company sold 2,000,000 shares of our common stock at a purchase price of $2.50 per share, resulting in gross
proceeds to the Company of $5,000,000 (the “April 2016 Stock Sale”). We also issued to the Investor a one-year Common
Stock Purchase Warrant to purchase up to 1,666,667 shares of our common stock at an exercise price of $3.00 per share, which,
if exercised, would result in gross proceeds to the Company of an additional $5,000,000 (the “April 2016 Sale Warrant”).
The Company did not utilize the services of, or pay any commissions to, a broker-dealer or third party in connection with the
transaction.
May 2016 Private Placement
On May 10, 2016, the Company entered into
a securities subscription agreement with an accredited investor, pursuant to which the Company sold 675,000 shares of its common
stock at a purchase price of $2.60 per share, a three year warrant to purchase up to 1,350,000 shares of our common stock at an
exercise price ranging between $3.00 and $3.50 per share (depending on the date of exercise), and a right to subsequently receive
“volume warrants” to purchase up to 1,350,000 shares of its common stock at $3.00 per share, which will become issuable
upon (a) the Company meeting specified thresholds based on the Company generating earnings before interest, taxes, depreciation
and amortization (EBITDA) ranging from $26.9 million to $76.9 million in a fiscal year during the warrant term, (b) completion
of a private placement of a minimum of $15,000,000 at pre-money valuation thresholds ranging from $350,000,000 to $1,000,000,000,
or (c) the sale of at least fifty percent (50%) of its assets at pre-money valuation thresholds ranging from $350,000,000 to $1,000,000,000,
resulting in net aggregate proceeds of USD $1,755,000 (the “May 2016 Private Placement”). In addition, the Company
could receive up to an amount between USD $4,050,000 and USD $4,725,000 in gross proceeds upon exercise of the warrant, depending
on the timing of such exercise, and could receive additional proceeds of up to USD $4,050,000, if all the volume warrants are
subsequently issued pursuant to the terms of the securities subscription agreement and fully exercised by the holder thereof.
The Company did not utilize the services of, or pay any commissions to, a broker-dealer or third party in connection with the
transaction.
SELLING SECURITY HOLDERS
The following table provides information about
each selling security holder including how many shares of our common stock they owned as of July 15, 2016, how many shares are
offered for sale by this prospectus, and the number and percentage of outstanding shares each selling security holder will
own after this offering, assuming all shares covered by this prospectus are sold. Except as disclosed in this prospectus,
none of the selling security holders have had any position, office, or material relationship with us or our affiliates within
the past three years. The information concerning beneficial ownership has been taken from our stock transfer records and information
provided by the selling security holders. Information concerning the selling security holders may change from time
to time, and any changed information will be set forth if and when required in prospectus supplements or other appropriate forms
permitted to be used by the SEC.
We do not know when or in what amounts a selling
security holder may offer shares for sale. The selling security holders may not sell any or all of the shares offered by this
prospectus. Because the selling security holders may offer all or some of the shares, and because there are currently no agreements,
arrangements or understandings with respect to the sale of any of the shares, we cannot estimate the number of the shares that
will be held by the selling security holders after completion of this offering. However, for purposes of this table,
we have assumed that, after completion of this offering, all of the shares covered by this prospectus will be sold by the selling
security holder.
Unless otherwise indicated, the selling security
holders have sole voting and investment power with respect to their shares of common stock. All of the information
contained in the table below is based upon information provided to us by the selling security holders, and we have not independently
verified this information. The selling security holders may have sold, transferred or otherwise disposed of, or may
sell, transfer or otherwise dispose of, at any time or from time to time since the date on which it provided the information regarding
the shares beneficially owned, all or a portion of the shares beneficially owned in transactions exempt from the registration
requirements of the Securities Act.
The number of shares outstanding and the percentages
of beneficial ownership are based on 46,553,343
shares of our common stock issued and outstanding as of July 15, 2016. For
the purposes of the following table, the number of shares common stock beneficially owned has been determined in accordance with
Rule 13d-3 under the Exchange Act, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under
Rule 13d-3, beneficial ownership includes any shares as to which a selling security holder has sole or shared voting power or
investment power and also any shares which that selling security holder has the right to acquire within 60 days of the date of
this prospectus through the exercise of any stock option, warrant or other rights.
Name
|
Note
|
Number
of shares of common stock owned before the Offering
(a)
|
Number
of securities to be offered (a)
|
Number
of securities owned after the Offering (b)
|
Percentage
of securities owned after the Offering (b)
|
Position,
Office or other material relationship to the Company within last three years
(c)
|
Dov Shiff
|
(1)
|
14,964,618
|
1,670,000
|
13,294,618
|
26.15%
|
Director
|
Christopher Davis
|
(2)
|
1,135,182
|
516,666
|
618,516
|
1.31%
|
|
John P. Campi
|
(3)
|
550,000
|
300,000
|
250,000
|
0.54%
|
President
and CEO
|
LeFam Family Limited
Partnership
|
(4)
|
250,000
|
250,000
|
-
|
0.00%
|
|
Sandeep Gauba
|
|
200,000
|
200,000
|
-
|
0.00%
|
|
Serge Kremer
|
(5)
|
788,246
|
170,000
|
618,246
|
1.31%
|
|
Tariq Masood
|
(6)
|
671,506
|
170,000
|
501,506
|
1.07%
|
|
Fortuny LLC
|
(7)
|
166,666
|
166,666
|
-
|
0.00%
|
|
Martin Thirer
& Meg Thirer TEN ENT
|
|
130,000
|
130,000
|
-
|
0.00%
|
|
Keith Wilson &
Terry Wilson JTWROS
|
|
116,667
|
116,667
|
-
|
0.00%
|
|
Keith Weitzman
|
|
100,000
|
100,000
|
-
|
0.00%
|
|
Ivan Mark Chaitowitz
|
|
100,000
|
100,000
|
-
|
0.00%
|
|
Jonathan Sieff
|
|
84,000
|
84,000
|
-
|
0.00%
|
|
Steven Siegelaub
& Deborah Siegelaub TEN ENT
|
|
83,333
|
83,333
|
-
|
0.00%
|
|
Steven E. Harris
|
|
75,000
|
75,000
|
-
|
0.00%
|
|
Michael and Andrea
Perrillo TBET
|
|
75,000
|
75,000
|
-
|
0.00%
|
Former
Consultant
|
Eric Varkel
|
|
60,000
|
60,000
|
-
|
0.00%
|
|
Yosi Amster
|
|
50,000
|
50,000
|
-
|
0.00%
|
|
Leonard J. Sokolow
|
(8)
|
262,000
|
50,000
|
212,000
|
0.45%
|
Director
|
Dirk Horn
|
(9)
|
349,973
|
42,000
|
307,973
|
0.66%
|
|
Donald Wright
|
(10)
|
817,070
|
41,667
|
775,403
|
1.64%
|
|
Frank Esposito
|
|
41,667
|
41,667
|
-
|
0.00%
|
|
Ryan A. Engh
|
(11)
|
586,036
|
33,333
|
552,703
|
1.17%
|
|
The Feldman Family
Trust
|
(12)
|
404,370
|
16,667
|
387,703
|
0.83%
|
|
James R. Campi
|
|
10,000
|
10,000
|
-
|
0.00%
|
Brother
of John P. Campi
|
Joseph H. Kraus
|
|
10,000
|
10,000
|
-
|
0.00%
|
|
Richard J. Saia
& Julia F Saia JTWROS
|
|
10,000
|
10,000
|
-
|
0.00%
|
|
Christina M. Belli
& Leonard P. Belli JTWROS
|
|
5,000
|
5,000
|
-
|
0.00%
|
Daughter
and Son-In-Law of John P. Campi
|
John E. Campi
|
|
5,000
|
5,000
|
-
|
0.00%
|
Son
of John P. Campi
|
___________________________
|
(a)
|
Based
on the information provided by our selling security holders and/or our stock transfer
records as of July 15, 2016, and assumes that all shares offered under this prospectus
have not been sold or otherwise transferred by the selling security holders.
|
|
(b)
|
Assumes
the selling security holder sells all of their shares offered in this Offering.
|
|
(c)
|
The
family members listed above as selling security holders are all of legal age who live
separate and apart and have sole and dispositive rights over the disposal of their shares,
and the voting rights attached thereto, and are not directly or indirectly influenced
or controlled by any officer or director of the Company.
|
___________________________
|
(1)
|
Mr.
Dov Shiff is currently a member of the Company's Board of Directors. The 14,964,618 shares
of common stock include (i) 10,674,618 shares of common stock owned by Mr. Shiff, of
which 1,670,000 were obtained pursuant to the May 2015 Stock Offering, (ii) 1,690,000
shares of common stock issuable upon exercise of warrants issued pursuant to the Notes
Offering and (iii) 2,600,000 shares of common stock issuable upon conversion of the Notes
issued pursuant to the Notes Offering.
|
|
(2)
|
The
1,135,182 shares of common stock include (i) 635,182 shares of common stock, of which
516,666 were obtained pursuant to the May 2015 Stock Offering, (ii) 100,000 shares of
common stock issuable upon exercise of warrants issued pursuant to the Notes Offering
and (ii) 400,000 shares of common stock issuable upon conversion of the Notes issued
pursuant to the Notes Offering.
|
|
(3)
|
Mr.
John P. Campi is currently the Company's Chief Executive Officer. The 1,050,000 shares
of our common stock include (i) 750,000 shares of common stock obtained pursuant to the
CEO Agreement, all of which have vested, but 500,000 shares of which have not yet been
issued, (ii) 250,000 shares of common stock obtained pursuant to the May 2015 Stock Offering,
and (iii) 50,000 shares of common stock obtained pursuant to the November 2015 Stock
Offering.
|
|
(4)
|
Ms. Debra
Levy, as Managing Member of the LeFam Family Limited Partnership, has voting power and dispositive control over these shares.
|
|
(5)
|
The
788,246 shares of common stock include (i) 288,246 shares of common stock, of which 170,000
were obtained pursuant to the May 2015 Stock Offering, (ii) 100,000 shares of common
stock issuable upon exercise of warrants issued pursuant to the Notes Offering and (iii)
400,000 shares of common stock issuable upon conversion of the Notes issued pursuant
to the Notes Offering.
|
|
(6)
|
The
671,506 shares of common stock include (i) 171,506 shares of common stock, of which 170,000
were obtained pursuant to the May 2015 Stock Offering, (ii) 100,000 shares of common
stock issuable upon exercise of warrants issued pursuant to the Notes Offering and (ii)
400,000 shares of common stock issuable upon conversion of the Notes issued pursuant
to the Notes Offering.
|
|
(7)
|
Mr. Harry
C. Mills Scio, as the Sole Member of the LeFam Family Limited Partnership, has voting power and dispositive control over these
shares.
|
|
(8)
|
The
262,000 shares of our common stock includes (i) 112,000 shares of common stock, of which
50,000 were obtained pursuant to the November 2015 Stock Offering, and (ii) 150,000 shares
of common stock issuable upon the exercise of Director Options.
|
|
(9)
|
The
349,973 shares of common stock include (i) 99,973 shares of common stock, of which 42,000
shares were obtained pursuant to the May 2015 Stock Offering, (ii) 200,000 shares of
common stock issuable upon conversion of the Notes issued pursuant to the Notes Offering
and (iii) 50,000 shares of common stock issuable upon exercise of warrants issued pursuant
to the Notes Offering.
|
|
(10)
|
The 817,070
shares of common stock include (i) 157,070 shares of common stock, of which 41,667 were obtained pursuant to the May 2015 Stock
Offering, (ii) 400,000 shares of common stock issuable upon conversion of the Notes issued pursuant to the Notes Offering and
(iii) 260,000 shares of common stock issuable upon exercise of warrants issued pursuant to the Notes Offering.
|
|
(11)
|
The
586,036 shares of common stock include (i) 91,036 shares of common stock, of which 33,333
shares were obtained pursuant to May 2015 Stock Offering, (ii)195,000 shares of common
stock issuable upon exercise of warrants issued pursuant to the Notes Offering and (iii)
300,000 shares of common stock issuable upon conversion of the Notes issued pursuant
to the Notes Offering.
|
|
(12)
|
Both
Mr. Andrew Feldman and Mrs. Jeri Feldman, as Trustees, have voting power and dispositive
control over these shares. The 404,370 shares of common stock include (i) 74,370 shares
of common stock owned by The Feldman Family Trust, of which 16,667 shares were obtained
pursuant to the May 2015 Stock Offering, (ii) 130,000 shares of common stock issuable
upon exercise of warrants issued pursuant to the Notes Offering and (iii) 200,000 shares
of common stock issuable upon conversion of the Notes issued pursuant to the Notes Offering.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of
our financial condition and results of operations should be read in conjunction with the consolidated audited financial statements
and notes thereto included in this prospectus The following discussion contains forward-looking statements. Forward-looking statements
are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not limited to, those discussed under the explanatory note
labeled “Forward-Looking Statements” found at the beginning of this prospectus. We assume no obligation to revise
or update any forward-looking statements for any reason, except as required by law.
US Dollars are denoted herein by “USD”,
“$” and “dollars”.
Overview
We are a company engaged in the business of
developing proprietary technology that enables a quick and safe installation by the use of a weight bearing power plug for electrical
fixtures, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes. Our patented technology consists
of a fixable socket and a revolving plug for conducting electric power and supporting an electrical appliance attached to a wall
or ceiling. The socket is comprised of a non-conductive body that houses conductive rings connectable to an electric power supply
through terminals in its side exterior. The plug, also comprised of a non-conductive body that houses corresponding conductive
rings, attaches to the socket via a male post and is capable of feeding electric power to an appliance. The plug also includes
a second structural element allowing it to revolve with a releasable latching which, when engaged, provides a retention force
between the socket and the plug to prevent disengagement. The socket and plug can be detached by releasing the latch, disengaging
the electric power from the plug. The socket is designed to replace the support bar incorporated in electric junction boxes, and
the plug can be installed in light fixtures, ceiling fans and wall sconce fixtures. The combined socket and plug technology is
referred to as the “SQL Technology” throughout this prospectus.
We currently manufacture and sell ceiling
fans and lighting fixtures branded with the General Electric logo and manufactured under General Electric’s strict guidance.
Our ceiling fans and lighting fixtures offer unique designs, and are manufactured with and without the SQL Technology.
In furtherance of our Business Model, the
Company has taken other steps, including the development of trade distribution channels with key retailers, corporate restructuring,
establishing and obtaining authorizations for our third party manufacturers to produce the SQL Technology, and raising the necessary
capital resources to fully implement our Business Model. For additional information, see the sub-section titled “Our History,
Business Model and Strategy” in the Business section of this prospectus.
Results of Operations
Year Ended December 31, 2015 compared to
the Year Ended December 31, 2014
|
|
For
the Years ended
|
|
|
|
|
|
|
December
31, 2015
|
|
December
31, 2014 (restated)
|
|
$
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,885,007
|
|
|
$
|
0
|
|
|
$
|
2,885,007
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(2,477,252
|
)
|
|
|
0
|
|
|
|
(2,477,252
|
)
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
407,755
|
|
|
|
0
|
|
|
|
407,755
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
(5,236,747
|
)
|
|
|
(4,799,696
|
)
|
|
|
(437,051
|
)
|
|
|
163.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(4,828,992
|
)
|
|
|
(4,799,696
|
)
|
|
|
(29,269
|
)
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income / (Expense)
|
|
|
(22,061,219
|
)
|
|
|
(2,494,047
|
)
|
|
|
(19,567,172
|
)
|
|
|
784.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(26,890,210
|
)
|
|
$
|
(7,293,743
|
)
|
|
$
|
(19,596,467
|
)
|
|
|
268.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.76
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.54
|
)
|
|
|
245.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
We had recorded revenue of $2,885,007 for
the year ended December 31, 2015, as compared to revenue of $0 for the year ended December 31, 2014. The Company’s third
party manufacturers received GE's approval in late 2014 and the first half of 2015, and the Company began recording revenues under
our Business Model in the first quarter of 2015. During the third quarter, on-line sales were initiated, creating a new channel
for the Company.
Cost of Sales
We had a cost of sales of $2,477,252 for the
year ended December 31, 2015, as compared to a cost of sales of $0 for the year ended December 31, 2014. The increase in cost
of sales was associated with sales of GE branded ceiling fans under our Business Model.
Gross Profit
We had gross profit of $407,755 for the year
ended December 31, 2015, as compared to gross profit of $0 for the year ended December 31, 2014. The gross profit as a percent
of sales was 14.1%, and represents the initial orders to customers. These initial sales represented test orders, and accordingly
had lower gross margins. We believe there are opportunities to improve gross profit as a percent of sales on future orders.
General and Administrative Expenses
General and administrative expense increased
$437,051 during the year ended December 31, 2015 to $5,236,747 from $4,799,696 for the year ended December 31, 2014.
The increases in the general and administrative
expenses were primarily due to the following:
|
·
|
$351,600
increase on commissions associated with sales.
|
|
·
|
$296,000
increase in China operational and tooling expenses for sample products and production
audits.
|
|
·
|
$234,700
increase in consulting and temporary labor.
|
|
·
|
$122,900
increase in marketing and travel associated with increased sales activity.
|
|
·
|
$72,300
increase in insurance expense associated with being a public company.
|
Further, decreases in certain items of general
and administrative expenses were attributable to the following:
|
·
|
$523,100
decrease in legal and late registration fees due to activity associated with the Notes
Offering.
|
|
·
|
$94,300
decrease in rent associated with new office space and sublet of previous space.
|
|
·
|
$68,100
decrease in salaries due to change in CEO compensation.
|
Loss from Operations
Loss from operations represents the change
in general and administrative expenses offset by the gross profit on sales for the periods presented.
Other Income (Expense) (Restated)
Total other expenses increased $19,567,172
during the year ended December 31, 2015 to $22,061,219 from $2,494,047 for the year ended December 31, 2014.
The increase in other expenses was due to
$19,416,295 increase in non-cash derivative expense as a result of the value of shares increasing from $0.25 to $1.00, based on
the Company’s recent private placement of common stock and the impact on the Black Scholes calculation of the intrinsic
value of the equity component. Additionally, there was a $716,034 increase in interest expense for the year due to a full year
of interest on the notes payable as compared to a partial year in 2014.
Net Loss and Net Loss per Share (Restated)
The Company’s net loss and net loss
per share for the year ended December 31, 2015 was ($26,890,210), or ($0.76) per share, as compared ($7,293,743) and $(0.22) per
share for the year ended December 31, 2014. Given the reasons explained above, our loss increased by ($19,596,467) for the year
ended December 31, 2015.
Interest Expense
The following table details the Company’s
interest expense components:
|
|
Year
Ended December 31,
|
|
|
2015
|
|
2014
|
|
2013
|
Interest accrued on Notes
outstanding.
|
|
$
|
483,033
|
|
|
$
|
147,191
|
|
|
$
|
40,026
|
|
Interest on SBA
loan with Signature Bank
|
|
|
16,649
|
|
|
|
21,893
|
|
|
|
27,274
|
|
TOTAL INTEREST EXPENSE – Notes Payable
|
|
|
499,682
|
|
|
|
169,084
|
|
|
|
67,300
|
|
Amortization of Debt Issue Cost
|
|
|
147,341
|
|
|
|
142,868
|
|
|
|
11,986
|
|
Amortization of
Debt Discount
|
|
|
2,208,496
|
|
|
|
1,827,533
|
|
|
|
92,304
|
|
|
|
$
|
2,855,519
|
|
|
$
|
2,139,485
|
|
|
$
|
171,590
|
|
For
the Three Months Ended March 31, 2016 Compared to the Three Months Ended March 31, 2015
|
|
For
the three months ended
|
|
|
|
|
|
|
March
31, 2016
|
|
March
31, 2015
|
|
$
Change
|
|
%
Change
|
Revenue
|
|
$
|
1,748,061
|
|
|
$
|
1,419,217
|
|
|
$
|
328,844
|
|
|
|
23.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(1,564,045
|
)
|
|
|
(1,239,728
|
)
|
|
|
(324,317
|
)
|
|
|
26.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
income
|
|
|
184,016
|
|
|
|
179,489
|
|
|
|
4,527
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
(1,427,779
|
)
|
|
|
(1,247,373
|
)
|
|
|
180,406
|
|
|
|
14.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(1,243,763
|
)
|
|
|
(1,067,884
|
)
|
|
|
(175,879
|
)
|
|
|
16.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income / (Expense)
|
|
|
1,630,823
|
|
|
|
(286,348
|
)
|
|
|
1,917,171
|
|
|
|
640.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
387,060
|
|
|
$
|
(1,354,232
|
)
|
|
$
|
1,741,292
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
|
0.01
|
|
|
|
(0.04
|
)
|
|
|
0.05
|
|
|
|
n/a
|
|
Revenue
We had recorded
revenue of $1,748,061 for the three month period ended March 31, 2016, as compared to revenue of $1,419,217 for the three month
period ended March 31, 2015. The increase in revenue is attributable to reorders from existing customers and orders from a new
customer.
Cost of
Sales
We had a cost
of sales of $1,564,045 for the three month period ended March 31, 2016, as compared to costs of sales of $1,239,728 for the three
month period ended March 31, 2015. The $324,317 increase is attributable to increased sales activity.
Gross
Profit
We had gross
profit of $184,016 or 10.5% of sales for the three month period ended March 31, 2016, as compared to gross profit of $179,489
or 12.6% of sales for the three month period ended March 31, 2015. The gross profit reflects the completion of initial orders
received from customers for which gross margin tends to be lower than targeted due to the costs associated with gaining acceptance
as a new vendor. The Company expects gross margins on follow-on orders to improve towards market levels.
General
and Administrative Expenses
General and
administrative expense increased $180,406 to $1,427,779 for the three month period ended March 31, 2016, from $1,247,373 for the
three month period ended March 31, 2015.
The increases
in the general and administrative expenses were due to the following significant items:
|
·
|
$52,700
increase in China operations associated with product quality and inspection.
|
|
·
|
$50,800
increase in warehousing, freight, inspection costs associated with increased store and
internet sales activity.
|
|
·
|
$50,100
increase in legal and SEC fees associated with being a public company and managing debt
activity.
|
|
·
|
$30,900
increase in commissions associated with increased sales.
|
|
·
|
$32,200
increase in telecommunications and web development expense.
|
|
·
|
$20,800
increase in payroll and benefits associated with additional staff.
|
These items
were partially offset by decreases in the following expenses:
|
·
|
$63,100
decrease in consulting expenses.
|
|
·
|
$22,200
decrease in marketing expenses.
|
Income
(Loss) from Operations
Income (Loss)
from operations represents the change in general and administrative expenses offset by the gross profit on sales for the periods
presented.
Other
Income (Expense)
Total other
income (expenses) increased $1,917,171 to $1,630,823 for the three-month period ended March 31, 2016, from $(286,348) for the
three-month period ended March 31, 2015. The change is associated with a $1,534,689 non-cash income increase in non-cash derivatives
income associated with an increase in the value of the Company’s common stock and a $382,500 decrease in interest expense.
Net Income
(Loss) and Net Income (Loss) per Share
The Company’s
net income (loss) and net income (loss) per share for the three-month period ended March 31, 2016 was $387,060 and $0.01 per share,
respectively, as compared to the three-month period ended March 31, 2015, where net loss was approximately ($1,354,232) and ($0.14)
per share, respectively.
Interest Expense
The following
table details the Company’s interest expense components:
|
|
For
the three months ended March 31
|
|
|
2016
|
|
2015
|
|
|
|
|
|
Interest accrued on Notes
outstanding.
|
|
$
|
131,256
|
|
|
$
|
169,190
|
|
Interest on SBA
loan with Signature Bank
|
|
|
2,927
|
|
|
|
4,318
|
|
TOTAL INTEREST EXPENSE – Notes Payable
|
|
|
134,183
|
|
|
|
173,508
|
|
Amortization of Debt Issue Cost
|
|
|
8,569
|
|
|
|
38,612
|
|
Amortization of
Debt Discount
|
|
|
223,288
|
|
|
|
536,402
|
|
|
|
$
|
366,040
|
|
|
$
|
748,522
|
|
Liquidity
and Capital Resources
To date, the
Company has not generated sufficient revenue to cover its operating costs and continues to operate with negative cash flow, which
may require it to seek additional capital to maintain current operations. In addition, if sufficient sales growth is achieved,
the Company may be required to enter into financing arrangements to fund its working capital needs. The Company currently has
no such financing commitments in place.
For the three
months ended March 31, 2016, cash flows used ($1,053,901) for operations as compared with ($1,423,976) used for the same period
in 2015. The Company’s used cash from operations was due to the $387,060 operating income, $760,513 increase in accounts
receivable, $116,298 increase in royalty obligations payable pursuant to the License Agreement. These amounts were offset by a
decrease of $1,996,863 in non-cash derivative expense, $608,696 increase in amortization of the License Agreement, and a $276,951
increase in the amortization of debt discount.
For the three
months ended March 31, 2016, cash flows used ($14,915) for investing activities as compared with ($7,446) used for the same period
in 2014. The difference was due to the purchase of fixed assets and securing patents.
For the three
months ended March 31, 2016, cash flows provided $630,450 from financing activities as compared to $375,629 for the same period
in 2015. The Company received proceeds of $300,000 from the issuance of shares of common stock, $500,000 advance from a related
party, and $197,523 in issuance of stock in lieu of principal and interest due under certain convertible promissory notes of the
Company, which was offset by $367,073 in principal repayments of certain convertible promissory notes of the Company.
As a result
of the above operating, investing and financing activities, the Company used ($438,366) in cash equivalents for the three months
ended March 31, 2016, as compared with ($1,056,793) used in the same period in 2015.
The Company
had a working capital deficit of $26,858,669 as of March 31, 2016, as compared to $28,174,512 as of December 31, 2015. The change
is primarily attributable to an increase in accrued expenses and advance by the related party.
As of March
31, 2016, the Company had $122,844 in inventory to support ecommerce activity on Internet sales platforms of the Company’s
customers. The inventory is located with a third party logistics firm.
A majority of
the Company’s sales do not require the Company to take delivery of inventory. Production of the SQL Technology and fixtures
will be originated upon receipt of FOB (free on board) purchase contracts from customers. Upon the completion of each purchase
contract, the finished products will be transported from the manufacturer directly to the ports and loaded on vessels secured
by the customer, upon which the products become the property of the customer.
The Company’s
cash balance as of March 31, 2016 was $12,502. In light of the Company’s projected working capital needs, it may need to
seek additional capital, which may dilute existing shareholders. There is no guarantee that the Company will be successful in
raising additional capital or be successful in the execution of its plans.
Off-Balance
Sheet Arrangements
We do not have
any off-balance sheet arrangements.
Critical
Accounting Policies and Estimates
Estimates
The preparation
of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in our financial statements and accompanying notes.
Such estimates
and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable
and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets,
estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded
as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.
Making estimates
requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a
condition, situation or set of circumstances that existed at the date of the financial statements, which management considered
in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual
results could differ significantly from estimates.
Recently
Issued Accounting Pronouncements
In April 2015, the FASB issued Accounting Standards
Update No. 2015-03, Interest—Imputation of Interest (Topic 835-30): Simplifying the Presentation of Debt Issuance Costs
(“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. The recognition and measurement guidance for debt issuance costs is not affected by ASU 2015-03. ASU 2015-03 is
effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within
those fiscal years. Early adoption is permitted. Upon adoption, the Company will reclassify debt issuance costs from prepaid
expenses and other current assets and other assets as a reduction to debt in the condensed consolidated balance sheets. The
Company is not planning to early adopt ASU 2015-03 and does not anticipate that the adoption of ASU 2015-03 will materially
impact its condensed consolidated financial statements.
In July 2015,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 201511, Inventory (Topic
330): Simplifying the Measurement of Inventory (“ASU 2015-11”), which applies guidance on the subsequent measurement
of inventory. ASU 2015-11 states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable
value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal
and transportation. The guidance excludes inventory measured using last-in, first-out or the retail inventory method. ASU 2015-11
is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company
is not planning to early adopt ASU 2015-11 and is currently evaluating ASU 2015-11 to determine the potential impact to its condensed
consolidated financial statements and related disclosures.
Other pronouncements
issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or
are not expected to be significant to the Company’s financial position, results of operations or cash flows.
Critical
Accounting Policies
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable
are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary
course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts.
The Company
recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries.
The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs,
as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.
Inventory
Inventory consists
of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in,
first-out method. The Company periodically reviews historical sales activity to determine potentially obsolete items
and also evaluates the impact of any anticipated changes in future demand.
Valuation
of Long-Lived Assets and Identifiable Intangible Assets
The Company
reviews for impairment of long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances
indicate that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to
its fair market value.
Property
and Equipment
Property and
equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Depreciation
of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-7 years
of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon sale or
retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain
or loss is reflected in the statements of operations.
Intangible
Asset - Patent
The Company
developed a patent for an installation device used in light fixtures and ceiling fans. Costs incurred for submitting the applications
to the United States Patent and Trademark Office for these patents have been capitalized. Patent costs are being amortized using
the straight-line method over the related 15 year lives. The Company begins amortizing patent costs once a filing receipt is received
stating the patent serial number and filing date from the United States Patent and Trademark Office.
The Company
incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized
over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or alternative
future use is available to the Company. The Company also capitalizes legal costs incurred in the defense of the Company’s
patents when it is believed that the future economic benefit of the patent will be maintained or increased and a successful defense
is probable. Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s
assessment of future economic benefit or a successful defense of its patents involves considerable management judgment, and an
unfavorable outcome of litigation could result in a material impairment charge up to the carrying value of these assets.
Fair Value
of Financial Instruments
The Company
measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair
value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability,
as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that
market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes
a consistent framework for
measuring fair
value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following
are the hierarchical levels of inputs to measure fair value:
•
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Level
1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
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•
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Level
2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for
similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities;
or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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•
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Level
3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine
fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
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The carrying
amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts
payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because
of the short maturity of these instruments.
The Company
accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3.
Embedded
Conversion Features
The Company
evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine
whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at
fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under
ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of
any beneficial conversion features.
The Company
does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates
all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain
features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the
derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the
fair value reported as charges or credits to income.
For option-based
simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments
at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Stock-Based
Compensation - Employees
The Company
accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under
the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting
Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which
goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value
of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement
date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete
or the date on which it is probable that performance will occur.
If the Company
is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s
most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations
would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due
to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The fair value
of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model.
The ranges of assumptions for inputs are as follows:
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Expected
term of share options and similar instruments: The expected life of options and similar instruments represents the period
of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting
Standards Codification the expected term of share options and similar instruments represents the period of time the options
and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments
and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated
value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected
term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data
to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have
been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees
that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which
to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that
its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses
the simplified method to calculate expected term of share options and similar instruments as the Company does not have sufficient
historical exercise data to provide a reasonable basis upon which to estimate expected term.
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Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii)
a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable
for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has
selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.
The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share
options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly
price observations would generally be more appropriate than the use of daily price observations as the volatility calculation
using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes
and lack of consistent trading in the market.
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Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual
term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend
yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods
within the expected term of the share options and similar instruments.
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Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the
expected term of the share options and similar instruments.
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Generally, all
forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights
are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected
to vest.
The expense
resulting from share-based payments is recorded in general and administrative expense in the statements of operations.
Equity
Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The Company
accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic
505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant to
ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments
are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever
is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier
of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company
is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s
most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more
appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between
the bid and asked quotes and lack of consistent trading in the market.
The fair value
of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model.
The ranges of assumptions for inputs are as follows:
•
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Expected
term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards
Codification the expected term of share options and similar instruments represents the period of time the options and similar
instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s
expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data
to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company
are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share
options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis
upon which to estimate expected term.
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•
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Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii)
a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable
for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has
selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.
The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share
options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly
price observations would generally be more appropriate than the use of daily price observations as the volatility calculation
using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes
and lack of consistent trading in the market.
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•
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Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual
term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend
yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods
within the expected term of the share options and similar instruments.
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•
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Risk-free rate(s).
An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected
term of the share options and similar instruments.
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Pursuant to
ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee
enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments),
then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement
date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement
is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized
as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to
ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return
for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement
for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such
an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof)
of the equity instruments shall not affect the balance sheet display of the asset.
This guidance
is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services.
Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of
this Subtopic.
Pursuant to
Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable
by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee
achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and
in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of
paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share
option and similar instrument that the counterparty has the right to exercise expires unexercised.
Pursuant to
ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable
equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received
(that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement
date and no entry should be recorded.
Income
Tax Provision
From the inception
of the Company and through November 6, 2012, the Company was taxed as a pass-through entity (a limited liability company) under
the Internal Revenue Code and was not subject to federal and state income taxes; accordingly, no provision had been made.
The financial
statements reflect the Company’s transactions without adjustment, if any, required for income tax purposes for the period
from November 7, 2012 to December 31, 2012. The net loss generated by the Company for the period January 1, 2012 to November 6,
2012 has been excluded from the computation of income taxes.
The Company
accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely
than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations in
the period that includes the enactment date.
The Company
adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses
the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial
statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits
of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the
largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement. Section 740-10-25
also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods
and requires increased disclosures.
The estimated
future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated
balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred
tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management makes
judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates
of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions.
In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by
tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
The Company’s
tax returns are subject to examination by the federal and state tax authorities for the years ended 2012 through 2015.
Uncertain
Tax Positions
The Company
did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions
of Section 740-10-25 for the reporting periods ended December 31, 2015, 2014 and 2013.
Related
Parties
The Company
follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure
of related party transactions.
Pursuant to
Section 850-10-20 the related parties include (i) affiliates of the Company; (ii) Entities for which investments in their equity
securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15,
to be accounted for by the equity method by the investing entity; (iii) trusts for the benefit of employees, such as pension and
profit-sharing trusts that are managed by or under the trusteeship of management; (iv) principal owners of the Company; (v) management
of the Company; (vi) other parties with which the Company may deal if one party controls or can significantly influence the management
or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its
own separate interests; and (vii) other parties that can significantly influence the management or operating policies of the transacting
parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent
that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: (i) the nature of the relationship(s) involved; (ii) a description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; (iii) the dollar
amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the
method of establishing the terms from that used in the preceding period; and (iv) amounts due from or to related parties as of
the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Related
Party Transactions
We are currently
party to a consulting agreement with Mr. Rani Kohen, Chairman of the Company’s Board, pursuant to which we are required
to pay cash compensation in the amount of $150,000 per year.
BUSINESS
Overview
We are a company
engaged in the business of developing proprietary technology that enables a quick and safe installation by the use of a weight-bearing
power plug for electrical fixtures, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes.
Our patented technology consists of a fixable socket and a revolving plug for conducting electric power and supporting an electrical
appliance attached to a wall or ceiling. The socket is comprised of a non-conductive body that houses conductive rings connectable
to an electric power supply through terminals in its side exterior. The plug, also comprised of a non-conductive body that houses
corresponding conductive rings, attaches to the socket via a male post and is capable of feeding electric power to an appliance.
The plug also includes a second structural element allowing it to revolve with a releasable latching which, when engaged, provides
a retention force between the socket and the plug to prevent disengagement. The socket and plug can be detached by releasing the
latch, disengaging the electric power from the plug. The socket is designed to replace the support bar incorporated in electric
junction boxes, and the plug can be installed in light fixtures, ceiling fans, wall sconce fixtures and other electrical devices.
The combined socket and plug technology is referred to throughout this prospectus as “the SQL Technology”.
Products
We
currently manufacture and sell ceiling fans and lighting fixtures branded with the General Electric logo and manufactured under
General Electric’s guidance. Our ceiling fans and lighting fixtures offer unique designs, and are manufactured with and
without the SQL Technology.
The
SQL Technology is an attachment fitting plug and mounting receptacle used to install lighting fixtures and ceiling fans. The SQL
Technology replaces the traditional mounting bar found in existing electrical junction boxes, converting the mounting system into
a weight bearing plug with no exposed wires. Our technology could transform the lighting fixture and ceiling fan industry. Using
the SQL Technology, anyone can safely install lighting fixtures and ceiling fans in minutes. Professional electricians as well
as “Do it Yourself” installers will benefit from our technology. The SQL Technology is Underwriters Laboratories (UL)
listed for USA and Canada and is licensed by GE.
Our
SQL Technology is comprised of two parts: a ‘female’ socket receptacle that is secured to existing electrical junction
boxes, into which electrical and ground wires are simply inserted and secured into terminals on the device, and a ‘male’
plug fitting that is preinstalled on the lighting fixture or fan. The receptacle is easily attached to the junction box, and any
lighting fixture or fan with the SQL Technology can be literally installed in seconds. Our manufacturing plan calls for the SQL
Technology to be pre-installed in all types of lighting fixtures, including holiday themed lighting, and ceiling fans.
In
February 2015, we received an updated United Laboratory (UL) Listing for the SQL Technology. This listing expands the type of
products that we will be able to use with the SQL Technology. This listing expanded the voltage and amperage that our product
is rated for and will allow for additional fixtures, such as heating elements to be incorporated into our ceiling fans.
We
have been working with several well established factories producing ceiling fans and lights in Peoples Republic of China. Most,
if not all, of these factories have been in business for over 20 years and follow strict human rights and sustainability protocols.
Intellectual
Property
We
have developed a proprietary technology, the SQL Technology, that we believe provides us with a competitive advantage in the lighting
and ceiling fan fixture marketplace. We protect the SQL Technology through the use of an intellectual property protection strategy
that is focused on patent protection. As of July 15, 2016, we have three issued U.S. patents relating to our quick connect device
for electrical fixtures. We also have patents in China (two issued patents) and India (one issued patent and one pending patent
application), which protects different aspects of the same SQL Technology as the three issued U.S. patents. The Company sought
intellectual property protection of the SQL Technology in China due to its current manufacturing operations and prospective sales
in China’s market, and sought protection in India in anticipation of future growth into India’s developing market,
both with respect to the sales of the SQL Technology and potential operations of the Company. We intend to maintain this intellectual
property protection for the SQL Technology.
The
issued patents are directed to various aspects of our plug and socket combination that comprise the quick connect device. The
issued patents provide patent protection for our quick connect device, regardless of the electrical fixture used with the quick
connect device. As further innovations are developed, we intend to seek additional patent protection to enhance our competitive
advantage.
Our History,
Business Model and Strategy
Safety Quick
Light LLC began marketing the SQL Technology in 2007 for installation in light fixtures and ceiling fans during manufacturing
and as a kit for installing the SQL Technology in existing light fixtures and ceiling fans. The Company sold 800,000 units of
the SQL Technology OEM (“Original Equipment Manufacturer”) to lighting manufacturers and retailers who installed the
socket and plug technology into their lighting fixtures for sale at retail stores. The Company also sold, directly to the retailers,
100,000 ceiling fans with the SQL Technology embedded into the product. Our management team determined that it could improve its
gross margins if it were to market light fixtures and ceiling fans with and without the SQL Technology already installed on fixtures
(our “Business Model”), instead of marketing the SQL Technology as an add-on device. During the first quarter of 2010,
the Company’s management took the first of several steps toward implementing our Business Model and discontinued marketing
the SQL Technology as an add-on device; however, existing orders were honored through 2010 and 2011, resulting in revenues through
2012.
Company management
then took the next step in furtherance of our Business Model and sought the endorsement of the SQL Technology from General Electric.
During 2010 and 2011, GE tested the SQL Technology and in June 2011, GE and SQL Lighting & Fans, LLC, a subsidiary of the
Company, entered into the License Agreement, a trademark licensing agreement under which SQL Lighting & Fans, LLC was licensed
to use the GE monogram logo on its devices and certain other trademarks on its ceiling fans and light fixtures through December
31, 2017. The License Agreement requires the Company to pay a percent of revenue generated on our products using the GE monogram
logo as a license fee, including a minimum license fee payment during the term, and in exchange, the License Agreement enables
the Company to market ceiling fans and light fixtures with and without the SQL Technology using the GE logo. The License Agreement
imposes certain manufacturing and quality control conditions that we must maintain. In addition to marketing ceiling fans and
light fixtures under the GE logo and trademarks, the Company has the right to offer private label ceiling fans and light fixtures
with its technology installed to retailers that market private label products.
The License
Agreement was amended in April 2013 to extend its term through December 31, 2017 and to revise the required minimum license fees,
and in July 2014 to remove minimum license fees for 2014. The License Agreement was further amended in August 2014 to, among other
things, extend the term through November 30, 2018 and set forth a new royalty calculation beginning December 1, 2013 and continuing
through the term of the License Agreement. The current License Agreement provides that royalties due to GE will be tiered, based
on a declining percentage of net sales in each Contract Year, paid quarterly, as follows:
Net
Sales in Contract Year
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Royalty
as a Percentage of Net Sales
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$0
- $50,000,000
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7
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%
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$50,000,001
- $100,000,000
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|
|
6
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%
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$100,000,001
+
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|
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5
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%
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|
|
|
|
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Net
Sales Made
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Quarterly
Payment Due Date
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December
1 through February 28/29
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26-Mar
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March
1 through May 30
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|
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26-Jun
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June
1 through August 31
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|
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26-Sep
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September
1 through November 30
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|
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26-Dec
|
|
The Company
is obligated to pay to GE a royalty minimum of $12,000,000 in the aggregate during the term of the License Agreement. If, at the
end of the term of the License Agreement, the total of all royalty payments paid pursuant to the License Agreement does not total
$12,000,000, the Company must pay to GE the difference between $12,000,000 and the amount of royalties actually paid to GE through
the end of the term of the License Agreement.
In furtherance
of our Business Model, the Company sought to establish trade distribution channels with key retailers. In July 2012, the Company
entered into a sales and marketing agreement with Design Solutions International, Inc., a privately held, lighting industry design
and marketing firm. In 2015, DSI was acquired by NBG Home, a leading global designer, manufacturer and marketer of home décor
products owned by Kohlberg & Company. Under the terms of the DSI Agreement, which remains in effect, DSI serves as the Company’s
exclusive sales representative for all its products and goods in the United States and Canada. For its services, DSI receives
a commission based on net sales. In addition to DSI’s sales and marketing support, the Company’s products will also
be sold through GE’s lighting sales group as a condition of the License Agreement.
The Company’s
Business Model entails the use of third party manufactures to produce the SQL Technology and the ceiling fans and light fixtures
in which SQL Technology is imbedded. The manufacturers currently used by the Company are located in Guangdong province of China
and, as required by the Licensing Agreement with GE, must be approved by GE to ensure quality standards are met. To further ensure
that quality specifications are maintained, the Company maintains an office in the Guangdong province staffed with GE trained
auditors who will regularly inspect its products produced by the third party manufacturer.
In 2013 and
2014, the Company obtained capital resources necessary to implement its Business Model pursuant to the Notes Offering. See subsection
“The Notes Offering” of section “Other Notable Security Issuances” of this prospectus for additional information.
During 2014,
the Company experienced unanticipated delays in the facility approval process noted above, which delayed sample availability and
thus, sales activity. The Company has since obtained the necessary qualification and approval of the third party manufacturer’s
facilities. The Company also enhanced its Business Model to include an additional, parallel revenue path providing for the design
and manufacture of a smaller, less customized, and more unique product line which incorporates the GE branding and the SQL Technology.
During 2015,
the Company continued to develop its Business Model, following the initial development of its first two channels of business which
involved selling its products to big box retailers as well as launching its on-line product sales. The Company is working
to develop additional vertical channels and has expanded its marketing and selling efforts to a broader base of customers within
each market channel.
During 2015
and early 2016, the Company obtained additional capital resources to implement its Business Model. See section “The Stock
Offerings” of this prospectus for additional information.
Industry
Overview and Competition
We currently
face competition from traditional lighting technologies. There are numerous traditional light manufacturing companies, worldwide,
many of which are significantly larger than us. Traditional lighting technologies have the advantage of a long history of market
acceptance and developed relationships with retailers and distributors. We will actively seek to educate our target markets as
to the advantages of our technology compared to traditional installation methods and believe the achievement of this objective
is critical to our future. Although our technology is proprietary and patent protected, there can be no assurance that a large
conventional lighting company will not invent a competing technology that offers similar installation efficiencies and enter the
market and utilize its resources to capture significant market share and adversely affect our operating results.
We believe our
products with the SQL Technology can effectively compete against traditional lighting in the areas of installation, maintenance
and safety. The SQL Technology offers the advantage of ease of installation and replacement. This feature is superior to other
lighting systems, which can require the service of professional electricians to install and remove. Once SQL’s socket is
correctly installed in a ceiling or wall electrical junction box, there is no exposure to live electrical wires resulting in an
additional advantage in the area of safety. Furthermore, the installation of our socket, which weighs approximately four (4) ounces,
requires significantly less work and exertion compared to traditional ceiling light or fan fixtures, which ordinarily weigh in
excess of ten (10) pounds and can weigh hundreds of pounds. There can be no assurance, however, that the current competitors directly
involved in this industry or a new competitor will not develop processes or technology which will allow them to decrease their
costs, and consequently, erode our price advantage.
There is significant
competition in the ceiling lighting and fan market place; however, we believe we have a competitive advantage due to the strength
of the SQL Technology. This competitive advantage extends to customers both in the residential as well as the commercial markets.
The SQL Technology is patented or trademarked in the United States of America, Canada, Mexico, Hong Kong, China, and Australia.
The Company faces competitive forces from traditional approaches towards ceiling lighting and fans installations. While it is
unclear whether SQL’s unique technology will gain significant market penetration, the Company believes that its safety and
installation efficiency features will gain market acceptance since it significantly reduces the time necessary to install such
fixtures and, after a one-time installation of the socket component, eliminates further exposure to electrical wires when used
in conjunction with fixtures in which the plug is installed.
To further bolster
the Company’s competitive position, the Company has engaged the support of DSI, a lighting design and marketing firm whose
existing customer base includes Walmart, Costco, The Home Depot, BJ’s Wholesale Club, Sam’s Club and other major retailers
throughout North America. DSI’s management boasts an average of 25-years’ experience in the lighting industry with
leading manufacturers such as Catalina Lighting, Zellers, Dana Lighting and Lite Factory among others. DSI will provide sales
and marketing support in North America and sourcing and production management support in China. In addition to DSI’s sales
and marketing support, the Company’s products will also be sold through GE’s lighting sales group as a condition of
it License Agreement. The Company believes the combination of DSI and GE sales support will enable it to effectively compete in
the ceiling lighting and fan market.
Customers
We market our
product to retailers and other customers who purchase large quantities of ceiling fans and lighting fixtures. This includes
large “big box” retailers, such as Walmart, Costco, The Home Depot, Sam’s Club and BJ’s Wholesale Club.
Our target customers initially place small orders of new products to determine the potential consumer demand. When our target
customers are able to gauge consumer demand and, if it is assessed that consumer demand warrants larger orders, our target customers
are expected to purchase additional products to accommodate anticipated consumer demand.
We also market
our products to commercial property and institutional property managers and developers. We believe that this market will
benefit from the time saved in installing fixtures and the safety features achieved from the elimination of exposed electrical
wires once the SQL Technology socket is installed in the junction box.
During 2015,
the Company established revenue in its inaugural sales year through sales to three big box retailers, each representing in excess
of 10% of our sales in the fiscal year. The Company did not generate revenue during the years 2014 and 2013.
Employees
As of July 15,
2016, we had five full time employees in the United States of America and five full time employees in the Peoples Republic of
China. We have not experienced any work stoppages and consider our relations with our employees to be good.
In addition
to these salaried employees, the Company’s non-executive Chairman of our Board, Rani Kohen, serves as a paid consultant
to the Company on operational activities. Mr. Kohen is the founder of Safety Quick Lighting & Fans Corp. and previously served
as our Chief Executive Officer.
Seasonality
Retailers purchase
ceiling fans for early spring and summer sales. As a result, the Company sells more of this product in the October through February
time period. The Company has begun to market lighting fixtures that will reduce the impact of seasonal influences to its sales
growth, as lighting products do not lend themselves to seasonal purchases. During periods of economic expansion or contraction
our sales by quarter may vary significantly from this seasonal pattern.
Government
and Environmental Regulation
Our facilities
and operations are subject to federal, state and local laws and regulations relating to environmental protection and human health
and safety. Some of these laws and regulations may impose strict, joint and several liabilities on certain persons for the cost
of investigation or remediation of contaminated properties. These persons may include former, current or future owners or operators
of properties and persons who arranged for the disposal of hazardous substances. Our leased real property may give rise to such
investigation, remediation and monitoring liabilities under environmental laws. In addition, anyone disposing of certain products
we distribute, such fluorescent lighting, must comply with environmental laws that regulate certain materials in these products.
We believe that
we are in compliance, in all material respects, with applicable environmental laws. As a result, we do not anticipate making significant
capital expenditures for environmental control matters either in the current year or in the near future.
Our Corporate
Information
Our principal
executive offices are located at 4400 North Point Parkway, Suite 154, Alpharetta, Georgia, 30022 and our telephone number is (770)
754-4711. Our web address is http://www.safetyquicklight.com.
Emerging
Growth Company
We are an “emerging
growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies.
Section 107(b)
of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided
in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging
growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private
companies. We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards
pursuant to Section 107(b) of the JOBS Act.
We could remain
an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year
in which our annual gross revenues are $1 billion, as adjusted, or more, (ii) the date that we become a “large accelerated
filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business
day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three-year period.
Available
Information
Copies of our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
other documents that we will file with or furnish to the SEC will be available free of charge by sending a written request
to our Chief Executive Officer at our corporate headquarters. Additionally, the documents we file with the SEC is or
will be available free of charge at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C. 20549.
Other information on the operation of the Public Reference Room is or will be available by calling the SEC at (800) SEC-0330.
PROPERTIES
Our corporate
offices are located at 4400 North Point Parkway, Suite 154, Alpharetta, Georgia. The monthly rent related to our lease is currently
$1,970.91 per month,, subject to increases in subsequent periods. The Company had previously rented office space located at One
Buckhead Plaza, 3060 Peachtree Road, Suite 390, Atlanta, Georgia 30305. The Company is currently subleasing this space through
March 31, 2017. We do not own any property or land. We believe that our facilities are adequate for our current needs and that,
if required, we will be able to locate suitable new office space and obtain a suitable replacement for our executive and administrative
headquarters.
LITIGATION
We are not party,
nor is our property subject, to any material pending legal proceedings.
MANAGEMENT
The following
is a list of our directors and executive officers. All directors serve one-year terms or until each of their successors are duly
qualified and elected. The officers are elected by our Board.
Name
|
|
Age
|
|
Position
|
Mr.
John P. Campi
|
|
|
72
|
|
|
Chief
Executive Officer
|
Mr. Rani Kohen
|
|
|
50
|
|
|
Director, Chairman
|
Mr. Phillips
Peter
|
|
|
84
|
|
|
Director
|
Mr. Thomas Ridge
|
|
|
70
|
|
|
Director
|
Mr. Dov Shiff
|
|
|
69
|
|
|
Director
|
Mr. Leonard J.
Sokolow
|
|
|
59
|
|
|
Director
|
John P. Campi
has served as the Company’s Chief Executive Officer since November 2014. Mr. Campi founded Genesis Management, LLC in
2009, and retired in 2014 upon accepting the role of Chief Executive Officer. Mr. Campi has extensive experience in the field
of cost management, is recognized as a Founder of the strategic cost-management discipline known as Activity-Based Cost Management,
and is generally recognized as a national leader in the field of supply chain management. From December 2007 to December 2008,
Mr. Campi served as the Chief Procurement Officer and an Executive Vice President for Chrysler LLC, where he was responsible for
all worldwide purchasing and supplier quality activities. From September 2003 to January 2007, Mr. Campi served as the Senior
Vice President of Sourcing and Vendor Management for The Home Depot, where he led the drive for standardization and optimization
of The Home Depot Global Supply Chain. From April 2002 to September 2003, Mr. Campi served as the Chief Procurement Officer and
Vice President for Du Pont Global Sourcing and Logistics. Prior to 2002, Mr. Campi led the Global Sourcing activities for GE Power
Energy, and held a variety of positions with Federal Mogul, Parker Hannifin Corporation and Price Waterhouse Coopers. Mr. Campi
also serves as a Trustee of Case Western Reserve University, has served as a Member of the Advisory Board of Directors for three
startup companies, and has served as a Member of the Financial Executives Institute and the Institute of Management Accountants.
Mr. Campi received his MBA from Case Western Reserve University. Our Board believes Mr. Campi’s qualifications to serve
as our Chief Executive Officer include his extensive executive and advisory experience with established and startup companies,
his expertise in cost-management, and his qualifications in the field of supply chain management.
Rani Kohen
has served as a Chairman of the Board since November 2012. Mr. Kohen founded the Company and began development of the Company’s
power plug technology in 2004. Mr. Kohen served as the Company’s Chief Executive Officer until December 2012. Mr. Kohen
has over twenty-five years in the retail lighting industry. He opened his first retail lighting showroom in 1988 in Israel, and
built the business into the largest chain of retail lighting showrooms in the country. Our Board believes Mr. Kohen’s qualifications
to serve as Chairman of our Board include his deep understanding of the Company’s business and products, his years of experience
in the retail lighting industry, and his past experience as the Company’s Chief Executive Officer.
Governor
Thomas J. Ridge
has served as a director since June 2013. In 2013, Mr. Ridge co-founded Ridge Schmidt Cyber, an executive
services firm addressing the increasing demands of cyber security. In April 2010, Mr. Ridge became a partner in Ridge Policy Group,
a bipartisan, full-service government affairs and issue management group. Mr. Ridge has served as President and Chief Executive
Officer of Ridge Global, LLC, a global strategic consulting company, since July 2006. From January 2003 to January 2005, Mr. Ridge
served as the Secretary of the United States Department of Homeland Security, and from 2001 through January 2003, Mr. Ridge served
as the Special Assistant to the President for Homeland Security. Mr. Ridge served two terms as Governor of the Commonwealth of
Pennsylvania from 1995 to 2001, and served as a member of the U.S. House of Representatives from 1983 through 1995. Mr. Ridge
currently serves as a member of the board of two public companies, The Hershey Company and Lifelock, and has previously served
on the board of five other public companies. Mr. Ridge is Chairman of the Board of the National Organization on Disability, and
serves as a board member on the Board of Public Finance Management, the Institute for Defense Analysis, the Center for the Study
of the Presidency, and the Oak Ridge National Lab. Our Board believes Mr. Ridge’s qualifications to serve as a member of
our Board include his vast experience in both government and industry, his service on other public and private company boards,
and his expertise in retail, risk management, and cyber security.
Phillips
Peter
has served as a director since November 2012. Since December 2014, Mr. Peter has served as a Senior Vice President of
Ridge Global. From 1994 to 2014, Mr. Peter practiced law at Reed Smith LLP where he focused his practice on legislative and regulatory
matters before Congress, the executive branch of the federal government, and other administrative agencies. Prior to this, Mr.
Peter was an officer at General Electric Company, where he held executive positions from 1973 to 1994. He is also a veteran of
the U.S. Army. Our Board believes Mr. Peter’s qualifications to serve as a member of our Board include his role as a past
advisor to the Company, his extensive experience in regulatory affairs, his past industry experience, and his demonstrated leadership
ability.
Dov Shiff
has served as a director since February 2014. Mr. Shiff is presently President and Chief Executive Officer of the Shiff Group
of Companies. The Shiff Group owns and operates hotels and other real estate in Israel, including Hayozem Resorts & Hotels
Ltd., Marina Hotel Tel Aviv Ltd. and Zvidan Investments Ltd. Our Board believes Mr. Shiff’s qualifications to serve as a
member of our Board include his role as a past advisor to the Company and his history of success developing and operating new
businesses.
Leonard J.
Sokolow
has served as a director since November 2015. Mr. Sokolow currently serves as CEO & President of Newbridge Financial,
Inc. and Chairman of its broker dealer subsidiary, Newbridge Securities Corporation. Mr. Sokolow founded vFinance, Inc. in 1997,
which merged with National Holdings Corporation (NASDAQ CM: NHLD), where he served as President and Vice Chairman of its Board
of Directors. Mr. Sokolow also founded and served as Chairman and CEO of Americas Growth Fund, Inc., a closed-end investment management
company (NASDAQ: AGRO) until it was sold. Prior to this, Mr. Sokolow was an executive for Applica, Inc. (formerly Windmere Corporation
(NYSE: APN)), where he served as Executive Vice President and General Counsel. Mr. Sokolow, is also a CPA and worked for Ernst
Young and KPMG. Mr. Sokolow earned a Bachelor of Arts degree in Economics and a concentration in Accounting. Mr. Sokolow also
earned a Juris Doctorate degree from the University of Florida School of Law and a Masters of Law degree in Taxation from the
New York University School of Law. Mr. Sokolow is on the Board of Directors, Chairman of the Audit Committee and a member of the
Nominations and Corporate Governance Committees for Consolidated Water Company Ltd. (NASDAQ GS: CWCO). In addition, Mr. Sokolow
has served the Board of Directors of, and Chairman of the Audit Committee for, Alberta Oil Sands, Inc. (TSXV: AOS.V). Our Board
believes Mr. Soklow’s qualifications to serve as a member of our Board include his vast education and experience in the
financial industry, his service on other public company boards and his history of executive leadership in developing and operating
businesses.
Corporate
Governance
Board
Structure
We have chosen
to separate the Chief Executive Officer and Board Chairman positions. We believe that this Board leadership structure
is the most appropriate for the Company. Our chairman, the founder of the Company, provides us with significant experience
in research and development. Our Chief Executive Officer is responsible for day to day operations, and brings significant experience
to the Company.
Committees
of the Board of Directors
On January 5,
2016, we established a separately-designated standing audit committee (the “Audit Committee”), consisting of two members,
Leonard J. Sokolow and Rani Kohen. Mr. Sokolow is the Chairman of the Audit Committee and is deemed to be independent and the
Board has determined that he is an audit committee financial expert, as defined in Item 5(d)(5) of Regulation S-K. The
Audit Committee reviews, acts on and reports to the Board with respect to various auditing and accounting matters, including the
recommendations and performance of independent auditors, the scope of the annual audits, fees to be paid to the independent auditors,
and internal accounting and financial control policies and procedures.
We presently
do not have a nominating committee, compensation committee, or other committee or committees performing similar functions, as
our management believes that until this point it has been premature at the early stage of our management and business development
to form such committees. Moving forward, at such time as the Board believes that such committees are necessary or desirable, or
that we are required to have such committees, we will take steps to form such committees and adopt charters as may be required
to comply with all applicable rules and regulations.
Code of
Conduct
The Company
does not currently have a Code of Conduct and Ethics to apply to all of our directors, officers and employees. In the near future,
our Board intends to adopt a code which intended to promote ethical conduct and compliance with laws and regulations, to provide
guidance with respect to the handling of ethical issues, to implement mechanisms to report unethical conduct, to foster a culture
of honesty and accountability, to deter wrongdoing and to ensure fair and accurate financial reporting. Upon approval by the Board,
a copy of the Code of Conduct and Ethics will be available at our website www.safetyquicklight.com.
Board
Diversity
While we do
not have a formal policy on diversity, our Board considers diversity to include the skill set, background, reputation, type and
length of business experience of our Board members as well as a particular nominee’s contributions to that mix. Our Board
believes that diversity brings a variety of ideas, judgments and considerations that benefit Safety Quick Lighting and our shareholders.
Although there are many other factors, the Board seeks individuals with experience in business, financial and scientific research
and development.
Board
Assessment of Risk
Our risk management
function is overseen by our Board. Our management keeps our Board apprised of material risks and provides our directors access
to all information necessary for them to understand and evaluate how these risks interrelate, how they affect the Company, and
how management addresses those risks. Mr. John Campi, as our Chief Executive Officer works closely together with the Board once
material risks are identified on how to best address such risk. If the identified risk poses an actual or potential conflict with
management, our independent directors may conduct the assessment.
Shareholder
Communications
Although
we do not have a formal policy regarding communications with the Board, shareholders may communicate with the Board by writing
to us at 4400 North Point Parkway, Suite 154, Alpharetta, Georgia, 30022, Attention: Shareholder Communication. Shareholders who
would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.
Family Relationships
There are no
family relationships among the directors and executive officers.
Involvement
in Legal Proceedings
We know of no
pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to us, or our subsidiaries,
or has a material interest adverse to us or our subsidiaries. None of our executive officers or directors have (i) been involved
in any bankruptcy proceedings within the last ten years, (ii) been convicted in or has pending any criminal proceedings (other
than traffic violations and other minor offenses), (iii) been subject to any order, judgment or decree enjoining, barring, suspending
or otherwise limiting involvement in any type of business, securities or banking activity or (iv) been found to have violated
any Federal, state or provincial securities or commodities law and such finding has not been reversed, suspended or vacated.
Certain Relationships
and Related Transactions
Unless otherwise
stated in this prospectus, none of the following parties has, in our fiscal years ended 2014 and 2015, had any material interest,
direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
•
|
|
any
of our directors or officers;
|
•
|
|
any
person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding
shares of common stock; or
|
•
|
|
any
member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the above persons.
|
We are currently
party to a consulting agreement with Mr. Rani Kohen, Chairman of the Company’s Board, pursuant to which we are required
to pay cash compensation in the amount of $150,000 per year, the terms of which are more fully described in Mr. Kohen’s
Consulting Agreement.
EXECUTIVE COMPENSATION
As a “smaller
reporting company,” we have elected to follow scaled disclosure requirements for smaller reporting companies
.
Under
the scaled disclosure obligations, we are not required to provide
Compensation Discussion and Analysis
and certain other
tabular and narrative disclosures relating to executive compensation. Nor are we required to quantify payments due to the named
executives upon termination of employment. Management believes that the scaled disclosure for the Company’s executive compensation
policy and practices is appropriate because we will be a small publicly-traded company, have only one named executive and have
a relatively simple compensation policy and structure that has not changed in the last fiscal year.
Summary Compensation
Table for Fiscal Years 2015 and 2014
The following
information is related to the compensation paid, distributed or accrued by us for the last two fiscal years to our Chief Executive
Officer (principal executive officer). No other employee received compensation in excess of $100,000 in the past two
fiscal years.
Name
&
Principal Position
|
|
Year
|
|
Salary
$
|
|
Bonus
$
|
|
Stock
Awards $
|
|
Option
Awards $
|
|
Non-Equity
Incentive Plan Compensation $
|
|
Non-Qualified
Deferred Compensation Earnings $
|
|
All
Other Compensation $
|
|
Total
$
|
John
P. Campi,
|
|
|
2014
|
|
|
$
|
11,769
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
11,769
|
|
Chief Executive Officer (1)
|
|
|
2015
|
|
|
$
|
102,000
|
|
|
|
—
|
|
|
$
|
173,688
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
14,376
|
|
|
$
|
290,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
R. Hills, former
|
|
|
2014
|
|
|
$
|
155,308
|
|
|
|
—
|
|
|
$
|
62,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
11,077
|
|
|
$
|
228,885
|
|
Chief Executive
Officer (2)
|
|
|
2015
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3,324
|
|
|
$
|
3,324
|
|
Outstanding
Equity Awards at December 31, 2015 Fiscal Year End
|
|
|
Option
Awards
|
|
|
|
|
Stock
Awards
|
|
|
Name
|
|
|
Number
of
Securities
underlying
unexercised
options
exercisable
|
|
|
|
Number
of
Securities
underlying
unexercised
options
not exercisable
|
|
|
|
Option
exercise or
base price per share
|
|
|
|
Option
Expiration Date
|
|
|
|
Number
of
Shares or
Units of Stock Not Vested
|
|
|
|
Market
Value
of
Shares or Units Not Vested
|
|
|
|
Equity
Incentive Plan Awards:
Number
of Unearned Shares, Units or Other Rights Not Vested
|
|
|
|
Value
of Unearned Shares, Units or Other Rights Not Vested
|
|
John P. Campi
Chief Executive Officer (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James R. Hills,
former Chief Executive Officer (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
Pursuant
the CEO Agreement, Mr. Campi receives a gross annual salary of $102,000 per year. Mr.
Campi also received 750,000 shares of the Company’s common stock, 250,000 shares
of which vested on May 20, 2015, and 500,000 shares of which vested on December 31, 2015.
The value of the Stock Award is based on the value of shares sold in connection with
the Company’s most recent sale of securities in a private placement as of the time
of the CEO Agreement, which was $0.25. Mr. Campi earned $14,376 in incentive compensation
pursuant to the CEO Agreement during 2015.
|
|
(2)
|
James
R. Hills resigned from his position as Chief Executive Officer on November 21, 2014.
Pursuant to a mutual agreement and release between Mr. Hills and the Company dated November
21, 2014 (the “Hills Agreement”), Mr. Hills received 250,000 shares of the
Company’s common stock upon his resignation, and released the Company of any obligations
concerning future issuances of shares of the Company’s common stock under his employment
agreement. The value of the Stock Awards is based on the value of shares sold in connection
with the Company’s most recent sale of securities in a private placement as of
the time of issuance, which was $0.25. Under the Hills Agreement, Mr. Hills will receive
commissions equal to one half of one percent (0.50%) of gross revenue generated solely
from orders placed by Home Depot for a period of thirty-six (36) months from the date
of such agreement. Mr. Hills received $3,324 in commissions during 2015.
|
Narrative
Disclosure to Summary Compensation and Option Tables
Employment
Agreements
On November
21, 2014, the Company entered into an Executive Employment Agreement (the “CEO Agreement”) with Mr. Campi to serve
as its Chief Executive Officer. The CEO Agreement provided that Mr. Campi would serve for an initial term ending December 31,
2015. Mr. Campi continues to perform under the terms of the CEO Agreement, until such time as the parties agree upon an extension
or modification of the terms therein.
Subject to other
customary terms and conditions of such agreements, the CEO Agreement provides that Mr. Campi will receive a base salary of $102,000
per year, which may be adjusted each year at the discretion of the Company’s Board. As further consideration, the CEO Agreement
included a sign-on bonus of 750,000 shares of the Company’s common stock, which has fully vested and all such shares have
been issued to Mr. Campi.
The CEO Agreement
also includes incentive compensation equal to (i) one half of one percent (0.50%) of the first $20,000,000 of the Company’s
annual gross revenue plus one quarter of one percent (0.25%) of the Company’s annual gross revenue above $20,000,000; (ii)
three percent (3%) of the Company’s annual net income; and (iii) five (5) year options to purchase shares of the Company’s
common stock equal to one half of one percent (0.50%) of the Company’s quarterly net income, with a strike price to be determined
at the time such options are granted. Mr. Campi earned $14,376 in incentive compensation pursuant to the CEO Agreement during
2015.
Consulting
Agreement
On November
25, 2013, we entered into a Consulting Agreement with our founder and the Chairman or our Board, Rani Kohen (the “Consulting
Agreement”). The term of the Consulting Agreement is for three (3) years, beginning on December 1, 2013. Subject to the
customary terms and conditions of such agreements, the Consulting Agreement provides that Mr. Kohen will receive an annual consulting
fee of $150,000, which may be increased each year at our Board’s discretion. As further consideration, the Consulting Agreement
includes incentive compensation in the form cash, stock and/or options (i) equal to one-half a percent (0.50%) of our annual gross
revenue; and (ii) to be determined by our Board on a project-by-project basis. Mr. Kohen earned $14,376 in incentive compensation
pursuant to the Consulting Agreement during 2015.
Pursuant to
the Consulting Agreement, if terminated by our Board without cause, Mr. Kohen will be entitled to receive all unpaid salary due
through the term of the Consulting Agreement, and any incentive compensation or other bonus compensation then due. If otherwise
terminated by the Board, Mr. Kohen will be entitled to only receive 50% of the unpaid applicable annual consulting fee. Under
the Consulting Agreement, termination for cause includes (i) an act of fraud, embezzlement, or theft; (ii) a material violation
of the Consulting Agreement left uncured for more than 30 days; or (iii) Mr. Kohen’s death, disability or incapacity.
Outstanding
Equity Awards
On November
15, 2015, the Board authorized the Company to grant certain securities under the Incentive Plan and Directors Compensation Plan,
in the aggregate amount of up to 3,810,000 options to purchase shares of our common stock, vesting in part immediately and entirely
over the next two years, and up to 75,000 shares of our common stock, vesting immediately. As of April 29, 2016, the Company has
entered into Option Award Agreements with three grantees, pursuant to awards granted on November 15, 2015 under the Incentive
Plan, consisting of up to 1,150,000 options to purchase shares of the Company’s common stock, of which options to purchase
up to 650,000 shares of common stock vest immediately, options to purchase up to 350,000 shares of common stock will vest on November
15, 2016 and options to purchase up to 150,000 shares of common stock will vest on November 15, 2017 (the “Incentive Plan
Issuances”). Also as of April 29, 2016, the Company has entered into Stock Award Agreements with two grantees to issue 75,000
shares of its common stock, vesting immediately. The exercise of such awards is contingent upon attainment of majority shareholder
approval of the Incentive Plan, which will become effective on July 31, 2016, as more fully set forth in the Company’s Definitive
Information Statement on Schedule 14C filed on July 11, 2016 (the “Definitive 14C”).
See subsection
“Stock Incentive Plan Information” below for additional information concerning the Incentive Plan.
Director
Compensation
We do not pay
cash compensation to our directors for service on our Board. Directors are reimbursed for reasonable expenses incurred
in attending meetings and carrying out duties as board members.
Director
Compensation Policy
On November
15, 2015, our Board approved the Company’s Director Compensation Policy (the “Director Compensation Policy”)
applicable to members of the Board who are not employees of the Company (each, an “Eligible Director”). Under the
Director Compensation, upon election to the Board, a new Eligible Director shall be entitled to a grant of 50,000 shares of our
common stock and an option to purchase up to 150,000 shares of our common stock, vested monthly and fully vested after one year,
at a price per share determined as of the date of grant, based on (i) the prior days’ closing price if there is a public
market for our common stock, or (ii) if there is no public market for our common stock, the price per share in our most recently
completed private placement of our common stock or convertible securities (“Director Options”). The amount of shares
and Director Options shall be prorated based on the date of a new Eligible Director’s appointment relative to the term remaining,
if applicable.
Eligible Directors
will also receive Director Options to purchase either (i) 10,000 shares of our common stock for each Board meeting in which such
Eligible Director attends in person, or (ii) 5,000 shares of our common stock for each Board meeting in which such Eligible Director
attends telephonically. Eligible Directors will also receive Director Options to purchase 25,000 shares of our common stock following
each year in which he or she has served on the Board. Director Options will vest monthly over the course of the year following
the date such Director Options are granted, and must be exercised within five years of the grant date.
In addition,
the Director Compensation Policy provides that (i) the chairperson of the Board will receive Director Options to purchase 100,000
shares of our common stock as an annual retainer, payable quarterly, unless otherwise provided by an independent compensation
agreement; (ii) the chairperson of the Corporate Governance and Nominating Committee of the Board, if applicable, will receive
Director Options to purchase 25,000 shares of our common stock as an annual retainer, payable quarterly; (iii) the chairperson
of the Audit Committee of the Board, if applicable, will receive a number of shares of common stock equal to $12,000, based on
the same price per share method applied to Director Options, and Director Options to purchase 50,000 shares of our common stock,
both as an annual retainer, payable quarterly; (iv) the chairperson of the Compensation Committee of the Board, if applicable,
will receive Director Options to purchase 30,000 shares of our common stock as an annual retainer, payable quarterly; (v) other
members of the Audit Committee of the Board, if applicable, will receive Director Options to purchase 15,000 shares of our common
stock as an annual retainer, payable quarterly; and (vi) other members of the Corporate Governance Committee and Nominating and
Compensation Committee of the Board, if applicable, will receive Director Options to purchase 10,000 shares of our common stock
as an annual retainer, payable quarterly.
Director
Compensation
The following
table shows for the fiscal year ended December 31, 2015, certain information with respect to the compensation of all non-employee
directors of the Company:
Name
|
|
Fees Earned or
Paid in Cash
|
|
Stock
Awards (1)
|
|
Option
Awards (1)
|
|
Total
|
Rani
Kohen (2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Phillips
Peter (3)(4)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Thomas
Ridge (3)(4)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Dov
Shiff (3)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Leonard
Sokolow (3)(5)
|
|
$
|
0
|
|
|
$
|
30,000
|
|
|
$
|
90,000
|
|
|
$
|
120,000
|
|
|
(1)
|
These
amounts are the aggregate fair value of the equity compensation paid to our directors
during the fiscal year. The aggregate fair value is computed in accordance with FASB
ASC Topic 718. See Note 2 to our consolidated financial statements contained in this
prospectus regarding assumptions underlying valuation of equity instruments.
|
|
(2)
|
Mr.
Kohen has served as a Chairman of the Board since November 2012.
|
|
(3)
|
Messrs.
Ridge, Peter, Shiff and Sokolow have each served as a member of our Board since June
2013, November 2012, February 2014, and November 2015, respectively.
|
|
(4)
|
Messrs.
Peter and Ridge each received options on September 3, 2013, which expire five (5) years
from the grant date, to purchase 100,000 shares of our common stock at an exercise price
of $0.375 as compensation for past services on our Board.
|
|
(5)
|
The
Board authorized a grant of stock and option awards to Mr. Sokolow on November 15, 2015
pursuant to the Director Compensation Policy, in connection with the Board’s approval
of the policy and his appointment to our Board. On January 25, 2016, the Company issued
to Mr. Sokolow (i) 50,000 shares of our common stock in connection with his appointment
to the Board on November 15, 2016; (ii) Director Options to purchase up to 150,000 shares
of our common stock at $0.60 per share in connection with his appointment to the Board
on November 15, 2016; and (iii) 12,000 shares of our common stock in connection with
his appointment as the Chairman of our Audit Committee on January 5, 2016, the value
of which was based on the value of shares sold in connection with the Company’s
recent sale of securities in a private placement as of the time of issuance, which was
$1.00 per share (collectively, the “Director Compensation Issuances”)
|
Stock Incentive
Plan Information
The following
table sets forth equity compensation plan information as of December 31, 2015:
Plan category
|
|
(a)
Number
of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
(b)
Weighted-average
exercise price of outstanding options, warrants and rights
|
|
(c)
Number
of securities remaining available for future issuance under equity compensation plans (excluding securities reflected
in column (a))
|
Equity compensation
plans not approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
Stock Incentive Plan (1)
|
|
|
3,885,000
|
|
|
$
|
0.84
|
|
|
|
1,115,000
|
|
Equity
compensation plans approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
3,885,000
|
|
|
$
|
0.84
|
|
|
|
1,115,000
|
|
(1)
|
|
Of the grants authorized by the Board on November 15, 2015,
which are discussed in more detail below, options to purchase up to 410,000 shares of common stock were granted with an exercise
price to be determined by the Company. An exercise price has not been determined; for the purposes of calculating the weighted-average
exercise price, an exercise price of $1.00 per share was assumed, which is the most recent sales price of the Company’s
securities in a private placement.
|
The 2015
Stock Incentive Plan
On April 27,
2015, our Board approved the Company’s 2015 Stock Incentive Plan (the “Incentive Plan”). Under the Incentive
Plan, the Board has the sole authority to implement, interpret, and/or administer the Incentive Plan unless the Board delegates
(i) all or any portion of its authority to implement, interpret, and/or administer the Incentive Plan to a committee of the Board,
or (ii) the authority to grant and administer awards under the Incentive Plan to an officer of the Company. The Incentive Plan
relates to the issuance of up to 5,000,000 shares of our common stock, subject to adjustment, and shall be effective for ten (10)
years, unless earlier terminated. No single participant under the Incentive Plan may receive more than 25% of all options awarded
in a single year.
Any employee
of the Company or an affiliate, a director, or a consultant to the Company or an affiliate may be an “Eligible Person”
under the Incentive Plan. The Incentive Plan provides Eligible Persons the opportunity to participate in the enhancement of shareholder
value by the award of options and Common Stock, granted as stock bonus awards, restricted stock awards, deferred share awards
and performance-based awards, under the Incentive Plan. The Company may make payment of bonuses and/or consulting fees to certain
Eligible Persons in options and common stock, or any combination thereof.
Certain options
to be granted to employees under the Incentive Plan are intended to qualify as Incentive Stock Options (“ISOs”) pursuant
to Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), while other options granted under the
Incentive Plan will be nonqualified options not intended to qualify as Incentive Stock Options ISOs (“Nonqualified Options”),
either or both as provided in the agreements evidencing the options described.
The Incentive
Plan further provides that awards granted under the Incentive Plan cannot be exercised until a majority of the Company’s
shareholders have approved the Incentive Plan. Actions by a majority of shareholders approving the Incentive Plan will become
effective on July 31, 2016, as more fully set forth in the Company’s Definitive 14C.
Stock Options
The Board, or
the appointed committee, shall have sole and absolute discretionary authority (i) to determine, authorize, and designate those
persons pursuant to the Incentive Plan who are to receive options under the Incentive Plan, (ii) to determine the number of shares
of common stock to be covered by such options and the terms thereof, (iii) to determine the type of option granted (ISO or Nonqualified
Option), and (iv) to determine other such details concerning the vesting, termination, exercise, transferability and payment of
such options. The Committee shall thereupon grant options in accordance with such determinations as evidenced by a written option
agreement. Subject to the express provisions of the Incentive Plan, the committee shall have discretionary authority to prescribe,
amend and rescind rules and regulations relating to the Incentive Plan, to interpret the Incentive Plan, to prescribe and amend
the terms of the option agreements and to make all other determinations deemed necessary or advisable for the administration of
the Incentive Plan.
The exercise
price per share for common stock of options granted under the Incentive Plan shall be determined by the Committee, but in no case
shall be less than one hundred percent (100%) of the fair market value of the common stock (determined in accordance with the
Incentive Plan at the time the option is granted), provided that, with respect to ISOs granted to a person who holds ten percent
(10%) or more of the total combined voting power of all classes of stock of the Company, the exercise price per share for common
stock shall not be less than 110% of the fair market value of the common stock. The fair market value of the common stock with
respect to which ISOs may be exercisable for the first time by any Eligible Person during any calendar year under all such plans
of the Company and its affiliates shall not exceed $100,000, or such other amount provided in Section 422 of the Code.
Bonus and
Restricted Stock Awards
The Board, or
the applicable committee, may, in its sole discretion, grant awards of common stock in the form of bonus awards and restricted
stock awards. Each stock award agreement shall be in such form and shall contain such terms and conditions as the Board, or the
committee, deems appropriate. The terms and conditions of each stock award agreement may change from time to time and need not
be uniform with respect to Eligible Persons, and the terms and conditions of separate stock award agreements need not be identical.
Deferred
Stock Awards
The Board, or
the committee, may authorize grants of shares of common stock to be awarded at a future date upon such terms and conditions as
the Board, or the committee, may determine. Such awards shall be conferred upon the Eligible Person as consideration for the performance
of services and subject to the fulfillment of specified conditions during the deferral period. Each deferred stock award agreement
shall be in such form and shall contain such terms and conditions as the Board, or the committee, deems appropriate. The terms
and conditions of each deferred stock award agreement may change from time to time and need not be uniform with respect to Eligible
Persons, and the terms and conditions of separate deferred stock award agreements need not be identical.
Performance
Share Awards
The Board, or
the committee, may authorize grants of shares of common stock to be awarded upon the achievement of specified performance objectives,
upon such terms and conditions as the Board, or the committee, may determine. Such awards shall be conferred upon the Eligible
Person upon the achievement of specified performance objectives during a specified performance period, such objectives being set
forth in the grant and including a minimum acceptable level of achievement and, optionally, a formula for measuring and determining
the number of performance shares to be issued. Each performance share award agreement shall be in such form and shall contain
such terms and conditions as the Board, or the committee, deems appropriate. The terms and conditions of each performance share
award may change from time to time and need not be uniform with respect to Eligible Persons, and the terms and conditions of separate
performance share award agreements need not be identical.
Adjustments
If the Company
shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the common stock outstanding, without receiving consideration therefore in money,
services or property, then (i) the number, class, and per share price of shares of common stock subject to outstanding options
and other awards under the Incentive Plan and (ii) the number of and class of shares then reserved for issuance under the Incentive
Plan and the maximum number of shares for which awards may be granted to an Eligible Person during a specified time period shall
be appropriately and proportionately adjusted. The Board, or a committee, shall make such adjustments, and its determinations
shall be final, binding and conclusive.
Change in
Control
If the Company
is merged or consolidated with another entity or sells or otherwise disposes of substantially all of its assets to another company
while options or stock awards remain outstanding under the Incentive Plan, unless provisions are made in connection with such
transaction for the continuance of the Incentive Plan and/or the assumption or substitution of such options or stock awards with
new options or stock awards covering the stock of the successor company, or parent or subsidiary thereof, with appropriate adjustments
as to the number and kind of shares and prices, then all outstanding options and stock awards which have not been continued, assumed
or for which a substituted award has not been granted shall, whether or not vested or then exercisable, unless otherwise specified
in the stock option or stock award agreement, will terminate immediately as of the effective date of any such merger, consolidation
or sale.
Federal Income
Tax Consequences
Subject to other
customary terms, the Company may, prior to certificating any common stock, deduct or withhold from any payment pursuant to a stock
option or stock award agreement an amount that is necessary to satisfy any withholding requirement of the Company in which it
believes, in good faith, is necessary in connection with U.S. federal, state, local or transfer taxes as a consequence of the
issuance or lapse of restrictions on such common stock.
Indemnification
of Officers and Directors
Our bylaws provide
that we shall indemnify, to the fullest extent permitted by applicable law, our officers, directors, employees and agents against
expenses incurred in connection with actions or proceedings brought against them by reason of their serving or having served as
officers, directors, employees, agents or in other capacities. We currently maintain director’s and officer’s liability
insurance.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our directors and officers pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
PRINCIPAL SHAREHOLDERS
The following
table sets forth certain information with respect to the beneficial ownership of common stock by: (i) each director, (ii) each
of the executive officers of the Company, (iii) all current directors and executive officers as a group, and (iv) each stockholder
known to the Company to be the beneficial owner of more than 5% of the outstanding shares of the Company’s common stock.
Unless otherwise indicated in the footnotes to the table, all information set forth in the table is as of July 15, 2016.
Directors
and Named Executive Officers
Title
of Class
|
|
Name
and Address
of
Beneficial Owner
|
|
Amount
and Nature of Beneficial Ownership (1)
|
|
Percent
of Class (1)
|
Common
Stock
|
|
KRNB
Holdings LLC
3245 Peachtree Parkway
Suwanee, GA 30024 (2)
|
|
|
8,003,969
|
|
|
|
17.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Mr. Phillips Peter
1140 Connecticut Avenue, NW
Suite 510
Washington, D.C. 20036 (3)
|
|
|
300,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Mr. Thomas Ridge
1140 Connecticut Avenue, NW
Suite 510
Washington, D.C. 20036 (4)
|
|
|
1,225,000
|
|
|
|
2.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Mr. Dov Shiff
167 Hayarkon Street
Tel Aviv 31032 Israel (5)
|
|
|
14,964,618
|
|
|
|
29.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Mr. Leonard Sokolow
4400 North Point Parkway
Suite 154
Alpharetta, GA 30022 (6)
|
|
|
262,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
John P. Campi
4400 North Point Parkway
Suite 154
Alpharetta, GA 30022 (7)
|
|
|
1,050,000
|
|
|
|
2.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
All
Directors and Officers as a Group
(6
persons)
|
|
|
25,808,587
|
|
|
|
50.16
|
%
|
Stockholders
with 5% Beneficial Ownership
Title
of Class
|
|
Name
and Address
of
Beneficial Owner
|
|
Amount
and Nature of Beneficial Ownership (1)
|
|
Percent
of Class (1)
|
Common
Stock
|
|
Mr.
Dov Shiff
167 Hayarkon Street
Tel Aviv 31032 Israel (5)
|
|
|
14,964,618
|
|
|
|
29.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
KRNB Holdings LLC
3245 Peachtree Parkway
Suwanee, GA 30024 (2)
|
|
|
8,003,969
|
|
|
|
17.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Motek 7 SQL LLC
19101 Mystic Pointe Drive
Apt. 2808
Aventura, FL 33180 (8)
|
|
|
7,771,566
|
|
|
|
16.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Pitch
Energy Corporation
P.O.
Box 400
Ruidoso,
NM 88355 (9)
|
|
|
3,666,667
|
|
|
|
7.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
David S. Nagelberg
2003 Revocable Trust DTD 7/2/03
99 Coast Boulevard, Unit 21 DE
LaJolla, CA 92037 (10)
|
|
|
3,615,865
|
|
|
|
7.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Steven Siegelaub
2801 N. University Dr. Suite 301
Coral Springs, FL 33065 (11)
|
|
|
4,577,875
|
|
|
|
9.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Harry Mittelman
Rev. Living Trust
12100 Kate Drive
Los Altos Hills, CA 94022 (12)
|
|
|
2,599,519
|
|
|
|
5.32
|
%
|
*
Less than 1%
|
(1)
|
Applicable
percentages are based on 46,553,343 shares outstanding, adjusted as required by rules
of the SEC. Beneficial ownership is determined under the rules of the SEC and generally
includes voting or investment power with respect to securities. Shares of common stock
subject to options, warrants and convertible notes currently exercisable or convertible,
or exercisable or convertible within 60 days are deemed outstanding for computing the
percentage of the person holding such securities but are not deemed outstanding for computing
the percentage of any other person. Unless otherwise indicated in the footnotes to this
table, the Company believes that each of the shareholders named in the table has sole
voting and investment power with respect to the shares of common stock indicated as beneficially
owned by them.
|
|
(2)
|
Mr.
Rani Kohen beneficially owns these shares as Manager of KRNB Holdings LLC.
|
|
(3)
|
Mr.
Phillips Peter beneficially owns 300,000 shares of our common stock, including (i) 200,000
shares of common stock, and (ii) 100,000 shares of common stock issuable upon exercise
of options held by Mr. Peter.
|
|
(4)
|
Mr.
Thomas Ridge beneficially owns 1,225,000 shares of our common stock, including (i) 875,000
shares of common stock, (ii) 100,000 shares of common stock issuable upon exercise of
options held by Mr. Thomas Ridge, (iii) 50,000 shares of common stock issuable upon exercise
of Warrants issued pursuant to the Notes Offering and (iv) 200,000 shares of common stock
issuable upon conversion of the Notes issued pursuant to the Notes Offering.
|
|
(5)
|
Mr.
Dov Shiff beneficially owns 14,964,618 shares of our common stock, including (i) 10,674,618
shares of common stock, which includes 1,670,000 shares of common stock obtained pursuant
to the May 2015 Stock Offering, (ii) 1,690,000 shares of common stock issuable upon exercise
of Warrants issued pursuant to the Notes Offering, and (iv) 2,600,000 shares of common
stock issuable upon conversion of the Notes issued pursuant to the Notes Offering. The
number of shares beneficially owned does not include a number of shares which may be
issuable for interest accrued under Mr. Shiff’s Note issued pursuant to the Notes
Offering.
|
|
(6)
|
Mr.
Leonard J. Sokolow beneficially owns 262,000 shares of our common stock, including (i)
112,000 shares of common stock, which includes 50,000 shares of common stock obtained
pursuant to the November 2015 Stock Offering, and (ii) 150,000 shares of common stock
issuable upon the exercise of Director Options.
|
|
(7)
|
Mr.
John P. Campi beneficially owns 1,050,000 shares of our common stock, including (i) 750,000
shares of common stock obtained pursuant to the CEO Agreement, all of which have vested
and been issued, (ii) 250,000 shares of common stock obtained pursuant to the May 2015
Stock Offering, and (iii) 50,000 shares of common stock obtained pursuant to the November
2015 Stock Offering.
|
|
(8)
|
Mr.
Hillel Bronstein beneficially owns these shares of our common stock as Manager of Motek
7 SQL LLC.
|
|
(9)
|
Pitch
Energy Corporation beneficially owns 3,666,667 shares of our common stock, including
(i) 2,000,000 shares of common stock obtained in the April 2016 Stock Sale, and (ii)
1,666,667 shares of common stock issuable upon exercise of the April 2016 Sale Warrant.
|
|
(10)
|
The
David S. Nagelberg 2003 Revocable Trust DTD 7/2/03 beneficially owns 3,615,865 shares
of our common stock, including (i) 315,865 shares of common stock, (ii) 1,300,000 shares
of common stock issuable upon exercise of Warrants issued pursuant to the Notes Offering
and (iii) 2,000,000 shares of common stock issuable upon conversion of the Notes issued
pursuant to the Notes Offering.
|
|
(11)
|
Mr.
Steven Siegelaub, in his personal capacity and as the Managing Member of 301 Office Ventures,
LLC, Enterprise 2013, LLC, Investment 2013, LLC, and Safety Investors 2014, LLC beneficially
owns 4,577,875 shares of our common stock, including (i) 83,333 shares of common stock
held by him and his wife personally obtained pursuant to the May 2015 Stock Offering,
(ii) 875,000 shares of common stock owned by 301 Office Ventures, LLC, (iii) 762,254
shares of common stock beneficially owned by Enterprise 2013, LLC, consisting of (a)
577,046 shares of common stock and (b) 185,208 shares of common stock issuable upon exercise
of certain warrants owned by Enterprise 2013, LLC, (iv) 1,189,972 shares of common stock
beneficially owned by Investment 2013, LLC, consisting of (a) 219,303 shares of common
stock, (b) 194,134 shares of common stock issuable upon exercise of Warrants issued pursuant
to the Notes Offering, and (c) 776,535 shares of common stock issuable upon conversion
of the Notes issued pursuant to the Notes Offering, and (v) 1,667,316 shares of common
stock beneficially owned by Safety Investors 2014, LLC, consisting of (a) 17,316 shares
of common stock, (b) 650,000 shares of common stock issuable upon exercise of Warrants
issued pursuant to the Notes Offering, and (c) 1,000,000 shares of common stock issuable
upon conversion of the Notes issued pursuant to the Notes Offering.
|
|
(12)
|
The
Harry Mittelman Revocable Living Trust beneficially owns 2,599,519 shares of our common
stock, including (i) 289,519 shares of common stock, (ii) 910,000 shares of common stock
issuable upon exercise of Warrants issued pursuant to the Notes Offering and (ii) 1,400,000
shares of common stock issuable upon conversion of the Notes issued pursuant to the Notes
Offering.
|
RELATED PARTY TRANSACTIONS
We are currently
party to a consulting agreement with Mr. Rani Kohen, Chairman of the Company’s Board, pursuant to which we are required
to pay cash compensation in the amount of $150,000 per year.
DESCRIPTION OF SECURITIES
We are authorized
to issue 500,000,000 shares of common stock, no par value.
Common Stock
The holders
of common stock are entitled to one vote per share on all matters submitted to a vote of shareholders, including the election
of directors. There is no cumulative voting in the election of directors. The holders of common stock are entitled to any dividends
that may be declared by the board of directors out of funds legally available for payment of dividends subject to the prior rights
of holders of preferred stock and any contractual restrictions we have against the payment of dividends on common stock. In the
event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive
rights and have no right to convert their common stock into any other securities.
Registration
Rights
On November
26, 2013, May 8, 2014 and June 25, 2014, we entered into registration rights agreements (the “Notes Registration Rights
Agreements”) with investors in connection with the Notes Offering. The Notes Registration Rights Agreements required us
to file, within sixty (60) days following execution of the applicable Notes Registration Rights Agreement and to have a registration
statement declared effective by the SEC within ninety (90) days thereafter. Our registration statement declared effective by the
SEC on October 22, 2014 was filed to satisfy our obligation under the Notes Registration Rights Agreements.
Because we were
unable to file a registration statement pursuant to terms of each Notes Registration Rights Agreement dated as of November 26,
2013 and May 8, 2014, we were in default under such Notes Registration Rights Agreements for the Notes sold in November 2013 and
May 2014 until we filed the registration statement on August 1, 2014. In addition, because we were unable to have such registration
statement declared effect pursuant to terms of each Notes Registration Rights Agreement dated as of November 26, 2013 and May
8, 2014, we were in default under such Notes Registration Rights Agreements for the Notes sold in November 2013 and May 2014 until
the Notes Registration Statement was declared effective by the SEC on October 22, 2014. The penalties associated with the Notes
Registration Rights Agreements were paid by the Company to the holders of the Notes sold in November 2013 and May 2014 in the
form of cash or shares of our common stock, based on each holder’s election.
In connection
with the 2015 Stock Offerings, the Company entered into a 2015 Registration Rights Agreement with each investor, whereby the Company
agreed to prepare and file a registration statement with the SEC to register the 2015 Offering Shares within one hundred fifty
(150) days after date of the applicable registration rights agreement. If the Company could not file the registration statement
by such date using its reasonable efforts for each applicable registration rights agreement, the Company would have been required
to pay a filing default penalty to the applicable investor equal to two percent (2%) of the gross proceeds paid by such investor.
Agreement
and Waiver and Letter Agreement to Convert
On December
11, 2014, the Company sent a letter to the holders of Notes dated November 26, 2013 concerning the first interest payments under
their Notes. The Company invited such holders to convert their first interest payments into shares of the Company’s common
stock pursuant to an agreement and waiver, which granted the Company an extension, deferring the Company’s obligation to
make payment of interest due through November 26, 2014 until February 24, 2015, during which time such deferment would not be
considered an Event of Default under such holder’s Note (the “Agreements and Waiver”). In return for granting
the extension, the Company offered to capitalize the interest due as of November 26, 2015 at a rate of 12%, which was convertible
into shares of the Company’s common stock at the conversion price of $0.25 per share, as of February 24, 2014, unless such
holder requested to receive the such additional interest in cash 15 days prior to the end of the extension. On January 23, 2015,
the Company sent a letter agreement to the holders of Notes dated November 26, 2013 and May 8, 2014 inviting them to convert their
compounded interest, interest due under the Notes, and filing default damages and effectiveness default damages related to their
Notes Registration Rights Agreements (the “Letter Agreements to Convert”).
Agreements
to Forbear
In November
2015, the Company invited the holders of Notes dated November 26, 2013, with respect to outstanding principal and interest due
under their respective Notes, to (i) receive payment in cash, (ii) convert their Notes into shares of the Company’s common
stock, or (iii) forbear an election for three (3) months, or until February 26, 2016, pursuant to a forbearance agreement, during
such time interest under their respective Notes would continue to accrue. In February 2016, the Company invited the same holders
to extend their forbearance period to make an election to convert or redeem their Notes for an additional three months, or until
May 26, 2016, under the same terms as the first forbearance agreements.
The Preferred
Option
In May 2016,
the Company invited the same holders, as well as holders of Notes dated May 8, 2014 and June 25, 2014 (who had not already made
an election to redeem or convert their Notes), to forbear or extend their forbearance period to make an election to convert or
redeem their Notes until July 31, 2016 (the “Third Forbearance”). The Third Forbearance, however, introduced a third
option for all holders of outstanding Notes (the “Preferred Option”), providing for such holders to convert their
respective Note(s) into convertible preferred stock of the Company (the “Preferred Stock”). The holders will have
through the period of the Third Forbearance to consider and elect the Preferred Option, or at any time prior or after to elect
to redeem or convert their respective Note(s) pursuant to its terms. For those holders electing the Preferred Option, such holders
will receive shares of Preferred Stock on a 1 to 1 ratio to the number of shares of the Company’s common stock which are
then convertible under their respective Note(s). With respect to interest on junior securities, dividends, distributions or liquidation
preference, shares of Preferred Stock will rank senior to shares of the Company’s common stock or other junior securities.
Along with other
terms customary for a class of convertible preferred stock, the Preferred Stock will be convertible into shares of the Company’s
common stock at the same conversion price as the Notes (i.e., USD $0.25 per share), and will pay interest quarterly at a rate
of six percent (6%). The Preferred Stock will be convertible upon the election of the holder thereof. Shares of the Preferred
Stock may be repurchased by the Company upon 30 days’ prior written notice, in whole or in part, for USD $3.50 per share,
provided that during such notice period the holder will continue to have the option and right to convert its shares of Preferred
Stock into shares of the Company’s common stock. Holders will also have a put option, allowing them to sell their shares
of Preferred Stock back to the Company at USD $0.25 per share, the Note conversion price.
Notes converted
into shares of Preferred Stock will be terminated. As a consequence, application of the Preferred Option will result in the substantially
same number of shares convertible into the Company’s common stock (either pursuant to the Notes or the Preferred Stock)
as is presently the case. Therefore, the Preferred Option will cause no material dilutive change to the Company’s outstanding
equity.
The Company’s
Board of Directors and a majority of shareholders approved the Preferred Stock and Preferred Option, which will become effective
on July 31, 2016, as more fully set forth in the Company’s Definitive 14C.
Anti-Takeover
Provisions – Florida Law
Unless a corporation
opts out, the Florida Business Corporation Act (FBCA) prohibits the voting of shares in a publicly-held Florida corporation that
are acquired in a “control share acquisition” unless the holders of a majority of the corporation’s voting shares
(exclusive of shares held by officers of the corporation, inside directors, or the acquiring party) approve the granting of voting
rights as to the shares acquired in the control share acquisition. A “control share acquisition” is defined in the
FBCA as an acquisition that immediately thereafter entitles the acquiring party to vote in the election of directors within any
of the following ranges of voting power: one-fifth or more but less than one-third of all voting power, one-third or more but
less than a majority of all voting power, and a majority or more of all voting power. However, an acquisition of a publicly-held
Florida corporation’s shares is not deemed to be a control-share acquisition if it is either (i) approved by such corporation’s
board of directors before the acquisition, or (ii) made pursuant to a merger agreement to which such Florida corporation
is a party. Our articles of incorporation include a provision which opts us out of the “control share acquisition”
statute under the FBCA.
Dividends
We have not
paid dividends on our common stock since inception and do not plan to pay dividends on our common stock in the foreseeable future.
Transfer
Agent
Pacific Stock
Transfer is acting as our transfer agent. The address information for Pacific Stock Transfer is 4045 South Spencer
Street, Suite 403, Las Vegas, NV 89119, the phone number is (702) 361-3033 and the facsimile is (702) 433-1979.
Share Eligible for Future Sale
We are registering
4,582,666 shares of common stock, of which all such shares are issued and outstanding.
PLAN OF DISTRIBUTION
Shares of the
Company’s common stock are quoted on the OTC Pink marketplace under the symbol “SQFL”. To the Company's knowledge,
only a small percentage of our total issued and outstanding shares of common stock have been deposited with broker/dealers as
of the date of this prospectus, and no shares of our common stock have yet been offered for sale. Therefore, while our shares
of common stock are eligible for trading, a liquid public market has not yet developed. We cannot predict the future prices at
which our shares will trade, or the liquidity of a public market for our shares of common stock, should one develop.
Selling security
holders are offering up to 4,582,666 shares of common stock. The selling security holders may offer their shares at prevailing
market prices or privately negotiated prices. We will not receive proceeds from the sale of shares from the selling security holders.
The securities
offered by this prospectus will be sold by the selling security holders from time to time, in one or more transactions. The distribution
of the securities by the selling security holders may be effected in one or more transactions that may take place in the over-the-counter
market, including broker’s transactions or privately negotiated transactions.
The selling
security holders may pledge all or a portion of the securities owned as collateral for margin accounts or in loan transactions,
and the securities may be resold pursuant to the terms of such pledges, margin accounts or loan transactions. Upon default by
such selling security holders, the pledge in such loan transaction would have the same rights of sale as the selling security
holders under this prospectus. The selling security holders may also enter into exchange traded listed option transactions, which
require the delivery of the securities listed under this prospectus. After our securities are qualified for quotation on the over
the counter bulletin board, the selling security holders may also transfer securities owned in other ways not involving market
makers or established trading markets, including directly by gift, distribution, or other transfer without consideration, and
upon any such transfer the transferee would have the same rights of sale as such selling security holders under this prospectus.
In addition
to the above, each of the selling security holders will be affected by the applicable provisions of the Exchange Act, including,
without limitation, Regulation M, which may limit the timing of purchases and sales of any of the securities by the selling security
holders or any such other person. Unless granted an exemption by the SEC from Regulation M under the Exchange Act, or unless otherwise
permitted under Regulation M, the selling security holder will not engage in any stabilization activity in connection with our
common stock, will furnish each broker or dealer engaged by the selling security holder and each other participating broker or
dealer the number of copies of this prospectus required by such broker or dealer, and will not bid for or purchase any common
stock of our or attempt to induce any person to purchase any of the common stock other than as permitted under the Exchange Act.
Following the
effectiveness of this registration statement, of which this prospectus amends and forms a part, the selling security holders may,
from time to time on a continuous basis, offer and sell their shares registered under this registration statement.
There can be
no assurances that the selling security holders will sell any or all of the securities. In various states, the securities may
not be sold unless these securities have been registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
All of the foregoing
may affect the marketability of our securities. Pursuant to oral promises we made to the selling security holders, we will pay
all the fees and expenses incident to the registration of the securities.
Should any substantial
change occur regarding the status or other matters concerning the selling security holders or us, we will file a post-effective
amendment to the Registration Statement, of which this prospectus amends and forms a part, disclosing such matters.
OTC Marketplace
Considerations
The OTC marketplace
is separate and distinct from the NASDAQ stock market. NASDAQ has no business relationship with issuers of securities quoted on
the OTC marketplace. The SEC’s order handling rules, which apply to NASDAQ-listed securities, do not apply to securities
quoted on the OTC marketplace.
Although the
NASDAQ stock market has rigorous listing standards to ensure the high quality of its issuers, and can delist issuers for not meeting
those standards, the OTC markets have no listing standards. Rather, it is the market maker who chooses to quote a security on
the system, files the application, and is obligated to comply with keeping information about the issuer in its files. FINRA cannot
deny an application by a market maker to quote the stock of a company. The only requirement for inclusion in the bulletin board
is that the issuer be current in its reporting requirements with the SEC.
Investors must
contact a broker-dealer to trade OTC marketplace securities. Investors do not have direct access to the bulletin board service.
For bulletin board securities, there only has to be one market maker.
Bulletin board
transactions are conducted almost entirely manually. Because there are no automated systems for negotiating trades on the bulletin
board, they are conducted via telephone. In times of heavy market volume, the limitations of this process may result in a significant
increase in the time it takes to execute investor orders. Therefore, when investors place market orders - an order to buy or sell
a specific number of shares at the current market price - it is possible for the price of a stock to go up or down significantly
during the lapse of time between placing a market order and getting execution. Because bulletin board stocks are usually not followed
by analysts, there may be lower trading volume than for NASDAQ-listed securities.
LEGAL MATTERS
The validity
of the securities offered hereby will be passed upon for us by Thompson Hine LLP, New York, New York.
EXPERTS
The audited
consolidated financial statements appearing in this prospectus and Registration Statement for the years ended December 31,
2015 and 2014, have been audited by L&L CPAS, PA, f/k/a Bongiovanni & Associates, PA, an independent registered public
accounting firm, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed
this registration statement on Form S-1 under the Securities Act with the SEC with respect to the shares of common stock to be
sold in this offering. This prospectus, which is part of the Registration Statement, does not contain all the information set
forth in the Registration Statement. For further information with respect to us and the shares of our common stock
to be sold in this offering, we make reference to the Registration Statement. Whenever we make reference in this prospectus
to any of our contracts, agreements or other documents, the references are not necessarily complete, and you should refer to the
exhibits attached to the Registration Statement for copies of the actual contract, agreement or other document.
We are required
to file annual, quarterly and current reports and other information with the SEC. You can read and copy any of this information
at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 on official business days during the hours
of 10:00 a.m. to 3:00 p.m. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
This information is also available from the SEC’s website at http://www.sec.gov.
FINANCIAL STATEMENTS
Safety Quick Lighting & Fans Corp. and Subsidiary
|
Consolidated Balance Sheets
|
For the Period Ended March 31, 2016
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
12,502
|
|
|
$
|
450,868
|
|
Accounts receivable
|
|
|
994,822
|
|
|
|
234,309
|
|
Inventory
|
|
|
199,486
|
|
|
|
263,871
|
|
Prepaid expenses
|
|
|
43,810
|
|
|
|
35,770
|
|
Other current assets
|
|
|
210
|
|
|
|
210
|
|
Total current assets
|
|
|
1,250,830
|
|
|
|
985,028
|
|
|
|
|
|
|
|
|
|
|
Furniture and Equipment - net
|
|
|
129,428
|
|
|
|
127,521
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Patent - net
|
|
|
87,992
|
|
|
|
83,174
|
|
Debt issue costs - net
|
|
|
6,036
|
|
|
|
14,605
|
|
GE trademark license - net
|
|
|
6,515,050
|
|
|
|
7,123,746
|
|
Other assets
|
|
|
65,714
|
|
|
|
65,714
|
|
Total other assets
|
|
|
6,674,792
|
|
|
|
7,287,239
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,055,050
|
|
|
$
|
8,399,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders (Deficit)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable & accrued expenses
|
|
$
|
1,242,051
|
|
|
$
|
807,798
|
|
Convertible debt - net of debt discount $197,331 and $474,283 at
|
|
|
3,926,902
|
|
|
|
3,989,950
|
|
March 31, 2016 and December 31, 2015 respectively
|
|
|
|
|
|
|
|
|
Convertible debt - related parties - net of debt discount $-0- and
|
|
|
50,000
|
|
|
|
50,000
|
|
$-0- at March 31, 2016 and December 31, 2015 respectively
|
|
|
|
|
|
|
|
|
Notes payable - current portion
|
|
|
109,252
|
|
|
|
107,944
|
|
Advance from related party
|
|
|
500,000
|
|
|
|
—
|
|
Derivative liabilities
|
|
|
22,160,974
|
|
|
|
24,157,838
|
|
Other current liabilities
|
|
|
43,718
|
|
|
|
46,010
|
|
Total current liabilities
|
|
|
28,032,897
|
|
|
|
29,159,540
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
|
—
|
|
|
|
—
|
|
Notes payable
|
|
|
165,420
|
|
|
|
193,800
|
|
GE royalty obligation
|
|
|
11,679,557
|
|
|
|
11,795,855
|
|
Total long term liabilities
|
|
|
11,844,977
|
|
|
|
11,989,655
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
39,877,874
|
|
|
|
41,149,195
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
Common stock: $0 par value, 500,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
43,653,343 and 41,501,251 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at March 31, 2016 and December 31, 2015 respectively
|
|
|
4,056,601
|
|
|
|
2,892,078
|
|
Common stock to be issued
|
|
|
—
|
|
|
|
625,000
|
|
Additional paid-in capital
|
|
|
6,472,427
|
|
|
|
6,472,427
|
|
Accumulated deficit
|
|
|
(42,316,410
|
)
|
|
|
(42,703,470
|
)
|
Total Stockholders' deficit
|
|
|
(31,787,382
|
)
|
|
|
(32,713,965
|
)
|
Noncontrolling interest
|
|
|
(35,442
|
)
|
|
|
(35,442
|
)
|
Total Deficit
|
|
|
(31,822,824
|
)
|
|
|
(32,749,407
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
8,055,050
|
|
|
$
|
8,399,788
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Safety Quick Lighting & Fans Corp. and Subsidiary
|
Consolidated Statements of Operations
|
Three Months Ended March 31, 2016
|
(Unaudited)
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
Sales
|
|
$
|
1,748,061
|
|
|
$
|
1,419,217
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(1,564,045
|
)
|
|
|
(1,239,728
|
)
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
184,016
|
|
|
|
179,489
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(1,427,779
|
)
|
|
|
(1,247,373
|
)
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,243,763
|
)
|
|
|
(1,067,884
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(366,040
|
)
|
|
|
(748,522
|
)
|
Change in fair value of embedded derivative liabilities
|
|
|
1,996,863
|
|
|
|
462,174
|
|
Total other income (expense) - net
|
|
|
1,630,823
|
|
|
|
(286,348
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interest
|
|
|
387,060
|
|
|
|
(1,354,232
|
)
|
Less: net loss attributable to noncontrolling interest
|
|
|
—
|
|
|
|
(2
|
)
|
Net income (loss) attributable to Safety Quick
Lighting & Fans Corp.
|
|
$
|
387,060
|
|
|
$
|
(1,354,230
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic and diluted
|
|
$
|
0.01
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding during the year
|
|
|
|
|
|
|
|
|
basic and diluted
|
|
|
35,946,332
|
|
|
|
33,887,925
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Safety Quick Lighting & Fans Corp. and Subsidiary
|
Consolidated Statements of Cash Flows
|
Three Months Ended March 31, 2016
|
(Unaudited)
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income loss attributable to Safety Quick Lighting & Fans
Corp.
|
|
$
|
387,060
|
|
|
$
|
(1,354,230
|
)
|
Net income loss attributable to noncontrolling interest
|
|
|
—
|
|
|
|
(2
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
6,413
|
|
|
|
5,404
|
|
Amortization of debt issue costs
|
|
|
8,569
|
|
|
|
38,612
|
|
Amortization of debt discount
|
|
|
276,951
|
|
|
|
536,402
|
|
Amortization of patent
|
|
|
1,777
|
|
|
|
1,015
|
|
Amortization of GE trademark license
|
|
|
608,696
|
|
|
|
602,006
|
|
Change in fair value of derivative liabilities
|
|
|
(1,996,863
|
)
|
|
|
(462,174
|
)
|
Stock options issued for services - related parties
|
|
|
42,000
|
|
|
|
—
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(760,513
|
)
|
|
|
(1,419,217
|
)
|
Prepaid expenses
|
|
|
(8,041
|
)
|
|
|
13,729
|
|
Inventory
|
|
|
64,385
|
|
|
|
—
|
|
Royalty payable
|
|
|
(116,298
|
)
|
|
|
(75,130
|
)
|
Other
|
|
|
(2,292
|
)
|
|
|
(5,334
|
)
|
Accounts payable & accrued expenses
|
|
|
434,255
|
|
|
|
694,943
|
|
Net cash used in operating activities
|
|
|
(1,053,901
|
)
|
|
|
(1,423,976
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property & equipment
|
|
|
(8,320
|
)
|
|
|
(1,490
|
)
|
Payment of patent costs
|
|
|
(6,595
|
)
|
|
|
(5,956
|
)
|
Net cash used in investing activities
|
|
|
(14,915
|
)
|
|
|
(7,446
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayments of convertible notes
|
|
|
(340,000
|
)
|
|
|
—
|
|
Proceeds from related party advance
|
|
|
500,000
|
|
|
|
—
|
|
Stock issued in exchange for interest
|
|
|
157,523
|
|
|
|
400,311
|
|
Stock issued in exchange for principal
|
|
|
40,000
|
|
|
|
—
|
|
Repayments of note payable
|
|
|
(27,073
|
)
|
|
|
(25,682
|
)
|
Proceeds from issuance of stock
|
|
|
300,000
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
630,450
|
|
|
|
374,629
|
|
|
|
|
|
|
|
|
|
|
(Decrease) cash and cash equivalents
|
|
|
(438,366
|
)
|
|
|
(1,056,793
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
450,868
|
|
|
|
1,241,487
|
|
Cash and cash equivalents at end of period
|
|
$
|
12,502
|
|
|
$
|
184,694
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
121,232
|
|
|
$
|
4,964
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Note 1 Organization and Nature of Operations
Safety Quick Lighting & Fans Corp., a Florida corporation (the
“Company”), was originally organized in May 2004 as a limited liability company under the name of Safety Quick
Light, LLC“”. The Company was converted to corporation on November 6, 2012. The Company holds a number of
worldwide patents, and has received a variety of final electrical code approvals, including UL Listing and CSA approval (for
the United States and Canadian Markets), and CE (for the European market). The Company maintains an office in Foshan, Peoples
Republic of China with five staff consisting of four engineers and/or quality control inspectors/engineers.
The Company is engaged in the business of developing proprietary technology that enables
a quick and safe installation of electrical fixtures, such as light fixtures and ceiling fans, by the use of a power plug installed
in ceiling and wall electrical junction boxes. The Company’s main technology consists of a weight bearing, fixable socket
and a revolving plug for conducting electric power and supporting an electrical appliance attached to a wall or ceiling. The socket
is comprised of a nonconductive body that houses conductive rings connectable to an electric power supply through terminals in
its side exterior.
The plug is also comprised
of a non-conductive body that houses corresponding conductive rings, attaches to the socket via a male post and is capable of
feeding electric power to an appliance. The plug also includes a second structural element allowing it to revolve and a releasable
latching which, when engaged, provides a retention force between the socket and the plug to prevent disengagement. The socket
and plug can be detached by releasing the latch, disengaging the electric power from the plug. The socket is designed to replace
the support bar incorporated in electric junction boxes, and the plug can be installed in light fixtures, ceiling fans and wall
sconce fixtures.
The Company markets consumer
friendly, energy saving “plug-in” ceiling fans and light fixtures under the General Electric
(“GE”) brand
as well as “conventional” ceiling lights and fans carrying the GE brand. The Company also owns 98.8% of SQL Lighting
& Fans LLC (the “Subsidiary”). The Subsidiary was formed in Florida on April 27, 2011, and is in the business
of manufacturing the patented device that the Company owns. The Subsidiary had no activity during the periods presented.
The Company’s fiscal
year end is December 31.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP) under the accrual basis of accounting.
Use of Estimates
The preparation of financial
statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions impact both assets and liabilities, including but not
limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property
and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities,
estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability
and potential magnitude of contingent liabilities.
Making estimates requires management to exercise significant judgment. It is at least
reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date
of the financial statements, which management considered in formulating its estimate could change in the near term due to one
or more future non-conforming events. Accordingly, actual results could differ significantly from estimates.
Risks and Uncertainties
The Company’s operations
are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk
of business failure.
The Company has experienced,
and in the future expects to continue to experience, variability in its sales and earnings. The factors expected to contribute
to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the
product, (ii) competition inherent at large national retail chains where product is expected to be sold (iii) general economic
conditions and (iv) the related volatility of prices pertaining to the cost of sales.
Principles of Consolidation
The consolidated financial
statements include the accounts of Safety Quick Lighting & Fans Corp and the Subsidiary, SQL Lighting & Fans LLC. All
inter-company accounts and transactions have been eliminated in consolidation.
Non-controlling Interest
In May 2012, in connection
with the sale of the Company’s membership units in the Subsidiary, the Company’s ownership percentage in the Subsidiary
decreased from 98.8% to 94.35%. The Company then reacquired these membership units in June 2013, increasing the ownership percentage
from 94.35% back to 98.8%. During 2014, there was no activity in the Subsidiary. Its pro rata share of the Company’s 2014
and 2015 loss from operations is recognized in the financial statements.
Cash and Cash Equivalents
Cash and cash equivalents
are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions, and all highly
liquid investments with an original maturity of three months or less. The Company had $12,502 and $450,868 in money market as
of March 31, 2016 and December 31, 2015, respectively.
Accounts Receivable
and Allowance for Doubtful Accounts
Accounts receivable are
recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary
course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts.
The Company recognizes
an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance
is based on an analysis of historical bad debt experience, current receivables aging, and expected future bad debts, as well as
an assessment of specific identifiable customer accounts considered at risk or uncollectible.
The Company’s net balance of accounts receivable for three months ended March
31, 2016 and for the year ended December 31, 2015:
|
|
March 31, 2016
(Unaudited)
|
|
December 31, 2015
(Audited)
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
$
|
994,822
|
|
|
$
|
234,309
|
|
Allowance for Doubtful Accounts
|
|
|
—
|
|
|
|
—
|
|
Net Accounts Receivable
|
|
$
|
994,822
|
|
|
$
|
234,309
|
|
All amounts are deemed collectible at March 31, 2016 and December 31, 2015 and accordingly,
the Company has not incurred any bad debt expense at March 31, 2016 and March 31, 2015.
Inventory
Inventory consists of
finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out
method. The Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates
the impact of any anticipated changes in future demand.
At
March 31, 2016 and December 31, 2015, the Company had $199,486 and $263,871 in inventory, respectively. The Company will maintain
an allowance based on specific inventory items that have shown no activity over a 24month period. The Company tracks inventory
as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through
an allowance method. As of March 31, 2016 and December 31, 2015, the Company has determined that no allowance is required.
Valuation of Long-lived
Assets and Identifiable Intangible Assets
The Company reviews for
impairment of long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate
that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to its fair
market value. The Company determined no impairment adjustment was necessary for the periods presented.
Property and Equipment
Property and equipment
is stated at cost, less accumulated depreciation, and is reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Depreciation of property
and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-7 years of the respective
assets. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon sale or retirement
of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is
reflected in the statements of operations.
Intangible Asset -
Patent
The Company developed
a patent for an installation device used in light fixtures and ceiling fans. Costs incurred for submitting the applications to
the United States Patent and Trademark Office for these patents have been capitalized. Patent costs are being amortized using
the straight-line method over the related 15 year lives. The Company begins amortizing patent costs once a filing receipt is received
stating the patent serial number and filing date from the Patent Office.
The Company incurs certain
legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized over the expected
life of the patent to the extent that an economic benefit is anticipated from the resulting patent or alternative future use is
available to the Company. The Company also capitalizes legal costs incurred in the defense of the Company’s patents when
it is believed that the future economic benefit of the patent will be maintained or increased and a successful defense is probable.
Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s assessment
of future economic benefit or a successful defense of its patents involves considerable management judgment, and an unfavorable
outcome of litigation could result in a material impairment charge up to the carrying value of these assets.
GE Trademark Licensing
Agreement
The Company entered into a Trademark License Agreement with General Electric on June,
2011 (the “License Agreement”) allowing the Company to utilize the “GE trademark” on products which meet
the stringent manufacturing and quality requirements of General Electric (the “GE Trademark License”). As described
further in Note 5 to these financial statements, the Company and General Electric amended the License Agreement in August 2014.
As a result of that amendment, the Company is required to pay a minimum trademark licensing fee (the “Royalty Obligation”)
to General Electric of $12,000,000. The repayment schedule is based on a percent of sales, with any unpaid balance due in November
2018. Under SFAS 142 “Accounting for Certain Intangible Assets” the Company has recorded the value of the Licensing
Agreement and will amortize it over the life of the License Agreement, which is 60 months.
Fair Value of Financial
Instruments
The Company measures
assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements,
which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be,
in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants
would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework
for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned
a hierarchical level.
The following are the
hierarchical levels of inputs to measure fair value:
•
|
|
Level 1 – Observable inputs that reflect quoted market prices in active markets
for identical assets or liabilities.
|
•
|
|
Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets
that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices
that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable
market data by correlation or other means.
|
•
|
|
Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated
in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant
assumptions that are reasonably available.
|
The carrying amounts of the Company’s financial assets
and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes
payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments.
The Company accounts
for its derivative liabilities, at fair value, on a recurring basis under Level 3. See Note 8.
Embedded Conversion
Features
The Company evaluates
embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether
the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value
with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815,
the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial
conversion features.
Derivative Financial
Instruments
The Company does not
use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it
financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features
that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value
reported as charges or credits to income.
For option based simple
derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments
at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Beneficial Conversion
Feature
For conventional convertible
debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”)
and related debt discount.
When the Company records
a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument
(offset to additional paid in capital) and amortized to interest expense over the life of the debt.
Debt Issue Costs and
Debt Discount
The Company may record
debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid
in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If
a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Original Issue Discount
For certain convertible
debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded
to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.
Extinguishments of
Liabilities
The Company accounts
for extinguishments of liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities
are derecognized and the gain or loss on the sale is recognized.
Stock Based Compensation
– Employees
The Company accounts
for its stock based compensation in which the Company obtains employee services in share based payment transactions under the
recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards
Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods
or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of
the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date
used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete
or the date on which it is probable that performance will occur.
If the Company is a newly
formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most
recent private placement memorandum (based on sales to third parties), or weekly or monthly price observations would generally
be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread
between the bid and asked quotes and lack of consistent trading in the market.
The fair value of share
options and similar instruments is estimated on the date of grant using a Black-Scholes option pricing valuation model. The ranges
of assumptions for inputs are as follows:
•
|
|
Expected term of share options and similar instruments: The expected life of options
and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph
718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments
represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of
the contractual term of the instruments and employees’ expected exercise and post vesting employment termination behavior
into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use
the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have
sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period
of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants
or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable
basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its
business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term.
The Company uses the simplified method to calculate expected term of share options and similar instruments as the Company does
not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
|
•
|
|
Expected volatility of the entity’s shares and the method used to estimate it. Pursuant
to ASC Paragraph 718-10-50-2(f) (2)(ii) a thinly traded or nonpublic entity that uses the calculated value method
shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price,
the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has
calculated historical volatility using that index. The Company uses the average historical volatility of the comparable
companies over the expected contractual life of the share options or similar instruments as its expected volatility. If
shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate
than the use of daily price observations as the volatility calculation using daily observations for such shares could be
artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the
market
|
•
|
|
Expected annual rate of quarterly dividends. An entity that uses a method that employs
different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted average
expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of
projected dividend yield for periods within the expected term of the share options and similar instruments.
|
•
|
|
Risk-free rate(s). An entity that uses a method that employs different risk-free rates
shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect
at the time of grant for periods within the expected term of the share options and similar instruments.
|
Generally, all forms of share based payments, including stock
option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’
grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting
from share based payments is recorded in general and administrative expense in the statements of operations.
Stock Based Compensation
– Non Employees
Equity Instruments Issued to Parties Other Than Employees
for Acquiring Goods or Services
The Company accounts
for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50
of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant to ASC Section
505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever
is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier
of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company
is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s
most recent private placement memorandum, or weekly or monthly price observations would generally be more appropriate than the
use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked
quotes and lack of consistent trading in the market.
The fair value of share
options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges
of assumptions for inputs are as follows:
•
|
|
Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i)
of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period
of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of
the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The
Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation
or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected
term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable
basis upon which to estimate expected term.
|
•
|
|
Expected volatility of the entity’s shares and the method used to estimate it. Pursuant
to ASC Paragraph 718-10-50-2(f) (2)(ii) a thinly traded or nonpublic entity that uses the calculated value method
shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price,
the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has
calculated historical volatility using that index. The Company uses the average historical volatility of the comparable
companies over the expected contractual life of the share options or similar instruments as its expected volatility. If
shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate
than the use of daily price observations as the volatility calculation using daily observations for such shares could be
artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the
market.
|
•
|
|
Expected annual rate of quarterly dividends. An entity that uses a method that employs
different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted average
expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of
projected dividend yield for periods within the expected term of the share options and similar instruments.
|
•
|
|
Risk-free rate(s). An entity that uses a method that employs different risk-free rates
shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect
at the time of grant for periods within the expected term of the share options and similar instruments.
|
Pursuant to ASC paragraph
505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an
agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then,
because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date
has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is
entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized
as contra equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to
ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return
for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement
for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such
an asset shall not be displayed as contra equity by the grantor of the equity instruments.
The transferability (or
lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions
in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides
guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.
Pursuant to Paragraphs
505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the
grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee
achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and
in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of
paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share
option and similar instrument that the counterparty has the right to exercise expires unexercised.
Pursuant to ASC paragraph
505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments,
those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the
instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and
no entry should be recorded.
Revenue Recognition
The Company derives revenues
from the sale of GE branded fans and lighting fixtures to large retailers through retail and online sales.
Revenue is recorded when
all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) asset is transferred to the customer
without further obligation, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably
assured.
Cost of Sales
Cost of sales represents
costs directly related to the production and third party manufacturing of the Company’s products.
Product sold is typically
shipped directly to the customer from the third party manufacturer; costs associated with shipping and handling is shown
as a component of cost of sales.
Earnings (Loss) Per
Share
Basic net earnings (loss)
per share is computed by dividing net income (loss) for the period by the weighted average number of common stock outstanding
during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted
average number of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.
The Company uses the
“treasury stock” method to determine whether there is a dilutive effect of outstanding convertible debt, option and
warrant contracts. For the three months ended March 31, 2016 and 2015, the Company reflected net loss and a dilutive net loss,
and the effect of considering any common stock equivalents would have been anti-dilutive for the period. Therefore, separate computation
of diluted earnings (loss) per share is not presented for the periods presented.
The Company has the following
common stock equivalents at March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
(Unaudited)
|
|
December 31, 2015
(Audited)
|
Convertible Debt (Exercise price $0.25/share)
|
|
|
16,696,935
|
|
|
|
18,056,935
|
|
Stock Warrants (Exercise price $0.001 $0.375/share)
|
|
|
9,728,984
|
|
|
|
9,728,984
|
|
Stock Options (Exercise price $0.375- $1.80/share)
|
|
|
200,000
|
|
|
|
200,000
|
|
Total
|
|
|
26,625,919
|
|
|
|
27,985,919
|
|
Related Parties
The Company follows subtopic
850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party
transactions.
Pursuant to Section 850-10-20
the related parties include (a) Affiliates of the Company; (b) Entities for which investments in their equity securities
would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15,
to be accounted for by the equity method by the investing entity; (c) Trusts for the benefit of employees, such as pension
and profit sharing trusts that are managed by or under the trusteeship of management; (d) Principal owners of the Company;
(e) Management of the Company; (f) Other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented
from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the management or
operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly
influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate
interests.
The consolidated financial
statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances,
and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation
of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a). the
nature of the relationship(s) involved; (b). a description of the transactions, including transactions to which no amounts
or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information
deemed necessary to an understanding of the effects of the transactions on the financial statements; (c). the dollar amounts
of transactions for each of the periods for which income statements are presented and the effects of any change in the method
of establishing the terms from that used in the preceding period; and (d). amounts due from or to related parties as of the
date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification
to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are
issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or
fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted
claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted
claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of
a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a
potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then
the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be
disclosed.
Loss contingencies considered
remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there
is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial
position, and consolidated results of operations or consolidated cash flows.
Subsequent Events
The Company follows the
guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company
will evaluate subsequent events through the date when the financial statements are issued.
Pursuant to ASU 2010-09
of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they
are widely distributed to users, such as through filing them on EDGAR.
Recently Issued Accounting Pronouncements
In April 2015, the
FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Topic 835-30): Simplifying the
Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a
recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt
liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected
by ASU 2015-03. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015,
and interim periods within those fiscal years. Early adoption is permitted. Upon adoption, the Company will reclassify debt
issuance costs from prepaid expenses and other current assets and other assets as a reduction to debt in the condensed
consolidated balance sheets. The Company is not planning to early adopt ASU 2015-03 and does not anticipate that the adoption
of ASU 2015-03 will materially impact its condensed consolidated financial statements.
In July 2015, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 201511, Inventory (Topic 330): Simplifying
the Measurement of Inventory (“ASU 2015-11”), which applies guidance on the subsequent measurement of inventory. ASU
2015-11 states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is
the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and
transportation. The guidance excludes inventory measured using last-in, first-out or the retail inventory method. ASU 2015-11 is
effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company
is not planning to early adopt ASU 2015-11 and is currently evaluating ASU 2015-11 to determine the potential impact to its condensed
consolidated financial statements and related disclosures.
Other pronouncements
issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or
are not expected to be significant to the Company’s financial position, results of operations or cash flows.
Note 3 Furniture and Equipment
Property and equipment
consisted of the following at March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
(Unaudited)
|
|
December 31, 2015
(Audited)
|
|
|
|
|
|
|
|
|
|
Office Equipment
|
|
$
|
144,931
|
|
|
$
|
136,611
|
|
Furniture and Fixtures
|
|
|
30,561
|
|
|
|
30,561
|
|
Total
|
|
|
175,492
|
|
|
|
167,172
|
|
Less: Accumulated Depreciation
|
|
|
(46,064
|
)
|
|
|
(39,651
|
)
|
Property and Equipment - net
|
|
$
|
129,428
|
|
|
$
|
127,521
|
|
Note 4 Intangible Assets
Intangible assets (patents) consisted of the following at March 31, 2016 and December
31, 2015:
|
|
March 31, 2016
(Unaudited)
|
|
December 31, 2015
(Audited)
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
110,387
|
|
|
$
|
103,792
|
|
Less: Impairment Charges
|
|
|
—
|
|
|
|
—
|
|
Less: Accumulated Amortization
|
|
|
(22,395
|
)
|
|
|
(20,618
|
)
|
Patents - net
|
|
$
|
87,992
|
|
|
$
|
83,174
|
|
Amortization expense
associated with patents amounted to $1,777 for the three months ended March 31, 2016 and $1,015 for the three months ended March
31, 2015.
At March 31, 2016, future
amortization of intangible assets was as follows:
|
Year Ending December 31
|
|
|
|
|
|
|
2016
|
|
|
$
|
5,496
|
|
|
2017
|
|
|
|
7,359
|
|
|
2018
|
|
|
|
7,359
|
|
|
2019
|
|
|
|
7,359
|
|
|
2020
|
|
|
|
7,359
|
|
|
2021 and Thereafter
|
|
|
|
53,040
|
|
|
|
|
|
$
|
87,992
|
|
Actual amortization expense
in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments and other factors.
Note 5 GE Trademark License Agreement
The Company entered into
an amended License Agreement with General Electric regarding the trademarking of its products. The License Agreement is amortized
through its expiration in November 2018.
|
|
March 31, 2016
(Unaudited)
|
|
December 31, 2015
(Audited)
|
GE Trademark License
|
|
$
|
12,000,000
|
|
|
$
|
12,000,000
|
|
Less: Impairment Charges
|
|
|
—
|
|
|
|
—
|
|
Less: Accumulated Amortization
|
|
|
(5,484,950
|
)
|
|
|
(4,876,254
|
)
|
Patents – net
|
|
$
|
6,515,050
|
|
|
$
|
7,123,746
|
|
Amortization expense
associated with the GE Trademark Licenses amounted to $608,896 and $602,006 for the three months ended March 31, 2016 and 2015,
respectively.
At March 31, 2016, future
amortization of intangible assets is as follows for the remaining:
|
Year Ending December 31
|
|
|
|
2016
|
|
|
$
|
1,839,465
|
|
|
2017
|
|
|
|
2,441,472
|
|
|
2018
|
|
|
|
2,234,113
|
|
|
|
|
|
$
|
6,515,050
|
|
Note 6 Note Payable to Bank
At March 31, 2016 and
December 31, 2015 the Company had a note payable to a bank in the amount of $274,672 and $301,744, respectively. The note, dated
May 2007, is due in monthly payments of $10,000 and carries interest at 4.75%. The note is secured by the assets of the Company
and personal guarantees by a shareholder and an officer of the Company, and is due August 2018.
Principal payments due
under the terms of this note are as follows:
|
Principal Due in Next 12 months
|
|
|
|
2016
|
|
|
$
|
109,252
|
|
|
2017
|
|
|
|
114,555
|
|
|
2018
|
|
|
|
39,410
|
|
|
2019
|
|
|
|
11,455
|
|
|
|
|
|
$
|
274,672
|
|
Note 7 Convertible Debt - Net
The Company has recorded
derivative liabilities associated with convertible debt instruments, as more fully discussed at Note 8.
|
|
Third Party
|
|
Related Party
|
|
Totals
|
Balance December 31, 2014
|
|
$
|
1,911,995
|
|
|
$
|
26,999
|
|
|
$
|
1,938,994
|
|
Add: Amortization of Debt Discount
|
|
|
2,077,955
|
|
|
|
23,001
|
|
|
|
2,100,956
|
|
Balance December 31, 2015
|
|
|
3,989,950
|
|
|
|
50,000
|
|
|
|
4,039,950
|
|
Add: Amortization of Debt Discount
|
|
|
276,952
|
|
|
|
—
|
|
|
|
276,952
|
|
Less Repayments
|
|
|
(340,000
|
)
|
|
|
—
|
|
|
|
(340,000
|
)
|
Balance March 31, 2016 (unaudited)
|
|
|
3,926,902
|
|
|
|
50,000
|
|
|
|
3,976,902
|
|
Less Current portion
|
|
|
(3,926,902
|
)
|
|
|
(50,000
|
)
|
|
|
(3,976,902
|
)
|
Long-Term Convertible Debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
In connection with the
May 8, 2014 and June 25, 2014 closings of the Notes Offering (defined below), the Company issued 5,390,100 detachable warrants.
The notes and warrants were treated as derivative liabilities.
On November 26, 2013,
May 8, 2014 and June 25, 2014 the Company completed closings in connection with its offering (the “Notes Offering”)
of its 12% Secured Convertible Promissory Notes (the “12% Notes”) in the aggregate principal amount of $4,240,100
and/or its 15% Secured Convertible Promissory Notes in the aggregate principal amount of $30,000 (the “15% Notes”,
and together with the 12% Notes, each a “Note” and collectively, the “Notes”), as applicable, with certain
“accredited investors” (the “Investors”), as defined under Regulation D, Rule 501 of the Securities Act.
The entire aggregate principal amount of the Notes of $4,270,100 was outstanding as of December 31, 2015, such amount being exclusive
of securities converted into the Notes separate from the Notes Offering. Pursuant to the Notes Offering, the Company received
$1,752,803, $1,400,000 and $800,500 in net proceeds on November 26, 2013, May 8, 2014 and June 25, 2014, respectively.
In addition to the terms
customarily included in such instruments, the Notes began accruing interest on the date that each Investor submitted the principal
balance of such Investor’s Note, with the interest thereon becoming due and payable on the one year anniversary, and quarterly
thereafter. Upon a default of the Notes, the interest rate will increase by 2% for each 30 day period until cured. The principal
balance of each Note and all unpaid interest became or will become due and payable twenty-four (24) months after the date of issuance.
The Notes may be prepaid with or without a penalty depending on the date of the prepayment. The principal and interest under the
Notes are convertible into shares of the Company’s common stock at $0.25 per share and are secured by a first priority lien
(subject only to an existing note with Signature Bank of Georgia on the Company’s intellectual property and all substitutes,
replacements and proceeds of such intellectual property) pursuant to the terms of a Security Purchase Agreement, dated as of November
26, 2013, May 8, 2014 and June 25, 2014, as applicable, by and between the Company and each Investor.
Pursuant to the Notes
Offering, each Investor also received five (5) year common stock warrants to purchase the Company’s common stock at $0.375
per share (each a “Warrant” and collectively, the “Warrants”). Investors of the 12% Notes received Warrants
with 25% coverage based on a pre-determined valuation of the Company. Investors of the 15% Notes received Warrants with 15% coverage
based on the pre-determined valuation of the Company. Investors with a principal investment amount equal to or greater than $250,000
received Warrants with a bonus 40% coverage (“Bonus Coverage”); however, if an Investor previously invested $250,000
or more in the Notes Offering, such Investor received Bonus Coverage if such Investor subsequently invested $100,000 or more in
the Notes Offering. In addition to the terms customarily included in such instruments, the Warrants may be exercised by the Investors
by providing to the Company a notice of exercise, payment and surrender of the Warrant.
In connection with the Notes Offering, the Company entered into Registration
Rights Agreements, each dated as of November 26, 2013, May 8, 2014 and June 25, 2014, and each by and between the Company and
each of the Investors (collectively, the “Registration Rights Agreements”), whereby the Company agreed to prepare
and file a registration statement with the SEC within sixty (60) days after execution of the applicable Registration Rights
Agreement and to have the registration statement declared effective by the SEC within ninety (90) days thereafter.
Because the Company was
unable to file a registration statement pursuant to the terms of each Registration Rights Agreements dated as of November 26,
2013 or May 8, 2014, the Company was in default under such Registration Rights Agreements (the “Filing Default Damages”).
Pursuant to the Registration Rights Agreement, the Filing Default Damages mandate that the Company shall pay to the Investors,
for each thirty (30) day period of such failure and until the filing date of the registration statement and/or the common stock
may be sold pursuant to Rule 144, an amount in cash, as partial liquidated damages and not as a penalty, equal to 2% percent of
the aggregate gross proceeds paid by the Investors for the Notes. If the Company fails to pay any partial liquidated damages in
full within five (5) days of the date payable, which is the Note maturity date, the Company shall pay interest thereon at a rate
of 18% per annum until such amounts, plus all such interest thereon, are paid in full.
In addition, because
the Company was unable to have a registration statement declared effective pursuant to the terms of the Registration Rights Agreements
dated as of November 26, 2013, the Company was in default under such Registration Rights
Agreements (the “Effectiveness Default Damages”). Pursuant to the
Registration Rights Agreement, the Effectiveness Default Damages mandated that the interest rate due under the Note
corresponding to such Registration Rights Agreement will increase 2% above the then effective interest rate of such Note, and
shall continue to increase by 2% every 30 days until a registration statement is declared effective. The Company’s
registration statement covering its common stock, into which the Notes may be converted, was first filed on August 1, 2014,
and was declared effective by the SEC on October 22, 2014. The Filing Default Damages stopped accruing on the date such
registration statement was filed, and the Effectiveness Default Damages stopped accruing on the date it was declared
effective.
On December 11, 2014,
the Company sent a letter to the Investors holding Notes dated November 26, 2013 (the “2013 Investors”) concerning
the first interest payment that was scheduled to be paid pursuant to the Notes dated November 26, 2013 on the one year anniversary
of the date that each 2013 Investor submitted payment for their Note (the “First Interest Payments”). The Company
invited the 2013 Investors to convert the First Interest Payments into shares of the Company’s common stock to further this
purpose. The Company also asked each 2013 Investor to execute an Agreement and Waiver (the “Agreement and Waiver”),
which granted the Company a grace period, deferring the Company’s obligation to make payment of the First Interest Payment
and interest that was due under the Note through November 26, 2014 (the “Interest Due”) until February 24, 2015 (the
“Extension”), during which time such deferment would not be considered an Event of Default under the 2013 Investor’s
Note. In return for granting the Extension, the Company offered to capitalize the Interest Due at a rate of 12% (the “Additional
Interest”), which was convertible into shares of the Company’s common stock at the conversion price of $0.25 per share
as of February 24, 2014, unless the 2013 Investor requested to receive the Additional Interest in cash 15 days prior to the end
of the Extension.
On January 23, 2015,
the Company sent a letter agreement to the Investors holding Notes dated November 26, 2013 and May 8, 2014, which constituted
all Investors with Filing Default Damages or Effectiveness Default Damages due to them pursuant to the Registration Rights Agreements
dated as of November 26, 2013 or May 8, 2014 (the “Agreement to Convert”). The Company invited the Investors, as applicable,
to elect to convert the Interest Due and/or the Filing Default Damages and Effectiveness Default Damages into shares of the Company’s
common stock at a price of $0.25 per share, and asked each Investor, as applicable, to make such election by acknowledging and
returning the Agreement to Convert to the Company. In connection with the Agreement and Waiver and Agreement to Convert, the Company
issued 1,718,585 shares of its common stock representing $429,646 in Additional Interest, Interest Due, Filing Default Damages
and Effectiveness Default Damages during the year ended December 31, 2015. The total accrued unpaid Additional Interest, Interest
Due, Filing Default Damages and Effectiveness Default Damages as of December 31, 2015 amounted to $410,633.
In February 2016, the Company issued
an additional 624,606 shares of its common stock as payment for Additional Interest, Interest Due, Filing Default Damages and
Effectiveness Default Damages, representing payment to Investors of $156,152. Through March 31, 2016, the Company has issued in
total 2,343,191 shares of its common stock representing $585,798 in Additional Interest, Interest Due, Filing Default Damages
and Effectiveness Default Damages in connection with the Agreement and Waiver and Agreement to Convert.
During 2015, five Investors
requested that the Company withhold payments of interest due under their Notes and allow the interest to accumulate without penalty,
so that such Investors could convert said interest upon maturity of their Note.
In November 2015, the
Company invited the 2013 Investors, with respect to outstanding principal and interest due under their respective Notes, to (i)
receive payment in cash, (ii) convert their Notes into shares of the Company’s common stock, or (iii) forbear an election
for three months, or until February 26, 2016, pursuant to a forbearance agreement, during such time interest under their respective
Notes would continue to accrue. In February 2016, the Company invited the November 2013 Investors to extend their forbearance
period to make an election to convert or redeem their Notes for an additional three months, or until May 26, 2016, under the same
terms as the first forbearance agreements. All but five of the November 2013 Investors elected to forbear for the additional period.
In February 2016, the Company issued 165,486 shares of its common stock upon full
conversion of a Note by a 2013 Investor. In total, $229,998 was paid to Investors in February 2016 in cash or shares of
common stock. Also in February 2016, the Company paid $250,000 in principal of Notes, plus unpaid interest.
(B)
Terms of Debt
The debt carries interest
between 12% and 15%, and was or is due in November 2015 (as extended to May 2016 pursuant to certain forbearance agreements),
May 2016 and June 2016.
All Notes and Warrants
issued in connection with the Notes Offering are convertible at $0.25 and $0.375/share, respectively, subject to the existence
of a “ratchet feature”, which allows for a lower offering price if the Company offers shares to the public at a lower
price.
(C)
Future Commitments
At March 31, 2016, the
Company has outstanding convertible debt of $3,926,902, which is payable within the next twelve months.
Note 8 Derivative Liabilities
The Company identified
conversion features embedded within convertible debt and warrants issued in 2013 and 2014. The Company has determined that the
features associated with the embedded conversion option, in the form a ratchet provision, should be accounted for at fair value,
as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential
future conversion transactions.
As a result of the application of ASC No. 815, the fair value
of the ratchet feature related to convertible debt and warrants is summarized as follow:
The fair value at the commitment and re-measurement dates for the Company’s derivative
liabilities were based upon the following management assumptions as March 31, 2016:
|
|
March 31, 2016
Unaudited
|
|
December 31, 2015
(Audited)
|
Fair value at the commitment date - convertible debt
|
|
$
|
4,892,234
|
|
|
$
|
4,892,234
|
|
Fair value at the commitment date - warrants
|
|
|
677,214
|
|
|
|
677,214
|
|
Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability
|
|
|
(404,382
|
)
|
|
|
(404,382
|
)
|
Extinguishment of Derivative Liability - Conversion of Interest to Shares
|
|
|
(209,604
|
)
|
|
|
(209,604
|
)
|
Fair value mark to market adjustment - stock options
|
|
|
105,624
|
|
|
|
108,548
|
|
Fair value mark to market adjustment - convertible debt
|
|
|
16,676,856
|
|
|
|
18,661,058
|
|
Fair value mark to market adjustment - warrants
|
|
|
423,032
|
|
|
|
432,770
|
|
Totals
|
|
$
|
22,160,974
|
|
|
$
|
24,157,838
|
|
|
|
Commitment Date
|
|
Re-measurement Date
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
150
|
%
|
|
|
150
|
%
|
Expected term
|
|
|
2 5 years
|
|
|
|
0.00 – 3.24 years
|
|
Risk free interest rate
|
|
|
0.29% 1.68
|
%
|
|
|
0.21% 1.21%
|
%
|
Note 9 Debt Discount
The Company recorded the debt discount to the extent of the gross proceeds raised, and
expensed immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note.
Accumulated amortization
of derivative discount amounted to $4,205,443 as of March 31, 2016 and $4,153,611 for the year ended December 31, 2015.
The Company recorded
a change in the value of embedded derivative liabilities income/ (expense) of ($1,996,863) and $462,174 for the three ended March
31, 2016 and 2015, respectively.
Note 10 Debt Issue Costs
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
(Unaudited)
|
|
(Audited)
|
Debt Issuance Costs
|
|
$
|
316,797
|
|
|
$
|
316,797
|
|
Total
|
|
|
316,797
|
|
|
|
316,797
|
|
Less: Accumulated Amortization
|
|
|
(310,761
|
)
|
|
|
(302,192
|
)
|
Debt Issuance Costs- net
|
|
$
|
6,036
|
|
|
$
|
14,605
|
|
The Company recorded
amortization expense of $8,569 and $38,612 for the three months ended March 31, 2016 and 2015, respectively.
Remaining in the following years ended December 31,
|
|
2016
|
|
|
$
|
6,036
|
|
Note 11 GE Royalty Obligation
In 2011, the Company
executed a Trademark Licensing Agreement with General Electric, which allows the Company the right to market certain ceiling light
and fan fixtures displaying the GE brand. The License Agreement imposes certain manufacturing and quality control conditions that
the Company must maintain in order to continue to use the GE brand.
The License Agreement
is non-transferable and cannot be sub-licensed. Various termination clauses are applicable, however, none were applicable as of
March 31, 2016 and December 31, 2015.
In August 2014, the Company
entered into a second amendment to the License Agreement pertaining to its royalty obligations. Under the terms of the amendment,
the Company agreed to pay a total of $12,000,000 by November 2018 for the rights assigned in the original contract. In case the
Company does not pay GE a total of at least $12,000,000 in cumulative royalties over the term of the License Agreement, the difference
between $12,000,000 and the amount of royalties actually paid to GE is owed in December 2018.
Payments are due quarterly
based upon the prior quarters’ sales. The Company made payments of $92,913 and $75,130, for the three months ended March
31, 2016 and 2015, respectively.
The License Agreement obligation will be paid from sales of GE branded product subject
to the following repayment schedule:
|
Net Sales in Contract Year
|
|
|
|
Percentage of the Contract Year Net Sales owed to
GE
|
|
|
$0 - $50,000,000
|
|
|
|
7
|
%
|
|
$50,000,001 - $100,000,000
|
|
|
|
6
|
%
|
|
$100,000,001+
|
|
|
|
5
|
%
|
The Company has limited
operating history and does not have the ability to estimate the sales of GE branded product, the liability is classified as long-term.
As sales are recognized, the Company will estimate the portion it expects to pay in the current year and classify as current.
Note 12 Stockholders Deficit
(A) Common Stock
For the three months ended March 31, 2016 and year ended December, 31 2015, the Company
issued the following common stock:
Transaction Type
|
|
|
|
Quantity
|
|
Valuation
|
|
Range of Value per Share
|
2015 Equity Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued per Waiver and Conversion Agreement
|
|
|
(1
|
)
|
|
$
|
1,718,585
|
|
|
$
|
429,646
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued per Employment Agreement of CEO
|
|
|
(2
|
)
|
|
|
750,000
|
|
|
|
173,688
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued per Stock Rights Offering
|
|
|
(3
|
)
|
|
|
3,782,666
|
|
|
|
2,210,032
|
|
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued per Stock Rights Offering
|
|
|
(4
|
)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
1.00
|
|
December 31 2015
|
|
|
|
|
|
$
|
6,751,251
|
|
|
$
|
3,313,366
|
|
|
$
|
0.25-1.00
|
|
2016 Equity Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock issued Board of Directors Compensation
|
|
|
(5
|
)
|
|
|
62,000
|
|
|
|
42,000
|
|
|
|
0.60-1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued pursuant to the Notes or Agreements to Convert
|
|
|
(6
|
)
|
|
|
790,092
|
|
|
|
197,523
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock offering
|
|
|
(7
|
)
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
|
|
$
|
1,152,092
|
|
|
$
|
539,523
|
|
|
$
|
0.25-1.00
|
|
The following is a
more detailed description of the Company’s stock issuance from the table above:
|
(1)
|
Agreement and
Waiver and Agreement to Convert
|
The Company issued 1,718,585
shares at $0.25 per share, representing $429,646 in penalties and interest, in connection with the Agreement and Waiver and the
Agreement to Convert. For a complete description of the Agreement and Waiver and the Agreement to Convert, see Note 7 above.
|
(2)
|
Shares Issued
to Chief Executive Officer
|
In November 2014, the
Company entered into an Employment Agreement with its current Chief Executive Officer, which provided for stock based compensation
equal to 750,000 of restricted shares, of which 250,000 shares vested in May 2015 and 500,000 shares vested in December 2015.
These shares were issued at $0.25 per share and were issued subsequent to December 31, 2015.
|
(3)
|
Shares Issued
in Connection with Stock Offering
|
In May 2015, the Company
offered to existing shareholders a maximum of 6,666,667 shares of common stock at an issuance cost of $0.60 per share for a total
of $4,000,000 (the “May Stock Offering”). The May Stock Offering concluded on November 15, 2015 the Company will issue
3,782,666 shares in connection with three closings.
|
(4)
|
Shares Issued
in Connection with Stock Offering
|
In November 2015, the Company offered to new and existing shareholders a maximum of
2,000,000 shares of common stock at an issuance cost of $1.00 per share for a total of $2,000,000 (the “November Stock Offering”).
On December 24, 2015, the Company closed subscriptions for 500,000 shares of common stock pursuant to the November Stock Offering,
and on January 4, 2016, the stock certificates representing those shares were issued.
|
(5)
|
Shares Issued
in Board of Directors Compensation
|
The Company added a new
Director in November 2015. The Company issued the Director 50,000 shares of Common Stock at $.60 per share as compensation in
February 2016. In addition, this Director agreed to serve as the Company’s Audit Committee Chair, and received 12,000 shares
of Common Stock at $1.00 per share as compensation for these additional responsibilities.
|
(6)
|
Shares Issued
in Connection with the Notes or Agreements to Convert
|
In connection with the
Agreement and Waiver and Agreement to Convert, in February 2016, the Company issued an additional 624,606 shares of its common
stock as payment for Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages, representing
payment to Investors of $156,152.
In February 2016, the
Company issued 165,486 shares of its common stock upon full conversion of a Note by a 2013 Investor. In total, $229,998 was paid
to Investors in February 2016 in cash or shares of common stock.
|
(7)
|
Shares Issued
in Connection with Offering
|
On February 19, 2016,
the Company completed a second closing of the November Stock Offering representing aggregate gross proceeds to the Company of
$300,000, and thereafter issued 300,000 shares of its common stock.
(B) Stock Options
The following is a summary
of the Company’s stock option activity:
|
|
|
|
Weighted Average
|
|
Remaining Contractual Life
|
|
Intrinsic
|
|
|
Options
|
|
Exercise Price
|
|
(In Years)
|
|
Value
|
|
Balance- December 31, 2014
|
|
|
|
200,000
|
|
|
|
0.375
|
|
|
|
3.67
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited/Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance- December 31, 2015
|
|
|
|
200,000
|
|
|
|
0.375
|
|
|
|
2.42
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Granted
|
|
|
|
1,150,000
|
|
|
|
0.835
|
|
|
|
1.30
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance- March 31, 2016
|
|
|
|
1,350,000
|
|
|
|
0.835
|
|
|
|
1.30
|
|
|
|
|
|
During 2016 the Company
issued 150,000 vested options at $0.60 to a member of the Board of Directors in connection with his appointment to the Board of
Directors and to Chairman of its Audit Committee, which cannot be exercised until a majority of shareholders approve the Company’s
2015 Stock Incentive Plan.
During 2016, the Company
issued 500,000 options to an employee, which cannot be exercised until a majority of shareholders approve the Company’s
2015 Stock Incentive Plan. The options vest as follows: 200,000 at $0.60 immediately, 150,000 options at $1.20 on November 15,
2016, and 150,000 options at $1.80 on November 15, 2017.
During 2016, the Company issued 500,000 options to an advisor, which cannot be exercised
until a majority of shareholders approve the Company’s 2015 Stock Incentive Plan. The options vest as follows: 300,000 at
$0.60 immediately and 200,000 options on November 15, 2016 at $0.60.
(C)
Stock Warrants
All warrants issued during
the year ended December 31, 2014 were accounted for as derivative liabilities, as the warrants contained a ratchet feature. See
Note 8. No warrants were issued subsequent to 2014.
As part of the Notes Offering, during 2014, the Company issued 5,390,100
warrants to purchase shares of the Company's common stock with an exercise price of $0.375 per share. The warrants expire 5
years from issuance on various dates during 2019. Of the total warrants to purchase shares of the Company's common stock
granted, 4,740,100 were granted to third parties, while 650,000 were granted to related parties, consisting of the
Company’s former Chief Executive Officer.
The Black-Scholes assumptions
used in the computation of derivative expense for year ended December 31, 2015 is as follows:
Exercise price
|
|
$
|
0.375
|
|
Expected dividends
|
|
|
0
|
%
|
Expected volatility
|
|
|
150
|
%
|
Risk free interest rate
|
|
|
1.76
|
%
|
Expected term
|
|
|
5 years
|
|
The following is a summary
of the Company’s warrant activity:
|
|
Number of Warrants
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (in Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
|
|
9,728,984
|
|
|
|
0.375
|
|
|
|
3.9
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled/Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance, December 31, 2015
|
|
|
|
9,728,984
|
|
|
|
0.375
|
|
|
|
3.2
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled/Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance, March 31, 2016
|
|
|
|
9,728,984
|
|
|
|
0.375
|
|
|
|
2.7
|
|
(D) 2015 Stock Incentive
Plan
On April 27, 2015, the Board approved the Company’s 2015 Stock Incentive
Plan (the “Incentive Plan”). Under the Incentive Plan, the Board has the sole authority to implement, interpret,
and/or administer the Incentive Plan unless the Board delegates (i) all or any portion of its authority to implement,
interpret, and/or administer the Incentive Plan to a committee of the Board, or (ii) the authority to grant and administer
awards under the Incentive Plan to an officer of the Company. The Incentive Plan relates to the issuance of up to 5,000,000
shares of the Company’s common stock, subject to adjustment, and shall be effective for ten (10) years, unless earlier
terminated. Certain options to be granted to employees under the Incentive Plan are intended to qualify as Incentive Stock
Options (“ISOs”) pursuant to Section 422 of the Internal Revenue Code of 1986, as amended, while other options
granted under the Incentive Plan will be nonqualified options not intended to qualify as Incentive Stock Options ISOs
(“Nonqualified Options”), either or both as provided in the agreements evidencing the options described.
The Incentive Plan further provides that awards granted under the Incentive Plan
cannot be exercised until a majority of the Company’s shareholders have approved the Incentive Plan. As of March 31,
2016, a majority of the Company’s shareholders had not yet approved the Incentive Plan.
The full terms of the Company’s Incentive Plan are described in Part II, Item
5 of the Company’s Annual Report on Form 10K for the period ended December 31, 2015.
Note 13 Commitments
(A)
Operating Lease
In January 2014, the
Company executed a 39 month lease for a corporate headquarters. The Company paid a security deposit of $27,020.
In October, 2014, the
Company executed a 53 month lease for a new corporate headquarters with a base rent of $97,266 escalating annually through 2019.
The Company paid a security deposit of $1,914.
In October, 2014, the
Company entered into a sublease agreement to sublease its previous office space through March 2017. In connection with the sublease,
the Company collected $34,981as a security deposit.
The minimum rent obligations
are approximately as follows:
|
|
Minimum
|
|
Sublease
|
|
Net
|
Year
|
|
Obligation
|
|
Rentals
|
|
Obligation
|
|
2016
|
|
|
$
|
54,876
|
|
|
$
|
43,398
|
|
|
|
11,478
|
|
|
2017
|
|
|
|
46,568
|
|
|
|
22,263
|
|
|
|
24,305
|
|
|
2018
|
|
|
|
25,154
|
|
|
|
—
|
|
|
|
25,154
|
|
|
2019
|
|
|
|
8,615
|
|
|
|
—
|
|
|
|
8,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
135,213
|
|
|
$
|
65,661
|
|
|
$
|
69,552
|
|
(B)
Employment Agreement – Chief Executive Officer
In November 2014,
the Company entered into an employment agreement with its new Chief Executive Officer. In addition to salary, the agreement
provided for the issuance of 750,000 restricted shares to him, vesting as follows: 250,000 after the first 6 months of
employment and 500,000 additional shares at December 31, 2015. Under terms of the agreement the executive would receive
additional compensation in the form of stock options to purchase shares of Company stock equal to one half of one percent
(0.5%) of quarterly net income. The strike price of the options will be established at the time of the grant. The options
will vest in twelve months and expire after sixty months. In addition to the stock options compensation, the executive will
receive cash compensation equal to one half of one percent (0.5%) of annual sales up to $20 million and one quarter of one
percent (0.25%) for annual sales $20 million and 3% of annual net income. For the three months ended March 31, 2016 and 2015,
the Executive earned $8,740 and $7,096, respectively, under this agreement. No stock or options have been issued.
(C)
Consulting Agreement
The Company has a 3 year
consulting agreement with a director which expires in November 2016, and carries an annual payment of $150,000 cash, stock or
5 year options equal to one half of one percent (0.5%) of the Company’s annual net sales. For the three months ended March
31, 2016 and 2015, the Executive earned $8,740 and $7,096, respectively, under this agreement. No stock or options have been issued.
(D) Advance from Related Party
A shareholder of the Company provided a 120 day non-interest bearing advance of
$500,000 during the three months ended March 31, 2016. The amount was to be repaid through subsequent equity offerings.
Note 14 Going Concern
As reflected in the accompanying
financial statements, the Company had net income of $387,060 and net cash used in operations of $(1,053,901) for the three
months ended March 31, 2016; and a working capital deficit and stockholders’ deficit of $(31,787,382) at March 31,
2016. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company
to continue its operations is dependent on management’s plans, which include the raising of capital through debt and/or
equity markets with some additional funding from other traditional financing sources, including convertible debt and/or other
term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company
may need to incur liabilities with certain related parties to sustain the Company’s existence.
The Company may require
additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives.
The Company’s currently available cash along with anticipated revenues may not be sufficient to meet its cash needs for
the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if
at all.
The accompanying financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded
assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 15 Subsequent Events
On November 15, 2015, the
Board authorized the Company to grant certain securities under the
Incentive Plan, in the aggregate amount of up to 3,810,000 options to
purchase shares of our common stock, vesting in part immediately and
entirely over the next two years, and up to 75,000 shares of our common stock, vesting immediately. As of May 12, 2016, the
Company has entered into option award agreements with three grantees, consisting of up to 1,150,000 options to purchase shares
of our common stock, of which options to purchase up to 650,000 shares of common stock vest immediately, options to purchase up
to 350,000 shares of common stock will vest on November 15, 2016 and options to purchase up to 150,000 shares of common stock will
vest on November 15, 2017. Also as of May 12, 2016, the Company has entered into a stock award agreements to issue 25,000 shares
of its common stock, vesting immediately, which remains outstanding. The exercise of such awards is contingent upon attainment
of majority shareholder approval of the Incentive Plan.
On April 4, 2016, the Company entered into a securities subscription agreement with
an accredited investor, pursuant to which the Company sold 2,000,000 shares of our common stock at a purchase price of $2.50 per
share, along with a one-year common stock purchase warrant to purchase up to 1,666,667 shares of our common stock at an exercise
price of $3.00 per share, resulting in aggregate gross proceeds to the Company of $5,000,000.
On May 10, 2016, the Company entered into a securities subscription agreement with an
accredited investor, pursuant to which the Company sold 675,000 shares of its common stock at a purchase price of $2.60 per share,
a three year warrant to purchase up to 1,350,000 shares of our common stock at an exercise price ranging between $3.00 and $3.50
per share (depending on the date of exercise), and a right to subsequently receive “volume warrants” to purchase up
to 1,350,000 shares of its common stock at $3.00 per share the, which will become issuable upon (a) the Company meeting specified
thresholds based on the Company generating earnings before interest, taxes, depreciation and amortization (EBITDA) ranging from
$26.9 million to $76.9 million in a fiscal year during the warrant term, (b) completion of a private placement of a minimum of
$15,000,000 at pre-money valuation thresholds ranging from $350,000,000 to $1,000,000,000, or (c) the sale of at least fifty percent
(50%) of its assets at pre-money valuation thresholds ranging from $350,000,000 to $1,000,000,000.
In
May 2016, the Company paid $500,000 in principal of Notes, plus unpaid interest.
SAFETY
QUICK LIGHTING & FANS CORP AND SUBSIDIARY
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2015 AND 2014
Index
to Consolidated Financial Statements
|
|
|
Pages
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
91
|
|
|
|
|
|
|
Consolidated Balance
Sheets – December 31, 2015 and 2014
|
|
|
92
|
|
|
|
|
|
|
Consolidated Statements
of Operations – December 31, 2015 and 2014
|
|
|
94
|
|
|
|
|
|
|
Consolidated Statement
of Stockholders’ Deficit – December 31, 2015 and 2014
|
|
|
95
|
|
|
|
|
|
|
Consolidated Statements
of Cash Flows – December 31, 2015 and 2014
|
|
|
97
|
|
|
|
|
|
|
Notes to Consolidated
Financial Statements
|
|
|
99
|
|
|
NC
Office
19720
Jetton Road, 3rd Floor
Cornelius,
NC 28031
Tel:
704-897-8336
Fax:
704-919-5089
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders
Safety
Quick Lighting & Fans Corp. and Subsidiary
We
have audited the accompanying consolidated balance sheets of Safety Quick Lighting & Fans Corp. and Subsidiary (“the
Company”) as of December 31, 2015 and 2014 (Restated) and the related consolidated statements of operations, stockholders’
deficit, and consolidated cash flows for the years ended December 31, 2015 and 2014 (Restated). These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of their internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2015 and 2014 (Restated), and the results of its operations, changes in stockholders’
deficit and cash flows for the years ended December 31, 2015 and 2014 (Restated) in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 15 to the consolidated financial statements, the Company has insufficient working capital, a stockholders’
deficit and recurring net losses, which raises substantial doubt about its ability to continue as a going concern. Management’s
plans regarding those matters also are described in Note 15. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/
L&L
CPAS, PA
L&L
CPAS, PA
F.K.A.
Bongiovanni & Associates, PA
Certified
Public Accountants
Cornelius,
North Carolina
The
United States of America
March
30, 2016
Safety
Quick Lighting & Fans Corp. and Subsidiary
|
Consolidated
Balance Sheets
|
(Audited)
|
|
|
|
|
(Restated)
|
|
|
December
31, 2015
|
|
December
31, 2014
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
450,868
|
|
|
$
|
1,241,487
|
|
Accounts
receivable
|
|
|
234,309
|
|
|
|
—
|
|
Inventory
|
|
|
263,871
|
|
|
|
—
|
|
Prepaid
expenses
|
|
|
35,769
|
|
|
|
29,643
|
|
Other
current assets
|
|
|
210
|
|
|
|
—
|
|
Total
current assets
|
|
|
985,028
|
|
|
|
1,271,130
|
|
|
|
|
|
|
|
|
|
|
Furniture
and Equipment - net
|
|
|
127,521
|
|
|
|
132,609
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Patent
- net
|
|
|
83,174
|
|
|
|
46,419
|
|
Debt
issue costs - net
|
|
|
14,605
|
|
|
|
161,946
|
|
GE
trademark license - net
|
|
|
7,123,746
|
|
|
|
9,565,217
|
|
Other
assets
|
|
|
65,714
|
|
|
|
65,714
|
|
Total
other assets
|
|
|
7,287,239
|
|
|
|
9,839,296
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
8,399,788
|
|
|
$
|
11,243,035
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders
(Deficit)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable & accrued expenses
|
|
$
|
807,798
|
|
|
$
|
1,041,741
|
|
Convertible
debt - net of debt discount $474,283 and $970,150 at
|
|
|
3,989,950
|
|
|
|
1,223,982
|
|
December 31, 2015
and December 31, 2014 respectively
|
|
|
|
|
|
|
|
|
Convertible
debt - related parties - net of debt discount $-0- and
|
|
|
50,000
|
|
|
|
26,999
|
|
$23,001 at December
31, 2015 and December 31, 2014 respectively
|
|
|
|
|
|
|
|
|
Notes
payable - current portion
|
|
|
107,944
|
|
|
|
98,086
|
|
Derivative
liabilities
|
|
|
24,157,838
|
|
|
|
5,140,758
|
|
Other
current liabilities
|
|
|
46,010
|
|
|
|
78,622
|
|
Total
current liabilities
|
|
|
29,159,540
|
|
|
|
7,610,188
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
Convertible
debt
|
|
|
—
|
|
|
|
688,013
|
|
Notes
payable
|
|
|
193,800
|
|
|
|
307,009
|
|
GE
royalty obligation
|
|
|
11,795,855
|
|
|
|
12,000,000
|
|
Total
long term liabilities
|
|
|
11,989,655
|
|
|
|
12,995,022
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
41,149,195
|
|
|
|
20,605,210
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit:
|
|
|
|
|
|
|
|
|
Common stock: $0
par value, 500,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
41,501,251
and 35,750,000 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at
December 31, 2015 and December 31, 2014 respectively
|
|
|
2,892,078
|
|
|
|
189,900
|
|
Common
stock to be issued
|
|
|
625,000
|
|
|
|
13,812
|
|
Additional
paid-in capital
|
|
|
6,472,427
|
|
|
|
6,282,814
|
|
Accumulated
deficit
|
|
|
(42,703,470
|
)
|
|
|
(15,813,260
|
)
|
Total
Stockholders' deficit
|
|
|
(32,713,965
|
)
|
|
|
(9,326,733
|
)
|
Noncontrolling
interest
|
|
|
(35,442
|
)
|
|
|
(35,442
|
)
|
|
|
|
|
|
|
|
|
|
Total
Deficit
|
|
|
(32,749,407
|
)
|
|
|
(9,362,175
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholers’ deficit
|
|
$
|
8,399,788
|
|
|
|
11,243,035
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Safety
Quick Lighting & Fans Corp. and Subsidiary
|
Consolidated
Statements of Operations
|
Years
Ended December 31,
|
(Audited)
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
2015
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,885,007
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(2,477,252
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
407,755
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
5,236,747
|
|
|
|
4,799,696
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(4,828,992
|
)
|
|
|
(4,799,696
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(2,855,519
|
)
|
|
|
(2,139,485
|
)
|
Derivative
expenses
|
|
|
—
|
|
|
|
(568,485
|
)
|
Change
in fair value of embedded derivative liabilities
|
|
|
(19,416,295
|
)
|
|
|
213,923
|
|
Gain
on debt settlement
|
|
|
209,604
|
|
|
|
—
|
|
Other
income
|
|
|
992
|
|
|
|
—
|
|
Total
other income (expense) - net
|
|
|
(22,061,219
|
)
|
|
|
(2,494,047
|
)
|
|
|
|
|
|
|
|
|
|
Net loss including
noncontrolling interest
|
|
|
(26,890,210
|
)
|
|
|
(7,293,745
|
)
|
Less:
net loss attributable to noncontrolling interest
|
|
|
—
|
|
|
|
(2
|
)
|
Net
loss attributable to Safety Quick Lighting & Fans Corp.
|
|
$
|
(26,890,210
|
)
|
|
$
|
(7,293,743
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.76
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding during the year -basic and diluted
|
|
|
35,409,521
|
|
|
|
33,644,359
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Safety
Quick Lighting & Fans Corp. and Subsidiary
|
Consolidated
Statement of Stockholders' Deficit
|
Years
Ended December 31, 2015 and December 31, 2014 (Restated)
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Common
Stock,
|
|
Stock
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
$0
Par Value
|
|
$0
Par Value
|
|
to
be
|
|
Paid-in
|
|
Accumulated
|
|
Noncontrolling
|
|
Stockholders
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Issued
|
|
Capital
|
|
Deficit
|
|
Interest
|
|
Deficit
|
Balance, December 31, 2013
|
|
|
—
|
|
|
$
|
—
|
|
|
|
34,500,000
|
|
|
$
|
126,400
|
|
|
$
|
—
|
|
|
$
|
6,068,045
|
|
|
$
|
(8,519,517
|
)
|
|
$
|
(35,440
|
)
|
|
$
|
(2,360,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for exercise
of options from Grannus Financial - for 1,400,000 shares
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of
derivative liability associated with warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
214,769
|
|
|
|
—
|
|
|
|
—
|
|
|
|
214,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
per mutual release and waiver ($0.25/share)
|
|
|
—
|
|
|
|
—
|
|
|
|
250,000
|
|
|
|
62,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for services - related party - ($0.25/share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,812
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,293,743
|
)
|
|
|
(2
|
)
|
|
|
(7,293,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014 (Restated)
|
|
|
—
|
|
|
|
—
|
|
|
|
35,750,000
|
|
|
|
189,900
|
|
|
|
13,812
|
|
|
|
6,282,814
|
|
|
|
(15,813,260
|
)
|
|
|
(35,442
|
)
|
|
|
(9,362,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
in exchange for interest due ($0.25/share)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,718,585
|
|
|
|
429,646
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
429,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of
derivative liability on interest and penalty on Convertible Notes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
189,613
|
|
|
|
—
|
|
|
|
—
|
|
|
|
189,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
per mutual release and waiver ($0.25/share)
|
|
|
—
|
|
|
|
—
|
|
|
|
250,000
|
|
|
|
62,500
|
|
|
|
111,188
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
173,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
($0.60/share), net of issuance cost
|
|
|
—
|
|
|
|
—
|
|
|
|
3,782,666
|
|
|
|
2,210,032
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,210,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
($1.00/share), net of issuance cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26,890,210
|
)
|
|
|
—
|
|
|
|
(26,930,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2015
|
|
|
—
|
|
|
|
—
|
|
|
|
41,501,251
|
|
|
|
2,892,078
|
|
|
|
625,000
|
|
|
|
6,472,427
|
|
|
|
(42,703,470
|
)
|
|
|
(35,442
|
)
|
|
|
(32,749,407
|
)
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Safety
Quick Lighting & Fans Corp. and Subsidiary
|
Consolidated
Statements of Cash Flows
|
Years
Ended December 31,
|
(Audited)
|
|
|
|
|
(Restated)
|
|
|
2015
|
|
2014
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net
loss attributable to Safety Quick Lighting & Fans Corp.
|
|
$
|
(26,890,210
|
)
|
|
$
|
(7,293,743
|
)
|
Net
loss attributable to noncontrolling interest
|
|
|
—
|
|
|
|
(2
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
22,464
|
|
|
|
17,253
|
|
Amortization
of debt issue costs
|
|
|
147,341
|
|
|
|
142,867
|
|
Amortization
of debt discount
|
|
|
2,100,957
|
|
|
|
1,507,108
|
|
Amortization of
patent
|
|
|
5,347
|
|
|
|
3,002
|
|
Amortization
of GE trademark license
|
|
|
2,441,471
|
|
|
|
2,434,783
|
|
Change
in fair value of derivative liabilities
|
|
|
19,416,295
|
|
|
|
(213,921
|
)
|
Derivative
expense
|
|
|
—
|
|
|
|
568,751
|
|
Loss
(Gain) on debt forgiveness
|
|
|
(209,604
|
)
|
|
|
23,451
|
|
Common
stock transferred from existing stockholders for services rendered
|
|
|
—
|
|
|
|
—
|
|
Stock
issued for services - related party
|
|
|
—
|
|
|
|
76,312
|
|
Stock
options issued for services - related parties
|
|
|
173,688
|
|
|
|
—
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(234,309
|
)
|
|
|
—
|
|
Prepaid
expenses
|
|
|
(6,126
|
)
|
|
|
10,359
|
|
Inventory
|
|
|
(263,871
|
)
|
|
|
—
|
|
Deferred
royalty
|
|
|
—
|
|
|
|
(12,000,000
|
)
|
Royalty
payable
|
|
|
(204,147
|
)
|
|
|
12,000,000
|
|
Other
|
|
|
(32,822
|
)
|
|
|
12,908
|
|
Accounts
payable & accrued expenses
|
|
|
(233,944
|
)
|
|
|
910,641
|
|
Net
cash used in operating activities
|
|
|
(3,767,470
|
)
|
|
|
(1,800,229
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property
& equipment
|
|
|
(17,376
|
)
|
|
|
(143,816
|
)
|
Payment
of patent costs
|
|
|
(42,102
|
)
|
|
|
(24,724
|
)
|
Net
cash used in investing activities
|
|
|
(59,478
|
)
|
|
|
(168,540
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Direct issue costs
paid
|
|
|
—
|
|
|
|
(69,600
|
)
|
Proceeds from issuance
of convertible notes
|
|
|
—
|
|
|
|
2,270,100
|
|
Proceeds from note
payable
|
|
|
—
|
|
|
|
—
|
|
Proceeds from note
payable - related party
|
|
|
—
|
|
|
|
—
|
|
Stock issued in
exchange for interest
|
|
|
429,646
|
|
|
|
—
|
|
Repayments of note
payable
|
|
|
(103,351
|
)
|
|
|
(98,108
|
)
|
Repayments of note
payable - related party
|
|
|
—
|
|
|
|
(26,108
|
)
|
Proceeds from the
exercise of options
|
|
|
—
|
|
|
|
—
|
|
Proceeds
from issuance of stock
|
|
|
2,710,032
|
|
|
|
1,000
|
|
Net
cash provided by financing activities
|
|
|
3,036,327
|
|
|
|
2,077,284
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase cash and cash equivalents
|
|
|
(790,621
|
)
|
|
|
108,515
|
|
Cash and cash
equivalents at beginning of period
|
|
|
1,241,489
|
|
|
|
1,132,974
|
|
Cash and cash
equivalents at end of period
|
|
$
|
450,868
|
|
|
$
|
1,241,489
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of non-cash financing
activities:
|
|
|
|
|
|
|
|
|
Debt
discount recorded on convertible debt accounted for as a derivative liability
|
|
$
|
—
|
|
|
$
|
2,249,459
|
|
Reclassification
of derivative liability to additional paid-in-capital
|
|
$
|
189,613
|
|
|
$
|
214,769
|
|
Gain
on debt extinguishment
|
|
$
|
209,604
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
563,637
|
|
|
$
|
41,487
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Note
1 Organization and Nature of Operations
Safety
Quick Lighting & Fans Corp., a Florida corporation (the “Company”), was originally organized in May 2004 as a
limited liability company under the name of Safety Quick Light, LLC“”. The Company was converted to corporation on
November 6, 2012. The Company holds a number of worldwide patents, and has received a variety of final electrical code approvals,
including UL-Listing and CSA approval (for the United States and Canadian Markets), and CE (for the European market). The Company
maintains an office in Foshan, Peoples Republic of China with five staff consisting of four engineers and/or quality control inspectors/engineers.
The
Company is engaged in the business of developing proprietary technology that enables a quick and safe installation by the use
of a power plug for electrical fixtures, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes.
The Company’s main technology consists of a fixable socket and a revolving plug for conducting electric power and supporting
an electrical appliance attached to a wall or ceiling. The socket is comprised of a non-conductive body that houses conductive
rings connectable to an electric power supply through terminals in its side exterior.
The
plug is also comprised of a non-conductive body that houses corresponding conductive rings, attaches to the socket via a male
post and is capable of feeding electric power to an appliance. The plug also includes a second structural element allowing it
to revolve and a releasable latching which, when engaged, provides a retention force between the socket and the plug to prevent
disengagement. The socket and plug can be detached by releasing the latch, disengaging the electric power from the plug. The socket
is designed to replace the support bar incorporated in electric junction boxes, and the plug can be installed in light fixtures,
ceiling fans and wall sconce fixtures.
The
Company markets consumer friendly, energy saving “plug-in” ceiling fans and light fixtures under the General Electric
(“GE”) brand as well as “conventional” ceiling lights and fans carrying the GE brand. The Company also
owns 98.8% of SQL Lighting & Fans LLC (the “Subsidiary”). The Subsidiary was formed in Florida on April 27, 2011,
and is in the business of manufacturing the patented device that the Company owns. The Subsidiary had no activity during the periods
presented.
The
Company’s fiscal year end is December 31.
Note
2 Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Such
estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable
and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets,
estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded
as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered
in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual
results could differ significantly from estimates.
Risks
and Uncertainties
The
Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks
including the potential risk of business failure.
The
Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings. The
factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization
and ultimate success of the product, (ii) competition inherent at large national retail chains where product is expected to be
sold (iii) general economic conditions and (iv) the related volatility of prices pertaining to the cost of sales.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Safety Quick Lighting & Fans Corp and the Subsidiary, SQL Lighting
& Fans LLC. All inter-company accounts and transactions have been eliminated in consolidation.
Non-Controlling
Interest
In
May 2012, in connection with the sale of the Company’s membership units in the Subsidiary, the Company’s ownership
percentage in the Subsidiary decreased from 98.8% to 94.35%. The Company then reacquired these membership units in June 2013,
increasing the ownership percentage from 94.35% back to 98.8%. During 2014, there was no activity in the Subsidiary. Its pro rata
share of the Company’s 2014 and 2015 loss from operations is recognized in the financial statements.
Cash
and Cash Equivalents
Cash
and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions,
and all highly liquid investments with an original maturity of three months or less. The Company had $450,868 and $1,241,487 in
money market as of December 31, 2015 and December 31, 2014, respectively.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers
in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due
accounts.
The
Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries.
The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs,
as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.
The
Company’s net balance of accounts receivable for three-months ended December 31, 2015 and December 31, 2014:
|
|
December
31, 2015
|
|
December
31, 2014
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
$
|
234,309
|
|
|
$
|
—
|
|
Allowance
for Doubtful Accounts
|
|
|
—
|
|
|
|
—
|
|
Net
Accounts Receivable
|
|
$
|
234,309
|
|
|
$
|
—
|
|
The
Company had no sales in 2014. All amounts are deemed collectible at December 31, 2015, and the Company has not incurred any bad
debt expense.
Inventory
Inventory
consists of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the
first-in, first-out method. The Company periodically reviews historical sales activity to determine potentially obsolete
items and also evaluates the impact of any anticipated changes in future demand.
At
December 31, 2015 and December 31, 2014, the Company had $223,666 and $0 in inventory, respectively. The Company maintains an
allowance based on specific inventory items which have shown no activity over a 24-month period. The Company tracks inventory
as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through
an allowance method. As of December 31, 2015, the Company has determined that no allowance is required.
Valuation
of Long-Lived Assets and Identifiable Intangible Assets
The
Company reviews for impairment of long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances
indicate that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to
its fair market value. The Company determined no impairment adjustment was necessary for the periods presented.
Property
and Equipment
Property
and equipment is stated at cost, less accumulated depreciation, and is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Depreciation
of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-7 years
of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon
sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and
any gain or loss is reflected in the statements of operations.
Intangible
Asset - Patent
The
Company developed a patent for an installation device used in light fixtures and ceiling fans. Costs incurred for submitting the
applications to the United States Patent and Trademark Office for these patents have been capitalized. Patent costs are being
amortized using the straight-line method over the related 15 year lives. The Company begins amortizing patent costs once a filing
receipt is received stating the patent serial number and filing date from the Patent Office.
The
Company incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be
amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent
or alternative future use is available to the Company. The Company also capitalizes legal costs incurred in the defense of the
Company’s patents when it is believed that the future economic benefit of the patent will be maintained or increased and
a successful defense is probable. Capitalized patent defense costs are amortized over the remaining expected life of the related
patent. The Company’s assessment of future economic benefit or a successful defense of its patents involves considerable
management judgment, and an unfavorable outcome of litigation could result in a material impairment charge up to the carrying
value of these assets.
GE
Trademark Licensing Agreement
The
Company entered into a Trademark License Agreement with General Electric “”on June, 2011 (the “License Agreement”)
allowing the Company to utilize the “GE trademark” on products which meet the stringent manufacturing and quality
requirements of General Electric (the “GE Trademark License”). As described further in Note 5 to these financial statements,
the Company and General Electric amended the License Agreement in August 2014. As a result of that amendment, the Company is required
to pay a minimum trademark licensing fee (the “Royalty Obligation”) to General Electric of $12,000,000. The repayment
schedule is based on a percent of sales, with any unpaid balance due in November 2018. Under SFAS 142 “Accounting for Certain
Intangible Assets” the Company has recorded the value of the Licensing Agreement and will amortize it over the life of the
License Agreement, which is 60 months.
Fair
Value of Financial Instruments
The
Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance
on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability,
as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that
market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes
a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation
techniques, are assigned a hierarchical level.
The
following are the hierarchical levels of inputs to measure fair value:
•
|
|
Level
1 – Observable inputs that reflect quoted market prices in active markets for identical
assets or liabilities.
|
•
|
|
Level
2 - Inputs reflect quoted prices for identical assets or liabilities in markets that
are not active; quoted prices for similar assets or liabilities in active markets; inputs
other than quoted prices that are observable for the assets or liabilities; or inputs
that are derived principally from or corroborated by observable market data by correlation
or other means.
|
•
|
|
Level
3 – Unobservable inputs reflecting the Company’s assumptions incorporated
in valuation techniques used to determine fair value. These assumptions are required
to be consistent with market participant assumptions that are reasonably available.
|
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets,
accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair
values because of the short maturity of these instruments.
The
Company accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3. See Note 8.
Embedded
Conversion Features
The
Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to
determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative
at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment
under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration
of any beneficial conversion features.
Derivative
Financial Instruments
The
Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates
all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain
features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the
derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the
fair value reported as charges or credits to income.
For
option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative
instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Beneficial
Conversion Feature
For
conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion
feature” (“BCF”) and related debt discount.
When
the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective
debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.
Debt
Issue Costs and Debt Discount
The
Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These
costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life
of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Original
Issue Discount
For
certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original
issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over
the life of the debt.
Extinguishments
of Liabilities
The
Company accounts for extinguishments of liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting,
the liabilities are derecognized and the gain or loss on the sale is recognized.
Stock-Based
Compensation – Employees
The
Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions
under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting
Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which
goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value
of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The
measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance
is complete or the date on which it is probable that performance will occur.
If
the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the
Company’s most recent private placement memorandum (based on sales to third parties), or weekly or monthly price observations
would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due
to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The
fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation
model. The ranges of assumptions for inputs are as follows:
•
|
|
Expected
term of share options and similar instruments: The expected life of options and similar
instruments represents the period of time the option and/or warrant are expected to be
outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting
Standards Codification the expected term of share options and similar instruments represents
the period of time the options and similar instruments are expected to be outstanding
taking into consideration of the contractual term of the instruments and employees’
expected exercise and post-vesting employment termination behavior into the fair value
(or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1,
it may be appropriate to use the simplified method, i.e., expected term
= ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient
historical exercise data to provide a reasonable basis upon which to estimate expected
term due to the limited period of time its equity shares have been publicly traded; (ii)
A company significantly changes the terms of its share option grants or the types of
employees that receive share option grants such that its historical exercise data may
no longer provide a reasonable basis upon which to estimate expected term; or (iii) A
company has or expects to have significant structural changes in its business such that
its historical exercise data may no longer provide a reasonable basis upon which to estimate
expected term. The Company uses the simplified method to calculate expected term of share
options and similar instruments as the Company does not have sufficient historical exercise
data to provide a reasonable basis upon which to estimate expected term.
|
•
|
|
Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant
to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses
the calculated value method shall disclose the reasons why it is not practicable for
the Company to estimate the expected volatility of its share price, the appropriate industry
sector index that it has selected, the reasons for selecting that particular index, and
how it has calculated historical volatility using that index. The Company
uses the average historical volatility of the comparable companies over the expected
contractual life of the share options or similar instruments as its expected volatility. If
shares of a company are thinly traded the use of weekly or monthly price observations
would generally be more appropriate than the use of daily price observations as the volatility
calculation using daily observations for such shares could be artificially inflated due
to a larger spread between the bid and asked quotes and lack of consistent trading in
the market
|
•
|
|
Expected
annual rate of quarterly dividends. An entity that uses a method that employs
different dividend rates during the contractual term shall disclose the range of expected
dividends used and the weighted-average expected dividends. The expected dividend
yield is based on the Company’s current dividend yield as the best estimate of
projected dividend yield for periods within the expected term of the share options and
similar instruments.
|
•
|
|
Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose
the range of risk-free rates used. The risk-free interest rate is based on
the U.S. Treasury yield curve in effect at the time of grant for periods within the expected
term of the share options and similar instruments.
|
Generally,
all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation
rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately
expected to vest.
The
expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations.
Stock-Based
Compensation – Non Employees
Equity
Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The
Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance
of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant
to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity
instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance
will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share
prices established in the Company’s most recent private placement memorandum, or weekly or monthly price observations would
generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a
larger spread between the bid and asked quotes and lack of consistent trading in the market.
The
fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation
model. The ranges of assumptions for inputs are as follows:
•
|
|
Expected
term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i)
of the FASB Accounting Standards Codification the expected term of share options and
similar instruments represents the period of time the options and similar instruments
are expected to be outstanding taking into consideration of the contractual term of the
instruments and holder’s expected exercise behavior into the fair value (or calculated
value) of the instruments. The Company uses historical data to estimate holder’s
expected exercise behavior. If the Company is a newly formed corporation or
shares of the Company are thinly traded the contractual term of the share options and
similar instruments is used as the expected term of share options and similar instruments
as the Company does not have sufficient historical exercise data to provide a reasonable
basis upon which to estimate expected term.
|
•
|
|
Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant
to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses
the calculated value method shall disclose the reasons why it is not practicable for
the Company to estimate the expected volatility of its share price, the appropriate industry
sector index that it has selected, the reasons for selecting that particular index, and
how it has calculated historical volatility using that index. The Company
uses the average historical volatility of the comparable companies over the expected
contractual life of the share options or similar instruments as its expected volatility. If
shares of a company are thinly traded the use of weekly or monthly price observations
would generally be more appropriate than the use of daily price observations as the volatility
calculation using daily observations for such shares could be artificially inflated due
to a larger spread between the bid and asked quotes and lack of consistent trading in
the market.
|
•
|
|
Expected
annual rate of quarterly dividends. An entity that uses a method that employs
different dividend rates during the contractual term shall disclose the range of expected
dividends used and the weighted-average expected dividends. The expected dividend
yield is based on the Company’s current dividend yield as the best estimate of
projected dividend yield for periods within the expected term of the share options and
similar instruments.
|
•
|
|
Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose
the range of risk-free rates used. The risk-free interest rate is based on
the U.S. Treasury yield curve in effect at the time of grant for periods within the expected
term of the share options and similar instruments.
|
Pursuant
to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee
enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments),
then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement
date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement
is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized
as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant
to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return
for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement
for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such
an asset shall not be displayed as contra-equity by the grantor of the equity instruments.
The
transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance
is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services.
Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope
of this Subtopic.
Pursuant
to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are
exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability
if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the
same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales
discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be
reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.
Pursuant
to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable
equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received
(that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement
date and no entry should be recorded.
Revenue
Recognition
The
Company derives revenues from the sale of GE branded fans and lighting fixtures to large retailers through retail and on-line
sales.
Revenue
is recorded when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) asset is transferred
to the customer without further obligation, (3) the sales price to the customer is fixed or determinable, and (4) collectability
is reasonably assured.
Cost
of Sales
Cost
of sales represents costs directly related to the production and third party manufacturing of the Company’s products.
Product
sold is typically shipped directly to the customer from the third party manufacturer; costs associated with shipping and handling
is shown as a component of cost of sales.
Earnings
(Loss) Per Share
Basic
net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common
stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period
by the weighted average number of common stock, common stock equivalents and potentially dilutive securities outstanding during
each period.
The
Company uses the “treasury stock” method to determine whether there is a dilutive effect of outstanding convertible
debt, option and warrant contracts. For the nine-months ended December 31, 2015 and 2014, the Company reflected net loss and a
dilutive net loss, and the effect of considering any common stock equivalents would have been anti-dilutive for the period. Therefore,
separate computation of diluted earnings (loss) per share is not presented for the periods presented.
The
Company has the following common stock equivalents at December 31, 2015 and December 31, 2014:
|
|
|
December
31, 2015
|
|
|
|
December
31, 2014
|
|
Convertible
Debt (Exercise price - $0.25/share)
|
|
|
18,056,932
|
|
|
|
18,056,932
|
|
Stock Warrants (Exercise
price - $0.001 - $0.375/share)
|
|
|
9,062,234
|
|
|
|
9,728,984
|
|
Stock Options (Exercise
price - $0.375/share)
|
|
|
200,000
|
|
|
|
200,000
|
|
Unvested
Restricted Stock- Chief Executive Officer
|
|
|
—
|
|
|
|
750,000
|
|
Total
|
|
|
27,319,166
|
|
|
|
28,735,916
|
|
Income
Tax Provision
The
financial statements reflect the Company’s transactions without adjustment, if any, required for income tax purposes. The
net loss generated by the Company for the period January 1, 2012 to November 6, 2012 has been excluded from the computation of
income taxes due to the company’s tax designation as an LLC during that period.
The
Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between
the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes
it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated
Statements of Operations in the period that includes the enactment date.
The
Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25
addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the
financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the financial statements from such a position
should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate
settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income
taxes, accounting in interim periods and requires increased disclosures.
The
estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying
consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability
of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management
makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous
estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in
these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual
taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
The
Company’s tax returns are subject to examination by the federal and state tax authorities.
Uncertain
Tax Positions
The
Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to
the provisions of Section 740-10-25 for the reporting periods ended December 31, 2014, 2013 and 2012.
Related
Parties
The
Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure
of related party transactions.
Pursuant
to Section 850-10-20 the related parties include (a) Affiliates of the Company; (b) Entities for which investments in their equity
securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15,
to be accounted for by the equity method by the investing entity; (c) Trusts for the benefit of employees, such as pension and
profit-sharing trusts that are managed by or under the trusteeship of management; (d) Principal owners of the Company; (e) Management
of the Company; (f) Other parties with which the Company may deal if one party controls or can significantly influence the management
or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its
own separate interests; and (g) Other parties that can significantly influence the management or operating policies of the transacting
parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent
that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The
consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements,
expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: (a). the nature of the relationship(s) involved; (b). a description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c). the dollar
amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the
method of establishing the terms from that used in the preceding period; and (d). amounts due from or to related parties as of
the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Contingencies
The
Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain
conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company
but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings
that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived
merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment
indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material,
would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business,
consolidated financial position, and consolidated results of operations or consolidated cash flows.
Subsequent
Events
The
Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent
events. The Company will evaluate subsequent events through the date when the financial statements are issued.
Pursuant
to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued
when they are widely distributed to users, such as through filing them on EDGAR.
Recently
Issued Accounting Pronouncements
In
September 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern.
This ASU describes how an entity should assess its ability to meet obligations and sets disclosure requirements for
how this information should be disclosed in the financial statements. The standard provides accounting guidance that will be used
with existing auditing standards. The amendments in this ASU are effective for the annual period ending after December 15, 2016,
and for annual periods and interim periods thereafter. Early application is permitted. The adoption of this guidance will be examined
for the year ended December 31, 2016, and if applicable at that time, will require management to make the appropriate disclosures.
In
April 2015, the FASB issued Accounting Standards Update No. 2015-03,
Interest—Imputation of Interest
(Topic 835-30): Simplifying the Presentation of Debt Issuance Costs
(“ASU 2015-03”). ASU 2015-03
requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement
guidance for debt issuance costs is not affected by ASU 2015-03. ASU 2015-03 is effective for financial statements issued for
fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is
permitted. Upon adoption, the Company will reclassify debt issuance costs from prepaid expenses and other current assets and
other assets as a reduction to debt in the condensed consolidated balance sheets. The Company is not planning to early adopt
ASU 2015-03 and does not anticipate that the adoption of ASU 2015-03 will materially impact its condensed consolidated
financial statements.
In
July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-11,
Inventory
(Topic 330): Simplifying the Measurement of Inventory
(“ASU 2015-11”), which applies guidance on the subsequent
measurement of inventory. ASU 2015-11 states that an entity should measure inventory at the lower of cost and net realizable value.
Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion,
disposal and transportation. The guidance excludes inventory measured using last-in, first-out or the retail inventory method.
ASU 2015-11 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted.
The Company is not planning to early adopt ASU 2015-11 and is currently evaluating ASU 2015-11 to determine the potential impact
to its condensed consolidated financial statements and related disclosures.
Other
pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not
applicable or are not expected to be significant to the Company’s financial position, results of operations or cash flows.
Note
3 Furniture and Equipment
Property
and equipment consisted of the following at December 31, 2015 and December 31, 2014:
|
|
December
31, 2015
|
|
December
31, 2014
|
Office
Equipment
|
|
$
|
136,611
|
|
|
$
|
120,759
|
|
Furniture
and Fixtures
|
|
|
30,561
|
|
|
|
29,071
|
|
Total
|
|
|
167,172
|
|
|
|
149,830
|
|
Less:
Accumulated Depreciation
|
|
|
(39,651
|
)
|
|
|
(17,221
|
)
|
Property
and Equipment - net
|
|
$
|
127,521
|
|
|
$
|
132,609
|
|
Note
4 Intangible Assets
Intangible
assets (patents) consisted of the following at December 31, 2015 and December 31, 2014:
|
|
December
31, 2015
|
|
December
31, 2014
|
Patents
|
|
$
|
103,792
|
|
|
$
|
61,690
|
|
Less:
Impairment Charges
|
|
|
—
|
|
|
|
—
|
|
Less:
Accumulated Amortization
|
|
|
(20,618
|
)
|
|
|
(15,271
|
)
|
Patents
- net
|
|
$
|
83,174
|
|
|
$
|
46,419
|
|
At
December 31, 2015, future amortization of intangible assets was as follows:
|
Year
Ending December 31
|
|
|
|
|
|
|
2016
|
|
|
$
|
6,889
|
|
|
2017
|
|
|
|
6,919
|
|
|
2018
|
|
|
|
6,919
|
|
|
2019
|
|
|
|
6,919
|
|
|
2020
|
|
|
|
6,938
|
|
|
2021
and Thereafter
|
|
|
|
48,590
|
|
|
|
|
|
$
|
83,174
|
|
Actual
amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures,
impairments and other factors.
Note
5 GE Trademark License Agreement
The
Company entered into an amended License Agreement with General Electric regarding the trademarking of its products. The License
Agreement is amortized through its expiration in November 2018.
|
|
December
31, 2015
|
|
December
31, 2014
|
GE
Trademark License
|
|
$
|
12,000,000
|
|
|
$
|
12,000,000
|
|
Less:
Impairment Charges
|
|
|
—
|
|
|
|
—
|
|
Less:
Accumulated Amortization
|
|
|
(4,876,254
|
)
|
|
|
(2,434,783
|
)
|
Patents
– net
|
|
$
|
7,123,746
|
|
|
$
|
9,565,217
|
|
At
December 31, 2015, future amortization of intangible assets is as follows for the remaining:
Year
Ending December 31
|
|
2016
|
|
|
$
|
2,448,161
|
|
|
2017
|
|
|
|
2,441,472
|
|
|
2018
|
|
|
|
2,234,113
|
|
|
|
|
|
$
|
7,123,746
|
|
Note
6 Note Payable to Bank
At
December 31, 2015 and December 31, 2014 the Company had a note payable to a bank in the amount of $301,744 and $405,095, respectively.
The note, dated May 2007, is due in monthly payments of $10,000 and carries interest at 4.75%. The note is secured by the assets
of the Company and personal guarantees by a shareholder and an officer of the Company, and is due August 2018.
Principal
payments due under the terms of this note are as follows:
|
Principal
Due in Next 12 months
|
|
|
|
|
|
|
2015
|
|
|
$
|
107,556
|
|
|
2016
|
|
|
|
113,225
|
|
|
2017
|
|
|
|
68,572
|
|
|
2018
|
|
|
|
12,391
|
|
|
|
|
|
$
|
301,744
|
|
Note
7 Convertible Debt - Net
The
Company has recorded derivative liabilities associated with convertible debt instruments, as more fully discussed at Notes 8 and
13 (B).
|
|
Third
Party
|
|
Related
Party
|
|
Totals
|
Balance
as of December 31, 2013
|
|
$
|
361,245
|
|
|
$
|
50,000
|
|
|
$
|
411,245
|
|
Proceeds
|
|
|
2,270,100
|
|
|
|
—
|
|
|
|
2,270,100
|
|
Repayments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Less:
gross debt discount recorded
|
|
|
(2,203,354
|
)
|
|
|
(46,105
|
)
|
|
|
(2,249,459
|
)
|
Add:
Amortization of Debt Discount
|
|
|
1,484,004
|
|
|
|
23,104
|
|
|
|
1,507,108
|
|
Balance as of December
31, 2014
|
|
|
1,911,995
|
|
|
|
26,999
|
|
|
|
1,938,994
|
|
Add:
Amortization of Debt Discount
|
|
|
2,077,955
|
|
|
|
23,001
|
|
|
|
2,100,956
|
|
Balance as of December
31, 2015
|
|
|
3,989,950
|
|
|
|
50,000
|
|
|
|
4,039,950
|
|
Less
Current portion
|
|
|
(3,989,950
|
)
|
|
|
(50,000
|
)
|
|
|
(4,039,950
|
)
|
Long-Term
Convertible Debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
In
connection with the May 8, 2014 and June 25, 2014 closings of the Notes Offering (defined below), the Company issued 5,390,100
detachable warrants. The notes and warrants were treated as derivative liabilities.
On
November 26, 2013, May 8, 2014 and June 25, 2014 the Company completed closings in connection with its offering (the “Notes
Offering”) of its 12% Secured Convertible Promissory Notes (the “12% Notes”) in the aggregate principal amount
of $4,240,100 and/or its 15% Secured Convertible Promissory Notes in the aggregate principal amount of $30,000 (the “15%
Notes”, and together with the 12% Notes, each a “Note” and collectively, the “Notes”), as applicable,
with certain “accredited investors” (the “Investors”), as defined under Regulation D, Rule 501 of the
Securities Act. The entire aggregate principal amount of the Notes of $4,270,100 was outstanding as of December 31, 2015, such
amount being exclusive of securities converted into the Notes separate from the Notes Offering. Pursuant to the Notes Offering,
the Company received $1,752,803, $1,400,000 and $800,500 in net proceeds on November 26, 2013, May 8, 2014 and June 25, 2014,
respectively.
In
addition to the terms customarily included in such instruments, the Notes began accruing interest on the date that each Investor
submitted the principal balance of such Investor’s Note, with the interest thereon becoming due and payable on the one year
anniversary, and quarterly thereafter. Upon a default of the Notes, the interest rate will increase by 2% for each 30 day period
until cured. The principal balance of each Note and all unpaid interest became or will become due and payable twenty-four (24)
months after the date of issuance. The Notes may be prepaid with or without a penalty depending on the date of the prepayment.
The principal and interest under the Notes are convertible into shares of the Company’s common stock at $0.25 per share
and are secured by a first priority lien (subject only to an existing note with Signature Bank of Georgia on the Company’s
intellectual property and all substitutes, replacements and proceeds of such intellectual property) pursuant to the terms of a
Security Purchase Agreement, dated as of November 26, 2013, May 8, 2014 and June 25, 2014, as applicable, by and between the Company
and each Investor.
Pursuant
to the Notes Offering, each Investor also received five (5) year common stock warrants to purchase the Company’s common
stock at $0.375 per share (each a “Warrant” and collectively, the “Warrants”). Investors of the 12% Notes
received Warrants with 25% coverage based on a pre-determined valuation of the Company. Investors of the 15% Notes received Warrants
with 15% coverage based on the pre-determined valuation of the Company. Investors with a principal investment amount equal to
or greater than $250,000 received Warrants with a bonus 40% coverage (“Bonus Coverage”); however, if an Investor previously
invested $250,000 or more in the Notes Offering, such Investor received Bonus Coverage if such Investor subsequently invested
$100,000 or more in the Notes Offering. In addition to the terms customarily included in such instruments, the Warrants may be
exercised by the Investors by providing to the Company a notice of exercise, payment and surrender of the Warrant.
In
connection with the Notes Offering, the Company entered into Registration Rights Agreements, each dated as of November 26, 2013,
May 8, 2014 and June 25, 2014, and each by and between the Company and each of the Investors (collectively, the “Registration
Rights Agreements”), whereby the Company agreed to prepare and file a registration statement with the SEC within sixty (60)
days after execution of the applicable Registration Rights Agreement and to have the registration statement declared effective
by the SEC within ninety (90) days thereafter.
Because
the Company was unable to file a registration statement pursuant to the terms of each Registration Rights Agreements dated as
of November 26, 2013 or May 8, 2014, the Company was in default under such Registration Rights Agreements (the “Filing Default
Damages”). Pursuant to the Registration Rights Agreement, the Filing Default Damages mandate that the Company shall pay
to the Investors, for each thirty (30) day period of such failure and until the filing date of the registration statement and/or
the common stock may be sold pursuant to Rule 144, an amount in cash, as partial liquidated damages and not as a penalty, equal
to 2% percent of the aggregate gross proceeds paid by the Investors for the Notes. If the Company fails to pay any partial liquidated
damages in full within five (5) days of the date payable, which is the Note maturity date, the Company shall pay interest thereon
at a rate of 18% per annum until such amounts, plus all such interest thereon, are paid in full.
In
addition, because the Company was unable to have a registration statement declared effective pursuant to the terms of the Registration
Rights Agreements dated as of November 26, 2013, the Company was in default under such Registration Rights Agreements (the “Effectiveness
Default Damages”). Pursuant to the Registration Rights Agreement, the Effectiveness Default Damages mandated that the interest
rate due under the Note corresponding to such Registration Rights Agreement will increase 2% above the then effective interest
rate of such Note, and shall continue to increase by 2% every 30 days until a registration statement is declared effective. The
Company’s registration statement covering its common stock, into which the Notes may be converted, was first filed on August
1, 2014, and was declared effective by the SEC on October 22, 2014. The Filing Default Damages stopped accruing on the date such
registration statement was filed, and the Effectiveness Default Damages stopped accruing on the date it was declared effective.
On
December 11, 2014, the Company sent a letter to the Investors holding Notes dated November 26, 2013 (the “2013 Investors”)
concerning the first interest payment that was scheduled to be paid pursuant to the Notes dated November 26, 2013 on the one year
anniversary of the date that each 2013 Investor submitted payment for their Note (the “First Interest Payments”).
The Company invited the 2013 Investors to convert the First Interest Payments into shares of the Company’s common stock
to further this purpose. The Company also asked each 2013 Investor to execute an Agreement and Waiver (the “Agreement and
Waiver”), which granted the Company a grace period, deferring the Company’s obligation to make payment of the First
Interest Payment and interest that was due under the Note through November 26, 2014 (the “Interest Due”) until February
24, 2015 (the “Extension”), during which time such deferment would not be considered an Event of Default under the
2013 Investor’s Note. In return for granting the Extension, the Company offered to capitalize the Interest Due at a rate
of 12% (the “Additional Interest”), which was convertible into shares of the Company’s common stock at the conversion
price of $0.25 per share as of February 24, 2014, unless the 2013 Investor requested to receive the Additional Interest in cash
15 days prior to the end of the Extension.
On
January 23, 2015, the Company sent a letter agreement to the Investors holding Notes dated November 26, 2013 and May 8, 2014,
which constituted all Investors with Filing Default Damages or Effectiveness Default Damages due to them pursuant to the Registration
Rights Agreements dated as of November 26, 2013 or May 8, 2014 (the “Agreement to Convert”). The Company invited the
Investors, as applicable, to elect to convert the Interest Due and/or the Filing Default Damages and Effectiveness Default Damages
into shares of the Company’s common stock at a price of $0.25 per share, and asked each Investor, as applicable, to make
such election by acknowledging and returning the Agreement to Convert to the Company.
In
connection with the Agreement and Waiver and Agreement to Convert, the Company issued 1,718,585 shares of its common stock representing
$429,646 in Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages during the year ended
December 31, 2015. The total accrued unpaid Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default
Damages as of December 31, 2015 amounted to $410,633.
During
2015, five Investors requested that the Company withhold payments of interest due under their Notes and allow the interest to
accumulate without penalty, so that such Investors could convert said interest upon maturity of their Note.
In
November 2015, the Company invited the 2013 Investors, with respect to outstanding principal and interest due under their respective
Notes, to (i) receive payment in cash, (ii) convert their Notes into shares of the Company’s common stock, or (iii) forbear
an election for three months, or until February 26, 2016, pursuant to a forbearance agreement, during such time interest under
their respective Notes would continue to accrue. The November 2013 Investors all elected to forbear making an election.
(B)
Terms
of Debt
The
debt carries interest between 12% and 15%, and was or is due in November 2015 (as extended to May 2016 pursuant to certain forbearance
agreements), May 2016 and June 2016.
All
Notes and Warrants issued in connection with the Notes Offering are convertible at $0.25 and $0.375/share, respectively, subject
to the existence of a “ratchet feature”, which allows for a lower offering price if the Company offers shares to the
public at a lower price.
(C)
Future Commitments
At
December 31, 2015, the Company has outstanding convertible debt of $3,989,950, which is payable within the next twelve months.
Note
8 Derivative Liabilities
The
Company identified conversion features embedded within convertible debt and warrants issued in 2013 and 2014. The Company has
determined that the features associated with the embedded conversion option, in the form a ratchet provision, should be accounted
for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available
to settle all potential future conversion transactions.
As
a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is
summarized as follows:
The
fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following
management assumptions as December 31, 2015:
|
|
December
31, 2015
|
|
12/31/2014
(Restated)
|
Fair
value at the commitment date - convertible debt
|
|
$
|
4,892,234
|
|
|
$
|
4,892,234
|
|
Fair
value at the commitment date - warrants
|
|
|
677,214
|
|
|
|
677,214
|
|
Reclassification
of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative
liability
|
|
|
(404,382
|
)
|
|
|
(214,769
|
)
|
Extinguishment
of Derivative Liability - Conversion of Interest to Shares
|
|
|
(209,604
|
)
|
|
|
—
|
|
Fair
value mark to market adjustment - stock options
|
|
|
108,548
|
|
|
|
(25,614
|
)
|
Fair
value mark to market adjustment - convertible debt
|
|
|
18,661,058
|
|
|
|
(174,606
|
)
|
Fair
value mark to market adjustment - warrants
|
|
|
432,770
|
|
|
|
(13,701
|
)
|
Totals
|
|
$
|
24,157,838
|
|
|
$
|
5,140,758
|
|
|
|
Commitment
Date
|
|
Re-measurement
Date
|
Expected
dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
150
|
%
|
|
|
150
|
%
|
Expected term
|
|
|
2
- 5 years
|
|
|
|
0.00
– 3.48 years
|
|
Risk free interest
rate
|
|
|
0.29%
- 1.68%
|
|
|
|
0.49%
- 1.76%
|
|
Note
9 Debt Discount
The
Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining fair value
of the derivative liability, as it exceeded the gross proceeds of the note.
The
Company recorded a derivative expense of $0 and $568,485 for years ended December 31, 2015 and 2014, respectively.
Accumulated
amortization of derivative discount amounted to $4,153,611 as of December 31, 2015 and $2,575,239 for the year ended December
31, 2014.
The
Company recorded a change in the value of embedded derivative liabilities income/(expense) of ($19,416,295) and $213,923 for the
years ended December 31, 2015 and 2014, respectively.
Note
10 Debt Issue Costs
|
Balance-
December 31, 2013
|
|
|
$
|
247,197
|
|
|
Additions
|
|
|
|
69,600
|
|
|
Amortization
|
|
|
|
(154,851
|
)
|
|
Balance-
December 31, 2014
|
|
|
|
161,946
|
|
|
Amortization
|
|
|
|
(147,341
|
)
|
|
Balance-
December 31, 2015
|
|
|
$
|
14,605
|
|
The
Company recorded amortization expense of $147,341 and $103,388 for the years ended December 31, 2015 and December 31, 2014, respectively.
Accumulated amortization of debt issuance costs amounted to $302,192 and $154,851 at December 31, 2015 and December 31, 2014 respectively.
Remaining
in the following years ended December 31,
|
|
2016
|
|
|
$
|
14,605
|
|
Note
11 GE Royalty Obligation
In
2011, the Company executed a Trademark Licensing Agreement with General Electric, which allows the Company the right to market
certain ceiling light and fan fixtures displaying the GE brand. The License Agreement imposes certain manufacturing and quality
control conditions that the Company must maintain in order to continue to use the GE brand.
The
License Agreement is non-transferable and cannot be sub-licensed. Various termination clauses are applicable, however, none were
applicable as of December 31, 2015 and December 31, 2014.
In
August 2014, the Company entered into a second amendment to the License Agreement pertaining to its royalty obligations. Under
the terms of the amendment, the Company agreed to pay a total of $12,000,000 by November 2018 for the rights assigned in the original
contract. In case the Company does not pay GE a total of at least $12,000,000 in cumulative royalties over the term of the License
Agreement, the difference between $12,000,000 and the amount of royalties actually paid to GE is owed in December 2018.
Payments
are due quarterly based upon the prior quarters’ sales. The Company made payments of $204,146 and $0, for the years ended
December 31, 2015 and December 31, 2014, respectively.
The
License Agreement obligation will be paid from sales of GE branded product subject to the following repayment schedule:
Net
Sales in Contract Year
|
|
Percentage
of the Contract Year Net Sales owed to GE
|
$
|
|
|
0
- $50,000,000
|
|
|
|
7
|
%
|
$
|
|
|
50,000,001
- $100,000,000
|
|
|
|
6
|
%
|
$
|
|
|
100,000,001+
|
|
|
|
5
|
%
|
The
Company has limited operating history and does not have the ability to estimate the sales of GE branded product, the liability
is classified as long-term. As sales are recognized, the Company will estimate the portion it expects to pay in the current year
and classify as current.
Note
12 Income Taxes
Income
taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Deferred
taxes relate to differences between the basis of assets and liabilities for financial and income tax reporting which will be either
taxable or deductible when the assets or liabilities are recovered or settled.
At
December 31, 2015, the Company has a net operating loss carry-forward of approximately $11,280,000 available to offset future
taxable income expiring through 2035. Utilization of future net operating losses may be limited due to potential ownership changes
under Section 382 of the Internal Revenue Code.
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative
to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December
31, 2015.
The
effects of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2015 and December
31, 2014 are approximately as follows:
|
|
December
31, 2015
|
|
12/31/2014
(Restated)
|
Net
operating loss carryforward
|
|
$
|
8,718,000
|
|
|
$
|
4,060,000
|
|
|
|
|
|
|
|
|
|
|
Gross
Deferred Tax Assets
|
|
|
(2,906,000
|
)
|
|
|
(1,354,000
|
)
|
Less
Valuation Allowance
|
|
|
2,906,000
|
|
|
|
1,354,000
|
|
Total
Deferred Tax Assets – Net
|
|
$
|
—
|
|
|
$
|
—
|
|
There
was no income tax expense for the years ended December 31, 2015 and 2014 due to the Company’s net losses
The
Company’s tax expense differs from the “expected” tax expense for the years ended December 31, 2015 and December
31, 2014 (computed by applying the Federal Corporate tax rate of 34% to loss before taxes and 6% for Georgia State Corporate Taxes,
the blended rate used was 37.96%), are approximately as follows:
|
|
December
31, 2015
|
|
12/31/2014
Restated
|
Computed
“expected” tax expense (benefit) – Federal
|
|
$
|
(9,115,000
|
)
|
|
$
|
(2,480,000
|
)
|
Computed
“expected” tax expense (benefit) - State
|
|
|
(1,616,000
|
)
|
|
|
(438,000
|
)
|
Derivative
expense
|
|
|
7,370,000
|
|
|
|
135,000
|
|
Share based
payments
|
|
|
66,000
|
|
|
|
77,300
|
|
Amortization
of patent
|
|
|
2,000
|
|
|
|
1,000
|
|
Amortization
of debt issue costs
|
|
|
56,000
|
|
|
|
54,000
|
|
Amortization
of debt discount
|
|
|
798,000
|
|
|
|
572,000
|
|
Amortization
of GE Trademark License
|
|
|
927,000
|
|
|
|
924,000
|
|
Change
in valuation allowance
|
|
|
1,552,000
|
|
|
|
1,155,700
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Note
13 Stockholders Deficit
(A)
Common
Stock
For
the years ended December 31, 2015 and December, 31 2014, the Company issued the following common stock:
Transaction
Type
|
|
|
|
Quantity
|
|
Valuation
|
|
Range
of Value per Share
|
2014
Equity Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in exercise of warrants
|
|
|
(1)
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
$
|
0.001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued per mutual release and waiver
|
|
|
(2)
|
|
|
|
250,000
|
|
|
|
62,500
|
|
|
|
0.25
|
|
December
31, 2014
|
|
|
|
|
|
|
1,250,000
|
|
|
|
63,500
|
|
|
$
|
.001-0.25
|
|
2015
Equity Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued per Waiver and Conversion Agreement
|
|
|
(3)
|
|
|
|
1,718,585
|
|
|
|
429,646
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued per Employment Agreement of CEO - 500,000 to be issued
|
|
|
(4)
|
|
|
|
750,000
|
|
|
|
173,688
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued per Stock Rights Offering
|
|
|
(5)
|
|
|
|
3,782,666
|
|
|
|
2,210,032
|
|
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued per Stock Rights Offering - to be issued
|
|
|
(6)
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
1.00
|
|
December
31 2015
|
|
|
|
|
|
|
6,751,251
|
|
|
$
|
3,313,336
|
|
|
$
|
0.25-1.00
|
|
The
following is a more detailed description of the Company’s stock issuance from the table above:
(1)
Warrants Exercised for Cash
In
connection with a warrant exercise, a third party paid cash to obtain these shares.
(2)
Services Rendered - Related Party
The
Company’s former Chief Executive Officer received 1,250,000 restricted unvested shares in association with an employment
contract. These restricted shares were to vest as follows: 500,000 on November 15, 2013 with the remaining 750,000 shares to vest
evenly (250,000 shares each vesting period) on December 31, 2014, 2015 and 2016. The shares were valued based on a third party
cash offering of convertible debt containing an exercise price of $0.25/share. In November 2014, the agreement was terminated
and the Company entered into a new Agreement and Mutual Release with that former CEO. As of that date (November 2014), 500,000
of the aforementioned 1,250,000 shares were fully vested. In accordance with the new Agreement and Mutual Release, the Company
issued 250,000 shares that vested on December 31, 2014 and the executive retained the 500,000 shares of the previous granted (fully
vested) shares. The remaining 500,000 unvested shares were forfeited.
(3)
Agreement and Waiver and Agreement to Convert
The
Company issued 1,718,585 shares at $0.25 per share, representing $429,646 in penalties and interest, in connection with the Agreement
and Waiver and the Agreement to Convert. For a complete description of the Agreement and Waiver and the Agreement to Convert,
see Note 7 above.
(4)
Shares Issued to Chief Executive Officer
In
November 2014, the Company entered into an Employment Agreement with its current Chief Executive Officer, which provided for stock-based
compensation equal to 750,000 of restricted shares, of which 250,000 shares vested in May 2015 and 500,000 shares vested in December
2015. These shares were issued at $0.25 per share and were issued subsequent to December 31, 2015.
(5)
Shares Issued in Connection with Stock Offering
In
May 2015, the Company offered to existing shareholders a maximum of 6,666,667 shares of common stock at an issuance cost of $0.60
per share for a total of $4,000,000 (the “May Stock Offering”). The May Stock Offering concluded on November 15, 2015
the Company will issue 3,782,666 shares in connection with three closings.
(6)
Shares Issued in Connection with Stock Offering
In
November 2015, the Company offered to new and existing shareholders a maximum of 2,000,000 shares of common stock at an issuance
cost of $1 per share for a total of $2,000,000 (the “November Stock Offering”). Through December 31, 2015, the Company
issued 500,000 shares in connection with the first closing of the November Stock Offering.
(B)
Additional
Paid in Capital and Other Equity Transactions
The
following transactions occurred during the period:
(1)
Derivative Liability
Reclassification
of derivative liability associated with warrants of $0 and $214,769 for the years ended December 31, 2015 and December 31, 2014,
respectively.
(2)
Services Rendered – Related Parties
Common
stock issued for services – related party of $76,312 for the year ended December 31, 2014.
(C)
Stock Options
The
following is a summary of the Company’s stock option activity:
|
|
|
|
Weighted
Average
|
|
Weighted
Average Remaining Contractual Life
|
|
Aggregate
Intrinsic
|
|
|
Options
|
|
Exercise
Price
|
|
(In
Years)
|
|
Value
|
|
Balance
- December 31, 2013 - outstanding
|
|
|
|
300,000
|
|
|
|
0.375
|
|
|
|
4.67
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited/Cancelled
|
|
|
|
(100,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance-
December 31, 2014
|
|
|
|
200,000
|
|
|
|
0.375
|
|
|
|
3.67
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited/Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance-
December 31, 2015
|
|
|
|
200,000
|
|
|
|
0.375
|
|
|
|
2.67
|
|
|
|
—
|
|
Of
the total options granted, 100,000 were cancelled in February 2014 upon the resignation of a Board member.
(D)
Stock Warrants
All
warrants issued during the year ended December 31, 2014 were accounted for as derivative liabilities, as the warrants contained
a ratchet feature. See Note 8. No warrants were issued during the year ended December 31, 2015.
As
part of the Notes Offering, during 2014, the Company issued 5,390,100 warrants with an exercise price of $0.375 per share. The
warrants expire 5 years from issuance on various dates during 2019. Of the total warrants granted, 4,740,100 were granted to third
parties, while 650,000 were granted to related parties, consisting of the Company’s former Chief Executive Officer.
The
Black-Scholes assumptions used in the computation of derivative expense for year ended December 31, 2015 is as follows:
Exercise
price
|
|
$
|
0.375
|
|
Expected
dividends
|
|
|
0
|
%
|
Expected
volatility
|
|
|
150
|
%
|
Risk
free interest rate
|
|
|
1.76
|
%
|
Expected
term
|
|
|
5
years
|
|
The
following is a summary of the Company’s warrant activity:
|
|
Number
of Warrants
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Life (in Years)
|
|
Balance,
December 31, 2013
|
|
|
|
4,338,884
|
|
|
|
0.242
|
|
|
|
4.9
|
|
|
Granted
|
|
|
|
5,390,100
|
|
|
|
0.375
|
|
|
|
5
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled/Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance,
December 31, 2014
|
|
|
|
9,728,984
|
|
|
|
0.375
|
|
|
|
4.4
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled/Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance,
December 31, 2014
|
|
|
|
9,728,984
|
|
|
|
0.375
|
|
|
|
3.9
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled/Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance,
December 31, 2015
|
|
|
|
9,728,984
|
|
|
|
0.375
|
|
|
|
3.2
|
|
During
2014, the Company received $1,000 in connection with the exercise of a warrant to purchase 1,000,000 shares of the Company’s
common stock. The warrants had been assigned to the exercising investor from another investor, who originally held warrants exercisable
into 2,400,000 shares of the Company’s common stock, and had exercised the warrants into 1,400,000 shares of the Company’s
common stock during 2013. There is was no additional compensation expense recorded on this transaction.
D)
2015 Stock Incentive Plan
On
April 27, 2015, the Board approved the Company’s 2015 Stock Incentive Plan (the “Incentive Plan”). Under the
Incentive Plan, the Board has the sole authority to implement, interpret, and/or administer the Incentive Plan unless the Board
delegates (i) all or any portion of its authority to implement, interpret, and/or administer the Incentive Plan to a committee
of the Board, or (ii) the authority to grant and administer awards under the Incentive Plan to an officer of the Company. The
Incentive Plan relates to the issuance of up to 5,000,000 shares of the Company’s common stock, subject to adjustment, and
shall be effective for ten (10) years, unless earlier terminated. Certain options to be granted to employees under the Incentive
Plan are intended to qualify as Incentive Stock Options (“ISOs”) pursuant to Section 422 of the Internal Revenue Code
of 1986, as amended, while other options granted under the Incentive Plan will be nonqualified options not intended to qualify
as Incentive Stock Options ISOs (“Nonqualified Options”), either or both as provided in the agreements evidencing
the options described.
The
Incentive Plan further provides that awards granted under the Incentive Plan cannot be exercised until a majority of the Company’s
shareholders have approved the Incentive Plan. As of March 25, 2016, a majority of the Company’s shareholders had not yet
approved the Incentive Plan,
On
November 15, 2015, the Board authorized the Company to grant certain securities under the Incentive Plan, in the aggregate amount
of up to 3,810,000 options to purchase shares of our common stock, vesting in part immediately and entirely over the next two
years, and up to 75,000 shares of our common stock, vesting immediately. As of December 31, 2015, the Company had not yet entered
into award agreements with the grantees, or issued shares of common stock or options to purchase shares of common stock under
the Incentive Plan.
The
full terms of the Company’s Incentive Plan are described in Part II, Item 5 of the Company’s Annual Report on Form
10-K for the period ended December 31, 2015.
Note
14 Commitments
(A)
Operating Lease
In
January 2014, the Company executed a 39 month lease for a corporate headquarters. The Company paid a security deposit of $27,020.
In
October, 2014, the Company executed a 53 month lease for a new corporate headquarters with a base rent of $97,266 escalating annually
through 2019. The Company paid a security deposit of $1,914.
In
October, 2014, the Company entered into a sublease agreement to sublease its previous office space through March 2017. In
connection with the sublease, the Company collected $34,981 as a security deposit.
The
minimum rent obligations are approximately as follows:
|
|
Minimum
|
|
Sublease
|
|
Net
|
Year
|
|
Obligation
|
|
Rentals
|
|
Obligation
|
|
2016
|
|
|
|
109,720
|
|
|
|
86,688
|
|
|
|
23,032
|
|
|
2017
|
|
|
|
46,568
|
|
|
|
22,263
|
|
|
|
24,305
|
|
|
2018
|
|
|
|
25,154
|
|
|
|
—
|
|
|
|
25,154
|
|
|
2019
|
|
|
|
8,615
|
|
|
|
—
|
|
|
|
8,615
|
|
|
Total
|
|
|
$
|
190,057
|
|
|
$
|
108,951
|
|
|
$
|
81,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(B)
Employment
Agreement – Chief Executive Officer
In
November 2014, the Company entered into an employment agreement with its new Chief Executive Officer. In addition to salary, the
agreement provided for the issuance of 750,000 restricted shares to him, vesting as follows: 250,000 after the first 6 months
of employment and 500,000 additional shares at December 31, 2015. Under terms of the agreement the executive would receive additional
compensation in the form of stock options to purchase shares of Company stock equal to one half of one percent (0.5%) of quarterly
net income. The strike price of the options will be established at the time of the grant. The options will vest in twelve months
and expire after sixty months. In addition to the stock options compensation, the executive will receive cash compensation equal
to one half of one percent (0.5%) of annual sales up to $20 million and one quarter of one percent (0.25%) for annual sales $20
million and 3% of annual net income. For the year ended December 31, 2015, the Company paid $14,376.19 under this agreement in
cash compensation, and no options have been issued.
In
November 2014, the agreement with the former CEO was terminated by mutual agreement upon the Company’s execution of an Agreement
and Mutual Release and Waiver with the former CEO. The agreement allowed for immediate vesting of 750,000 shares of the original
1,250,000 unvested shares previously granted to the former CEO. In addition, the Company agreed to pay the executive one half
of one percent (0.5%) of sales associated with one selected customer, occurring for up to 36 months. For the year ended December
31, 2015, the Company paid $3,324.52 under this agreement in cash compensation.
(C)
Consulting Agreement
The
Company has a 3 year consulting agreement with a director which expires in November 2016, and carries an annual payment of $150,000
cash, stock or 5 year options equal to one half of one percent (0.5%) of the Company’s annual net sales. For the year ended
December 31, 2015, the Company paid $14,376.19 under this agreement in cash compensation, and no stock has been issued.
Note
15 Going Concern
As
reflected in the accompanying financial statements, the Company had a net loss of $(26,890,210) and net cash used in operations
of $(3,767,470) for the year ended December 31, 2015; and a working capital deficit and stockholders’ deficit of $(32,749,407)
at December 31, 2015. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The
ability of the Company to continue its operations is dependent on management’s plans, which include the raising of capital
through debt and/or equity markets with some additional funding from other traditional financing sources, including convertible
debt and/or other term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The
Company may need to incur liabilities with certain related parties to sustain the Company’s existence.
The
Company may require additional funding to finance the growth of its current and expected future operations as well as to achieve
its strategic objectives. The Company’s currently available cash along with anticipated revenues may not be sufficient
to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or
terms acceptable to the Company, if at all.
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments
relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company
be unable to continue as a going concern.
Note
16 Restatement of Financial Statements
In
2015, the Company identified certain errors in calculating derivative liabilities and common stock as of December 31, 2014. The
Company determined that it had not properly recorded the derivative liability associated with the accrued interest and penalties
included with the Notes issued in the November 26, 2013, May 8, 2014 and June 25, 2014 closings of the Notes Offering. As a result,
the penalty and interest will be calculated and accounted for as a derivative liability. Accordingly, derivative liabilities as
of December 31, 2014 and changes in derivative liabilities for the year of 2014 were understated in the amount of $488,996.
Additionally,
the Company restated the shares issued at zero par to common stock and common stock to be issued by adjusting additional paid
in capital, where these amounts were posted in 2014, resulting in a change to the additional paid in capital of $76,312; common
stock of $62,500 and common stock to be issued of $13,812.
The
following table sets forth all the accounts in the original amounts and restated amounts, respectively.
As
of December 31, 2014
|
|
Original
|
|
Adjustment
|
|
Restated
|
Derivative liabilities
|
|
$
|
4,651,762
|
|
|
|
488,996
|
|
|
$
|
5,140,758
|
|
Common Stock
|
|
$
|
127,400
|
|
|
|
62,500
|
|
|
$
|
189.900
|
|
Common Stock to be issued
|
|
$
|
0
|
|
|
|
13,812
|
|
|
$
|
13,812
|
|
Additional paid in capital
|
|
$
|
6,359,127
|
|
|
|
(76,312
|
)
|
|
$
|
6,282,814
|
|
Accumulated deficit
|
|
$
|
(15,324,264
|
)
|
|
|
(488,996
|
)
|
|
$
|
(15,813,260
|
)
|
Note
17 Subsequent Events
On February 19, 2016, the Company completed a second closing of the November Stock Offering representing aggregate gross proceeds
to the Company of $300,000, and thereafter issued 300,000 shares of its common stock.
In connection
with the Agreement and Waiver and Agreement to Convert, the Company issued an additional 624,606 shares of its common stock as
payment for Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages, representing payment
to Investors of $156,152.
In February
2016, the Company invited the November 2013 Investors to extend their forbearance period to make an election to convert or redeem
their Notes for an additional three months, or until May 26, 2016, under the same terms as the November 2015 forbearance agreements.
All but five of the November 2013 Investors elected to forbear an election for the additional period.
In February
2016, the Company issued 165,486 shares of its common stock upon full conversion of a Note by a 2013 Investor. In total, $229,998
was paid to Investors in February 2016 in cash or shares of common stock.
As of March
25, 2016, the Company has entered into Option Award Agreements with two grantees, pursuant to awards granted on November 15, 2015
under the Incentive Plan, consisting of up to 650,000 options to purchase shares of the Company’s common stock, of which
options to purchase up to 450,000 shares of common stock vest immediately, and options to purchase up to 200,000 shares of common
stock will vest on November 15, 2016. Also as of March 25, 2016, the Company has entered into Stock Award Agreements with two
grantees to issued 75,000 shares of its common stock, vesting immediately. The exercise of such awards is contingent upon attainment
of majority shareholder approval of the Incentive Plan
[BACK COVER]
This prospectus
is part of a Registration Statement we filed with the SEC. You should rely only on the information or representations contained
in this prospectus. We have not authorized anyone to provide information other than that provided in this prospectus. We are not
making an offer of these securities in any jurisdiction or state where the offer is not permitted. You should not assume that
the information in this prospectus is accurate as of any date other than the date on the front of the document.
4,582,666
Shares of Common Stock
PROSPECTUS
[________]
,
2016
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution.
The following
table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being
registered hereunder. No expenses shall be borne by the selling security holder. All of the amounts shown
are estimates, except for the SEC Registration Fees.
SEC registration fees
|
|
$
|
432
|
|
Printing expenses*
|
|
$
|
50
|
|
Accounting fees and expenses*
|
|
$
|
2,500
|
|
Legal fees and expenses*
|
|
$
|
30,000
|
|
Blue sky fees*
|
|
$
|
2,725
|
|
Miscellaneous*
|
|
$
|
250
|
|
Total*
|
|
$
|
35,957
|
|
* Estimate
Item 14.
Indemnification of Directors and Officers.
Our bylaws provide
that our directors and officers will be indemnified to the fullest extent permitted by the Florida Business Corporation Act. Specifically,
our bylaws require the Company to indemnify any person who is or was, or has agreed to become, a director or officer of the Company
(hereinafter, a “director” or “officer”) and who is or was made or threatened to be made a party to or
is involved in any threatened, pending or completed action, suit, arbitration, alternative dispute mechanism, inquiry, investigation,
hearing or other proceeding (hereinafter, a “proceeding”), including an action by or in the right of the Company to
procure a judgment in its favor and an action by or in the right of any other corporation of any type or kind, domestic or foreign,
or any partnership, joint venture, trust, employee benefit plan or other enterprise, which such person is serving, has served
or has agreed to serve in any capacity at the request of the Company, by reason of the fact that he or she is or was, or has agreed
to become, a director or officer of the Company, or, while a director or officer of the Company, is or was serving, or has agreed
to serve, such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity,
against (i) judgments, fines, amounts paid or to be paid in settlement, taxes or penalties, and (ii) costs, charges and expenses,
including attorneys’ fees (hereinafter, “expenses”), incurred in connection with such proceeding. However, a
director and/or officer is not entitled to indemnification if a judgment or other final adjudication adverse to the director or
officer and from which there is no further right to appeal establishes that (i) his or her acts were committed in bad faith or
were the result of active and deliberate dishonesty and, in either case, were material to the cause of action so adjudicated,
or (ii) he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled.
The Company is required to indemnify a director or officer in connection with any suit (or part thereof) initiated by a director
or officer only if such suit (or part thereof) was authorized by the Board of Directors.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Item 15.
Recent Sales of Unregistered Securities.
All of the sales
below were made in reliance on the exemption provided in Regulation S or Section 4(2) of the Securities Act and Rule 506
thereunder. In connection with the sales under Regulation S, these securities were issued in offshore transactions
to persons who are not U.S. Persons as defined by Regulation S under the Securities Act of 1933 and there were no directed selling
efforts made in the United States. In connection with the sale under Section 4(2) of the Securities Act, the sales
were made to accredited investors and there was no general solicitation.
Beginning in
May 2015, we conducted an offering of up to $4,000,000 of restricted shares of the Company’s common stock, no par value
per share, at $0.60 per share to certain accredited and non-accredited investors (the “May 2015 Stock Offering”),
in reliance upon the exemptions provided in the Securities Act of 1933, as amended, including Regulation D, Rule 501. The May
2015 Stock Offering consisted of one or more closings and ended on November 6, 2015, pursuant to two extension authorized by the
Company’s Board of Directors (the “Board”). The Company engaged a broker-dealer to assist in the May 2015 Stock
Offering.
Beginning in
November 2015, we conducted an offering of up to $2,000,000 of restricted shares of the Company’s common stock, no par value
per share, at $1.00 per share to certain accredited and non-accredited investors (the “November 2015 Stock Offering”),
in reliance upon the exemptions provided in the Securities Act of 1933, as amended, including Regulation D, Rule 501. The November
2015 Stock Offering consisted of one or more closings and ended on February 19, 2016, pursuant to an extension authorized by the
Company’s Board. The Company engaged a broker-dealer to assist in the November 2015 Stock Offering.
The final closing
of the May 2015 Stock Offering occurred on November 6, 2015, resulting in aggregate gross proceeds for all closings to the Company
of $2,269,600.40, and thereafter issued 3,782,666 shares of its common stock. The final closing of the November 2015 Stock Offering
occurred on February 19, 2016, resulting in aggregate gross proceeds to the Company of $800,000, and thereafter issued 800,000
shares of its common stock.
Net proceeds
from the May 2015 Stock Offering and November 2015 Stock Offering were used for the Company’s general working capital.
Item 16.
Exhibits and Financial Statement Schedules.
Exhibit
No.
|
|
Description
of Exhibit
|
|
Footnote
|
3.1
|
|
Articles of Incorporation
of Registrant.
|
|
(2)
|
3.2
|
|
Bylaws of Registrant.
|
|
(2)
|
4.1
|
|
Form of Common
Stock Certificate.
|
|
(2)
|
5.1
|
|
Opinion of Thompson
Hine LLP regarding the legality of the securities being registered.
|
|
(5)
|
10.1
|
|
GE Trademark License
Agreement, dated as of June 15, 2011, by and between GE Trademark Licensing, Inc. and SQL Lighting & Fans, LLC, as amended.
|
|
(2)
|
10.2
|
|
Form of 2013 Director
Stock Option Agreement.
|
|
(2)
|
10.3
|
|
Forms of Security
Purchase Agreement, Registration Rights Agreement, Note Subscription Agreement, Common Stock Purchase Warrant and Secured
Convertible Promissory Note for the Notes Offering closed November 26, 2013.
|
|
(2)
|
10.4
|
|
Forms of Security
Purchase Agreement, Registration Rights Agreement, Note Subscription Agreement, Common Stock Purchase Warrant and Secured
Convertible Promissory Note for the Notes Offering closed May 8, 2014 and June 25, 2014.
|
|
(2)
|
10.5
|
|
Form of Voting
Agreement
|
|
(2)
|
10.6
|
|
Trademark
Assignment, dated November 14, 2013, by and between Safety Quick Light LLC and Safety Quick Lighting & Fans Corp.
|
|
(2)
|
10.7
|
|
Assignment,
dated November 14, 2013, by and between Ran Kohen and Safety Quick Lighting & Fans Corp.
|
|
(2)
|
10.8
|
|
Assignment,
dated November 13, 2013, by and between Ran Kohen and Safety Quick Lighting & Fans Corp.
|
|
(2)
|
10.9
|
|
Patent
Assignment, dated November 14, 2013, by and between Safety Quick Light Ltd. and Safety Quick Lighting & Fans Corp.
|
|
(2)
|
10.10
|
|
Trademark
Assignment, dated November 14, 2013, by and between Ran Kohen and Safety Quick Lighting & Fans Corp.
|
|
(2)
|
10.11
|
|
Loan
Agreement, dated May 29, 2007, by and between Safety Quick Light LLC and Signature Bank of Georgia.
|
|
(2)
|
10.12
|
|
U.S.
Small Business Administration Note, dated May 29, 2007, by and between Safety Quick Light LLC and Signature Bank of Georgia.
|
|
(2)
|
10.13
|
|
Allonge
Modifying Note, dated August 30, 2012, by and between Safety Quick Light LLC and Signature Bank of Georgia.
|
|
(2)
|
10.14
|
|
Consent
Agreement, dated as of November 14, 2013, by and between Safety Quick Lighting & Fans Corp., Patricia Barron, Ran Roland
Kohan, and Signature Bank of Georgia.
|
|
(2)
|
10.15
|
|
Amendment
No. 1 to Consent Agreement, dated as of November 21, 2013, by and between Safety Quick Lighting & Fans Corp., Patricia
Barron, Ran Roland Kohan, and Signature Bank of Georgia.
|
|
(2)
|
10.16
|
|
Form of Agreement
and Waiver, dated December 10, 2014, between the Registrant and 2012 Investors.
|
|
(4)
|
10.17
|
|
Form of Letter
Agreement to Convert, dated January 23, 2014, between the Registrant and holders of Notes dated November 26, 2013.
|
|
(4)
|
10.18
|
|
Form of Letter
Agreement to Convert, dated January 23, 2014, between the Registrant and holders of Notes dated May 8, 2014.
|
|
(4)
|
10.19
|
|
DSI Marketing
Agreement.
|
|
(2)
|
10.20
|
|
Consulting Agreement,
dated as of November 1, 2013, by and between Safety Quick Lighting & Fans Corp. and Rani Kohen.
|
|
(2)
|
10.21
|
|
Agreement and
Mutual Release and Waiver, dated November 21, 2014, between the Company and James R. Hills.
|
|
(3)
|
10.22
|
|
Executive Employment
Agreement, dated November 21, 2014, between the Company and John P. Campi.
|
|
(3)
|
10.23
|
|
Office Lease,
dated as of December 17, 2013, by and between Metzler One Buckhead Plaza, L.P. and Safety Quick Light LLC.
|
|
(2)
|
10.24
|
|
Office Lease dated
October 24, 2014 between the Company and Highwoods DLF 98/29, LLC.
|
|
(4)
|
10.25
|
|
Sublease Agreement
dated October 15, 2014 between the Company and Stableford Capital, LLC.
|
|
(4)
|
10.26
|
|
Form
of Agreement and Waiver, dated December 10, 2014, between the Registrant and 2012 Investors.
|
|
(4)
|
10.27
|
|
Form of Letter
Agreement to Convert, dated January 23, 2014, between the Registrant and holders of Notes dated November 26, 2013.
|
|
(4)
|
10.28
|
|
Form of Letter
Agreement to Convert, dated January 23, 2014, between the Registrant and holders of Notes dated May 8, 2014.
|
|
(4)
|
10.29
|
|
Forms of Securities
Subscription Agreements for U.S. Persons and Non-US Persons ad Registration Rights Agreement utilized in the May 2015 Stock
Offering.
|
|
(5)
|
10.30
|
|
Forms of Securities
Subscription Agreements for U.S. Persons and Non-US Persons ad Registration Rights Agreement utilized in the November 2015
Stock Offering.
|
|
(5)
|
10.31
|
|
Director Compensation
Policy.
|
|
(5)
|
10.32
|
|
Form of November
2015 Election Letter and Forbearance Agreement.
|
|
(5)
|
10.33
|
|
Consulting Agreement,
dated June 1, 2015, between the Company and Mark Wells.
|
|
(5)
|
10.34
|
|
The 2015 Stock
Incentive Plan.
|
|
(6)
|
10.35
|
|
Form of February
2016 Forbearance Agreement.
|
|
(6)
|
10.36
|
|
Form of Securities
Subscription Agreement and Common Stock Purchase Warrant used in the April 2016 Stock Sale.
|
|
(7)
|
10.37
|
|
Form of Securities
Subscription Agreement, including the terms to issue Volume Warrants, and form of Common Stock Purchase Warrant used in the
May 2016 Private Placement.
|
|
(8)
|
10.38
|
|
Certificate Of
Designation of Rights, Preferences and Privileges lf Series A Preferred Stock
|
|
(9)
|
10.39
|
|
Form of May 2016
Forbearance Agreement
|
|
(1)
|
21.1
|
|
List of Subsidiaries.
|
|
(6)
|
23.1
|
|
Consent of Thompson
Hine LLP
|
|
(5)
|
23.2
|
|
Consent of L&L
CPAS, PA, f/k/a Bongiovanni & Associates, PA.
|
|
(1)
|
_________________________
|
(2)
|
Incorporated
by reference from the Company’s Registration Statement on Form S-1 filed with the
SEC on August 1, 2014, and declared effective on October 22, 2014.
|
|
(3)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed with the SEC on
November 26, 2014.
|
|
(4)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-K filed with the SEC on
March 31, 2015.
|
|
(5)
|
Incorporated
by reference from the Company’s Registration Statement on Form S-1 filed with the
SEC on January 11, 2016, and declared effective on January 20, 2016.
|
|
(6)
|
Incorporated
by reference from the Company’s Annual Report on Form 10-K filed with the SEC on
March 30, 2016.
|
|
(7)
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed with the SEC on
April 7, 2016.
|
|
(8)
|
Incorporated
by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC
on May 16, 2016.
|
|
(9)
|
Incorporated
by reference from the Company’s Definitive Information Statement on Schedule 14C
filed with the SEC on July 11, 2016
|
Item 17. Undertakings
(a)
The undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
i.
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
ii.
To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange
Commission (the “Commission”) pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective Registration Statement;
iii.
To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement.
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4)
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule
430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5)
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that
in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and
is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to
the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the State of Georgia, on July 20, 2016.
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SAFETY QUICK LIGHTING & FANS
CORP.
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By:
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/s/
John P. Campi
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John P. Campi
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Chief
Executive Officer
(Principal
Executive Officer)
(Principal
Accounting Officer)
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Pursuant to the
requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities
and on the dates indicated.
Signatures
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Title
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Date
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/s/
John P. Campi
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Chief Executive Officer
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July 20, 2016
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John P. Campi
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/s/
Rani Kohen
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Chairman of the Board and Director
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July 20, 2016
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Rani Kohen
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/s/
Phillips Peter
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Director
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July 20, 2016
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Phillips Peter
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/s/
Tom Ridge
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Director
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July 20, 2016
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Tom Ridge
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/s/
Dov Shiff
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Director
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July 20, 2016
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Dov Shiff
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/s/
Leonard J. Sokolow
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Director
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July 20, 2016
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Leonard
J. Sokolow
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EXHIBIT INDEX
Exhibit
No.
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Description
of Exhibit
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Footnote
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3.1
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Articles of Incorporation
of Registrant.
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(2)
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3.2
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Bylaws of Registrant.
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(2)
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4.1
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Form of Common
Stock Certificate.
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(2)
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5.1
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Opinion of Thompson
Hine LLP regarding the legality of the securities being registered.
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(5)
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10.1
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GE Trademark License
Agreement, dated as of June 15, 2011, by and between GE Trademark Licensing, Inc. and SQL Lighting & Fans, LLC, as amended.
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(2)
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10.2
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Form of 2013 Director
Stock Option Agreement.
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(2)
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10.3
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Forms of Security
Purchase Agreement, Registration Rights Agreement, Note Subscription Agreement, Common Stock Purchase Warrant and Secured
Convertible Promissory Note for the Notes Offering closed November 26, 2013.
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(2)
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10.4
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Forms of Security
Purchase Agreement, Registration Rights Agreement, Note Subscription Agreement, Common Stock Purchase Warrant and Secured
Convertible Promissory Note for the Notes Offering closed May 8, 2014 and June 25, 2014.
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(2)
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10.5
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Form of Voting
Agreement
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(2)
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10.6
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Trademark
Assignment, dated November 14, 2013, by and between Safety Quick Light LLC and Safety Quick Lighting & Fans Corp.
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(2)
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10.7
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Assignment,
dated November 14, 2013, by and between Ran Kohen and Safety Quick Lighting & Fans Corp.
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(2)
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10.8
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Assignment,
dated November 13, 2013, by and between Ran Kohen and Safety Quick Lighting & Fans Corp.
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(2)
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10.9
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Patent
Assignment, dated November 14, 2013, by and between Safety Quick Light Ltd. and Safety Quick Lighting & Fans Corp.
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(2)
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10.10
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Trademark
Assignment, dated November 14, 2013, by and between Ran Kohen and Safety Quick Lighting & Fans Corp.
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(2)
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10.11
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Loan
Agreement, dated May 29, 2007, by and between Safety Quick Light LLC and Signature Bank of Georgia.
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(2)
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10.12
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U.S.
Small Business Administration Note, dated May 29, 2007, by and between Safety Quick Light LLC and Signature Bank of Georgia.
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(2)
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10.13
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Allonge
Modifying Note, dated August 30, 2012, by and between Safety Quick Light LLC and Signature Bank of Georgia.
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(2)
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10.14
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Consent
Agreement, dated as of November 14, 2013, by and between Safety Quick Lighting & Fans Corp., Patricia Barron, Ran Roland
Kohan, and Signature Bank of Georgia.
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(2)
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10.15
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Amendment
No. 1 to Consent Agreement, dated as of November 21, 2013, by and between Safety Quick Lighting & Fans Corp., Patricia
Barron, Ran Roland Kohan, and Signature Bank of Georgia.
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(2)
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10.16
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Form of Agreement
and Waiver, dated December 10, 2014, between the Registrant and 2012 Investors.
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(4)
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10.17
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Form of Letter
Agreement to Convert, dated January 23, 2014, between the Registrant and holders of Notes dated November 26, 2013.
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(4)
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10.18
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Form of Letter
Agreement to Convert, dated January 23, 2014, between the Registrant and holders of Notes dated May 8, 2014.
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(4)
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10.19
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DSI Marketing
Agreement.
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(2)
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10.20
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Consulting Agreement,
dated as of November 1, 2013, by and between Safety Quick Lighting & Fans Corp. and Rani Kohen.
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(2)
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10.21
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Agreement and
Mutual Release and Waiver, dated November 21, 2014, between the Company and James R. Hills.
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(3)
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10.22
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Executive Employment
Agreement, dated November 21, 2014, between the Company and John P. Campi.
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(3)
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10.23
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Office Lease,
dated as of December 17, 2013, by and between Metzler One Buckhead Plaza, L.P. and Safety Quick Light LLC.
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(2)
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10.24
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Office Lease dated
October 24, 2014 between the Company and Highwoods DLF 98/29, LLC.
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(4)
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10.25
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Sublease Agreement
dated October 15, 2014 between the Company and Stableford Capital, LLC.
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(4)
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10.26
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Form
of Agreement and Waiver, dated December 10, 2014, between the Registrant and 2012 Investors.
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(4)
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10.27
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Form of Letter
Agreement to Convert, dated January 23, 2014, between the Registrant and holders of Notes dated November 26, 2013.
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(4)
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10.28
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Form of Letter
Agreement to Convert, dated January 23, 2014, between the Registrant and holders of Notes dated May 8, 2014.
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(4)
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10.29
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Forms of Securities
Subscription Agreements for U.S. Persons and Non-US Persons ad Registration Rights Agreement utilized in the May 2015 Stock
Offering.
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(5)
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10.30
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Forms of Securities
Subscription Agreements for U.S. Persons and Non-US Persons ad Registration Rights Agreement utilized in the November 2015
Stock Offering.
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(5)
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10.31
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Director Compensation
Policy.
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(5)
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10.32
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Form of November
2015 Election Letter and Forbearance Agreement.
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(5)
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10.33
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Consulting Agreement,
dated June 1, 2015, between the Company and Mark Wells.
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(5)
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10.34
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The 2015 Stock
Incentive Plan.
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(6)
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10.35
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Form of February
2016 Forbearance Agreement.
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(6)
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10.36
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Form of Securities
Subscription Agreement and Common Stock Purchase Warrant used in the April 2016 Stock Sale.
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(7)
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10.37
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Form of Securities
Subscription Agreement, including the terms to issue Volume Warrants, and form of Common Stock Purchase Warrant used in the
May 2016 Private Placement.
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(8)
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10.38
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Certificate Of
Designation of Rights, Preferences and Privileges lf Series A Preferred Stock
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(9)
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10.39
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Form of May 2016 Forbearance Agreement
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(1)
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21.1
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List of Subsidiaries.
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(6)
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23.1
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Consent of Thompson Hine LLP
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(5)
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23.2
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Consent of L&L CPAS, PA, f/k/a Bongiovanni & Associates, PA.
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(1)
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________________________
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(2)
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Incorporated
by reference from the Company’s Registration Statement on Form S-1 filed with the
SEC on August 1, 2014, and declared effective on October 22, 2014.
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(3)
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Incorporated
by reference from the Company’s Current Report on Form 8-K filed with the SEC on
November 26, 2014.
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(4)
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Incorporated
by reference from the Company’s Annual Report on Form 10-K filed with the SEC on
March 31, 2015.
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(5)
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Incorporated
by reference from the Company’s Registration Statement on Form S-1 filed with the
SEC on January 11, 2016, and declared effective on January 20, 2016.
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(6)
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Incorporated
by reference from the Company’s Annual Report on Form 10-K filed with the SEC on
March 30, 2016.
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(7)
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Incorporated
by reference from the Company’s Current Report on Form 8-K filed with the SEC on
April 7, 2016.
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(8)
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Incorporated
by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC
on May 16, 2016.
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(9)
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Incorporated
by reference from the Company’s Definitive Information Statement on Schedule 14C
filed with the SEC on July 11, 2016.
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