This Post-Effective Amendment No. 2 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, as amended
by Post-Effective Amendment No. 1 to the Registration Statement on July 20, 2016 (the or this “Registration Statement”).
This Post-Effective Amendment No. 2 to the Registration Statement is being filed 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, 2016, that was filed with the SEC on March 31, 2017 and the Company’s Quarterly Report
on Form 10-Q for the period ending June 30, 2016, that was filed with the SEC on August 14, 2017.
TABLE
OF CONTENTS
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 SQL Technologies Corp.
Our
Company and Products
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.” and effective August 12, 2016,
changed its name to “SQL Technologies Corp.” 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 offices in Georgia, Florida and in Foshan, Peoples Republic of China.
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.
The SQL Technology is basically characterized
as 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. 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, is licensed by GE and achieved National Electrical Code (NEC) (or
NFPA 70) status in its 2017 edition.
We are also developing smart home technology
applications for products using the SQL Technology called “Smart SQL”, which incorporate Bluetooth and Wi-Fi capabilities
to enable remote control and automation of such products and appliances. The Company believes that the combination of its quick
connect technology, the inclusion of Smart SQL and its growing product lines will uniquely position the Company in the marketplace.
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 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. With
the achievement of the License Agreement (as defined below) with General Electric, our management team determined that it could
improve its gross margins if it were to market light fixtures and ceiling fans with the SQL Technology already installed on fixtures,
instead of marketing the SQL Technology as an add-on device. Our management team also determined that it might be necessary to
offer light fixtures and ceiling fans under the License Agreement without the SQL Technology for initial orders from big box retailers,
to achieve acceptance as a supplier and to provide retailers time to determine market demand for the GE labeled products (collectively,
our “Business Model”). 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.
In furtherance of our Business Model, Company
management 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, 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 Company also 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., which was thereafter acquired by NBG Home, a leading global designer, manufacturer and marketer of home décor
products. Under the terms of the agreement, which remains in effect, Design Solutions International, Inc.serves as the Company’s
exclusive sales representative for all its products and goods in the United States and Canada. In addition, 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 begin implementation of its Business Model pursuant to the Notes Offering (as defined below), and
during 2015, 2016 and 2017, through the Stock Offerings (as defined below) and additional private sales, the Company obtained additional
capital resources to further implement its Business Model.
On September 15, 2015, the Financial Industry
Regulatory Authority 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.
Beginning in 2015 and throughout 2016,
we began building our sales and marketing team by hiring electronic and lighting industry executives, many of whom had previously
worked at General Electric. Also, during 2016, the Company continued to expand its staff and team of engineers to develop the SQL
Technology and Smart SQL.
The Company is registering
up to 4,582,666 shares of 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 265, 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 Common Stock by the selling security holders.
|
|
|
|
Terms
of offering
|
|
The
selling security holders will determine when and how they will sell Common Stock offered in this prospectus.
|
|
|
|
Common
stock issued and outstanding as of this prospectus
|
|
49,042,833
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 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 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 or Common Stock will trade, or the liquidity of a public market for Common Stock, should
one develop.
|
The
number of shares of our Common Stock issued and outstanding is as of September 5, 2017, and includes the shares of Common Stock
being registered hereunder. The number of shares of our Common Stock outstanding before and after the offering excludes:
|
●
|
Up
to 13,456,936 shares of Common Stock that are issuable upon the conversion of shares
of the Company’s Series A Convertible Preferred Stock (“Preferred Stock”);
|
|
●
|
Up
to 3,185,000 shares of Common Stock that have vested and are issuable upon the exercise
of options issued pursuant to grants under our Incentive Plan, and up to up to 925,000
shares of our Common Stock that have not vested, but will become issuable the exercise
of options issued pursuant to grants under our Incentive Plan;
|
|
●
|
Up
to 765,000 shares of Common Stock that are issuable upon the exercise of options;
|
|
●
|
Up
to 11,948,984 shares of Common Stock that are issuable upon the exercise of our currently
outstanding warrants to purchase shares of Common Stock, with a weighted average exercise
price of $0.89 per share.
|
Beginning
in May 2015, we conducted an offering of up to $4,000,000 of restricted shares of Common Stock (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 initiated an offering of up to $2,000,000 of restricted shares of Common Stock (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 and ended 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 Company filed timely and no such filing default
penalty was incurred. The 2015 Registration Rights Agreement shall collectively refer to substantively identical registration
rights agreements entered into in both Stock Offerings.
The
Company received the first subscriptions in connection with the May 2015 Stock Offering in May 2015. 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 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 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 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.
The
Company received the first subscriptions in connection with the November 2015 Stock Offering in December 2015. 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 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 Common Stock. The November 2015 Stock Offering ended on February 19, 2016, resulting
in aggregate gross proceeds to the Company of $800,000.
All
capitalized terms referenced above have the meanings given to such terms as defined in this prospectus.
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, 2015
|
|
|
For
the year ended
December
31, 2016
|
|
Revenue
|
|
$
|
2,885,007
|
|
|
$
|
7,014,978
|
|
Loss from Operations
(1)
|
|
$
|
(4,828,992
|
)
|
|
$
|
(5,987,772
|
)
|
Other Income/(Expense)
(2)
|
|
$
|
(22,061,219
|
)
|
|
$
|
(92,460,086
|
)
|
Net Income/(Loss)
(1) (3)
|
|
$
|
(26,890,210
|
)
|
|
$
|
(98,447,858
|
)
|
Balance
Sheet Data
|
|
December 31, 2015
|
|
|
December 31, 2016
|
|
Current Assets
|
|
$
|
985,028
|
|
|
$
|
7,364,989
|
|
Total Assets
|
|
$
|
8,399,788
|
|
|
$
|
12,462,867
|
|
Total Liability
(3)
|
|
$
|
41,149,195
|
|
|
$
|
40,160,536
|
|
Total Stockholders’ (Deficit)
(1) (3)
|
|
$
|
(32,749,407
|
)
|
|
$
|
(72,091,238
|
)
|
|
(1)
|
Includes
the amortization of the trademark license under the GE Agreement of $2,441,471 in 2015 and $2,448,162 in 2016.
|
|
(2)
|
Includes
a change in fair value of derivative liabilities of $19,416,295 in 2015 and of $43,634,481 in 2016.
|
|
(3)
|
Includes
$24,157,838 in derivative liabilities, and $11,795,855 in trademark license obligations under the GE Agreement in 2015 and
$43,634,481 in 2016.
|
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.
Since
its inception, the Company has not produced an operating profit or net income. From inception to date the company’s accumulated
deficit is $141,182,294. 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.
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:
■
|
|
signing with strategic
distribution partners with established retail and wholesale relationships;
|
■
|
|
the continued development
of our business;
|
■
|
|
the hiring, training,
and retention of competent personnel;
|
■
|
|
the ability to design
products that generates customer demand;
|
■
|
|
the ability to enhance
our operational, financial, and management systems;
|
■
|
|
the availability
of adequate financing;
|
■
|
|
competitive factors;
and
|
■
|
|
general economic
and business conditions.
|
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 SQL Technology.
Our future success depends on the market acceptance
of our proprietary SQL 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:
■
|
|
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;
|
■
|
|
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;
|
■
|
|
the need to estimate
accurately the resources and cost structure required to service a contract; and
|
■
|
|
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.
|
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:
■
|
|
changes
in, or interpretations of, laws and regulations including changes in accounting standards and taxation requirements;
|
■
|
|
changes in the rate
of inflation, interest rates and the performance of investments held by us;
|
■
|
|
changes in the creditworthiness
of counterparties that transact business with;
|
■
|
|
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;
|
■
|
|
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;
|
■
|
|
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;
|
■
|
|
changes in credit
markets impacting our ability to obtain financing for our business operations; or
|
■
|
|
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.
|
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 61,837,753 shares have been 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 approximately 85% of our current issued and outstanding shares of our Common Stock, as well as Common
Stock underlying certain options, warrants and Preferred Stock. 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 Preferred Stock and exercise of warrants and options to
purchase shares of our Common Stock
.
We
currently have outstanding Preferred Stock convertible into 13,456,936 shares of our Common Stock. Further, we currently have
outstanding warrants and vested options to purchase up to an aggregate of 15,898,984 shares of our Common Stock. Accordingly,
if such Preferred Stock, 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 the Preferred Stock, 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, 2016. The table should be read in conjunction
with the consolidated financial statements and related notes included elsewhere in this prospectus:
|
|
As of
December 31, 2016
|
|
Stockholders’
Deficit:
|
|
|
|
|
Common
stock, no par value;
|
|
$
|
12,294,391
|
|
Common stock to be
issued
|
|
|
—
|
|
Additional paid-in
capital
|
|
|
56,910,107
|
|
Accumulated deficit
|
|
|
(141,182,294
|
)
|
Total
stockholders’ deficit
|
|
$
|
(72,055,796
|
)
|
Noncontrolling
interest
|
|
|
(35,442
|
)
|
Total
Deficit
|
|
$
|
(72,091,238
|
)
|
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 our 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 September 5, 2017, there were 104 holders of record of Common Stock and 28 holders of record of Preferred Stock.
As
of September 5, 2017, 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 September 5, 2017, there were 49,042,833 shares of Common Stock issued and outstanding
and 13,456,936 shares of Preferred Stock issued and oustanding.
In
addition, as of September 5, 2017, (i) up to 13,456,936 shares of Common Stock are issuable upon the conversion of shares of Preferred
Stock; (ii) up to 3,185,000 shares of Common Stock that have vested and are issuable upon the exercise of options issued pursuant
to grants under our Incentive Plan, and up to 925,000 shares of our Common Stock that have not vested, but will become issuable
the exercise of options issued pursuant to grants under our Incentive Plan; (iii) up to 765,000 shares of Common Stock are issuable
upon the exercise of options; and (iv) up to 11,948,984 shares of Common Stock are issuable upon the exercise of our currently
outstanding warrants to purchase shares of Common Stock. In addition, grants of up to 1,700,000 options to purchase shares of
our Common Stock, vesting in part immediately and entirely by December 31, 2019 have been authorized by the Board under the Incentive
Plan, but have not yet been issued, and certain volume warrants to purchase up to 1,470,000 shares of our Common Stock are issuable
upon the occurrence of certain events, as described in subsection “The 2016 Stock Sales” of section “Other Notable
Security Issuances” of this prospectus.
Our
outstanding warrants to purchase shares of Common Stock have a weighted average exercise price of $0.89 per share and expire on
dates ranging from September 3, 2018 to January 1, 2022. Our outstanding issued options were issued under our Incentive Plan,
have exercise prices ranging from $0.60 per share to $4.00 per share and expire on November 15, 2025 or April 18, 2027. All other
outstanding issued options have exercise prices ranging from $0.375 per share to $3.00 per share and expire on dates ranging from
September 3, 2018 to April 11, 2022.
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 our Common Stock 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 our Common Stock 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 ended 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.
The
Company received the first subscriptions in connection with the May 2015 Stock Offering in May 2015. 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 our 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 our Common Stock in connection therewith. On November 6, 2015, the Company completed a third 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 our 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.
The
Company received the first subscriptions in connection with the November 2015 Stock Offering in December 2015. 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 our 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 our Common Stock. The November 2015 Stock Offering ended on March 31, 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
In
2013 and 2014, the Company obtained capital resources necessary to begin implementation of its Business Model pursuant to the
Notes Offering (as defined below), and during 2015, 2016 and 2017, through the Stock Offering and additional private sales, the
Company obtained additional capital resources to further implement its Business Model.
The
Notes Offering; Issuance of Series A Preferred Stock
From
November 2013 through June 2014, the Company raised capital resources pursuant to an offering (the “Notes Offering”)
of its 12% and 15% Secured Convertible Promissory Notes, convertible into shares of Common Stock at $0.25 per share (each a “Note”
and collectively, the “Notes”), and five year warrants to purchase shares of Common Stock at $0.375 per share (each
a “Note Warrant” and collectively, the “Note Warrants”). On November 26, 2013, May 8, 2014 and June 25,
2014 we concluded closings of the Notes Offering with certain accredited investors (which in all cases herein, is as defined under
Regulation D, Rule 501 of the Securities Act), in the aggregate principal amount of $4,270,100. Investors in the Notes Offering
also received registration rights, whereby the Company agreed to prepare and file a registration statement registering the shares
underlying the Notes and Note Warrants within sixty (60) days after the applicable closing, and to cause such registration statement
declared effective by the SEC within ninety (90) days thereafter (the “Note RRAs”).
Notes
Offering Related Issuances
Pursuant
to a letter agreement, dated January 23, 2015, between the Company and most holders of the November 26, 2013 and May 8, 2014 Notes,
the Company issued 2,343,191 shares of Common Stock upon conversion of the following amounts, as applicable, at a price of $0.25
per share: (i) penalties accrued under the Note RRAs, because the Company was unable to file a registration statement and to have
it declared effective on time, pursuant to the terms of the Note RRAs dated as of November 26, 2013 or May 8, 2014; (ii) interest
accrued pursuant to an Agreement and Waiver, dated December 11, 2014, between the Company and most holders of the November 26,
2013 Notes, which extended the due date for the first interest payment under such holders’ Notes for 90 days, in exchange
for capitalization of such interest due at a rate of 12% per annum; and (iii) the first interest payment due under each such holder’s
November 26, 2013 Note (the “Interest and Penalty Issuances”).
Forbearance
Between
November 2015 and July 2016, most holders of the Notes agreed to forbear making an election under their respective Notes until
(ultimately) August 15, 2016, pursuant to one or more forbearance agreements, as applicable, during such time interest under their
respective Notes continued to accrue. Interest amounts due through August 15, 2016 were paid in full by such date.
Notes
Elections and the August 2016 Series A Convertible Preferred Stock Election
In
July 2016, the Company requested that each holder of Notes indicate its election to (i) redeem its Note, (ii) convert its Note
into shares of Common Stock or (iii) convert its Note into shares of Class A Preferred Stock (the “Preferred Option”),
in each case by August 15, 2016. For those holders electing the Preferred Option, each holder received shares of Class A Preferred
Stock on a 1 to 1 ratio to the number of shares of Common Stock which were then convertible as unpaid principal under such holder’s
respective Note. The Class A Preferred Stock is convertible into shares of Common Stock at the same conversion price as the Notes
(i.e., USD $0.25 per share), and pays interest quarterly at a rate of six percent (6%). The Class A Preferred Stock will be convertible
upon the election of the holder thereof.
Each
holder electing the Preferred Option entered into an amendment to its Note, providing that the Note is convertible into shares
of Preferred Stock, rather than shares of Common Stock (the “Note Amendment”). In addition, each holder entered into
a lock-up agreement, whereby such holder agreed not to offer, sell, contract to sell, pledge, give, donate, transfer or otherwise
dispose of (i) the shares of Common Stock it then held, (ii) the shares of Preferred Stock obtained upon conversion of its Note,
and (iii) the shares of Common Stock underlying the Preferred Stock. More than a majority of the holders of the then-outstanding
Notes entered into the Note Amendment or otherwise consented to the Note Amendment, and the Note Amendments, conversion to Preferred
Stock and lock-up agreement were entered into effective as of August 15, 2016. The lock-up agreement expired on August 15, 2017.
Prior
to the August 2016 Election, several holders of the Notes had previously elected to receive payment in cash, or convert their
Notes into shares of Common Stock, but most Notes remained outstanding. Pursuant to elections received and effective as of August
15, 2016, the Company thereafter redeemed or issued shares of Common Stock or Preferred Stock, as applicable, in exchange for
the principal balance of the Notes, as follows: (i) the payment of, in the aggregate, $200,000 in principal balance of two Notes;
(ii) the issuance of 240,000 shares of Common Stock, representing $60,000 in outstanding Note principal balance; and (iii) the
issuance of 13,456,936 shares of Preferred Stock, representing $3,364,234 in outstanding Note principal balance.
The
2016 Stock Sales
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 Common Stock at a purchase price of $2.50 per share (the “April 2016 Stock Sale”).
In addition, the Company issued to the investor a one-year warrant to purchase up to 1,666,667 shares of Common Stock at an exercise
price of $3.00 per share. On March 24, 2017, such warrant was exercised in full, and the Company issued 1,666,667 shares of Common
Stock.
On
May 10, 2016, the Company entered into a securities subscription agreement with an accredited investor, pursuant to which the
Company sold (i) 675,000 shares of Common Stock at a purchase price of $2.60 per share; (ii) a three-year warrant to purchase
up to 1,350,000 shares of Common Stock at an exercise price ranging between $3.00 and $3.50 per share (depending on the date of
exercise); and (iii) a right to subsequently receive Volume Warrants to purchase up to 1,350,000 shares of Common Stock at $3.00
per share (the “May 2016 Stock Sale”).
On
September 22, 2016, the Company entered into a securities subscription agreement with an accredited investor, pursuant to which
the Company sold (i) 30,000 shares of Common Stock at a purchase price of $2.60 per share, (ii) an option to purchase an additional
30,000 shares of Common Stock at a purchase price of $2.60 per share within 90 days (the “September 2016 Option Agreement”),
(iii) a three-year warrant to purchase up to 60,000 shares of Common Stock (or 120,000 shares if the option in item (ii) is exercised)
at an exercise price ranging between $3.00 and $3.50 per share (depending on the date of exercise), and (iii) a right to subsequently
receive Volume Warrants to purchase up to 120,000 shares of Common Stock at $3.00 per share (the “September 2016 Stock Sale”).
On May 11, 2017, the Company issued 30,000 shares of Common Stock in connection with the full exercise of the September 2016 Option
Agreement, pursuant to which it received gross proceeds of $78,000. In connection therewith, the Company issued an additional
three-year warrant to purchase up to 60,000 shares of Common Stock at an exercise price ranging between $3.00 and $3.50 per share
(depending on the date of exercise).
“Volume
Warrants” refer to unissued warrants that will only become issuable upon (i) the Company meeting specified thresholds based
on the Company generating earnings before interest, taxes, depreciation and amortization (EBITDA) in a fiscal year during the
warrant term, (ii) completion of a private placement of a minimum of $15,000,000 at specified pre-money valuation thresholds,
or (iii) the sale of at least fifty percent (50%) of the Company’s assets at pre-money valuation thresholds ranging from
$350,000,000 to $1,000,000,000.
Also
on September 22, 2016, the Company issued 150,000 shares of Common Stock to an accredited investor for a price of $2.70 per share
(the “Second September 2016 Stock Sale”). In connection with the sale, the Company granted warrants to purchase up
to 750,000 shares of Common Stock exercisable at a price per share of $3.00 per share, which expire on January 1, 2022.
The
April 2016 Stock Sale resulted in aggregate gross proceeds to the Company of $10,000,000. The May 2016 Stock Sale resulted in
aggregate gross proceeds to the Company of $1,755,000 and the September 2016 Stock Sale resulted in aggregate gross proceeds to
the Company of $156,000. In addition, the Company could receive up to an amount between $4,745,500 and $5,145,000 in gross proceeds
upon exercise of warrants issued in May 2016 Stock Sale and September 2016 Stock Sale, depending on the timing of such exercise,
and could receive additional proceeds of up to $4,410,000, if all the Volume Warrants are subsequently issued and fully exercised
by the holder thereof. The Second September 2016 Stock Sale resulted in aggregate gross proceeds to the Company of $405,000.
The
April 2016 Stock Sale, May 2016 Stock Sale, September 2016 Stock Sale and Second September 2016 Stock Sale shall hereinafter be
referred to as the “2016 Stock Sales”. The 2016 Stock Sales to date have resulted in aggregate gross proceeds to the
Company of $12,316,000. The Company did not utilize the services of, or pay any commissions to, a broker-dealer or third party
in connection with the 2016 Stock Sales.
The
2017 Stock Sales
On
February 21, 2017, the Company entered into a securities subscription agreement with an accredited investor, whereby such investor
subscribed for and received 20,000 shares of Common Stock for $3.00 per share and a five-year option to purchase up to 100,000
shares of Common Stock at $3.00 per share. On February 23, 2017, the Company received gross proceeds of $60,000 from the subscriber,
and on May 2, 2017, the Company issued 20,000 shares of Common Stock pursuant thereto.
On
March 24, 2017, the Company entered into a securities subscription agreement with an accredited investor, whereby such investor
subscribed for and received 33,000 shares of Common Stock for $3.00 per share and a five-year option to purchase up to 165,000
shares of Common Stock at $3.00 per share. On March 24, 2017, the Company received gross proceeds of $99,000 from the subscriber,
and on May 2, 2017, the Company issued 33,000 shares of Common Stock pursuant thereto.
On
April 11, 2017, the Company entered into a securities subscription agreement with an accredited investor, whereby such investor
subscribed for and received 16,666 shares of Common Stock for $3.00 per share and a five-year option to purchase up to 50,000
shares of Common Stock at $3.00 per share. On April 4, 2017, the Company received gross proceeds of $50,000 from the subscriber,
and on May 2, 2017, the Company issued 16,666 shares of Common Stock pursuant thereto.
The
sales made in connection with securities subscription agreements dated February 21, 2017, March 24, 2017 and April 11, 2017 shall
hereinafter be referred to as the “2017 Stock Sales”. The 2017 Stock Sales resulted in aggregate gross proceeds to
the Company of $209,000. The Company did not utilize the services of, or pay any commissions to, a broker-dealer or third party
in connection with the 2017 Stock Sales.
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 September 5, 2017, 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 49,042,833 shares of our Common Stock issued
and outstanding as of September 5, 2017. 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
|
|
|
|
24.93
|
%
|
|
Director
|
Christopher Davis
|
|
|
(2
|
)
|
|
|
1,135,182
|
|
|
|
516,666
|
|
|
|
618,516
|
|
|
|
1.25
|
%
|
|
|
John P. Campi
|
|
|
(3
|
)
|
|
|
1,050,000
|
|
|
|
300,000
|
|
|
|
750,000
|
|
|
|
1.53
|
%
|
|
President and CEO
|
LeFam Family Limited Partnership
|
|
|
(4
|
)
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Sandeep Gauba
|
|
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Serge Kremer
|
|
|
(5
|
)
|
|
|
788,246
|
|
|
|
170,000
|
|
|
|
618,246
|
|
|
|
1.25
|
%
|
|
|
Tariq Masood
|
|
|
(6
|
)
|
|
|
785,944
|
|
|
|
170,000
|
|
|
|
615,944
|
|
|
|
1.24
|
%
|
|
|
Fortuny LLC
|
|
|
(7
|
)
|
|
|
166,666
|
|
|
|
166,666
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Martin Thirer & Meg Thirer TEN ENT
|
|
|
|
|
|
|
150,000
|
|
|
|
130,000
|
|
|
|
20,000
|
|
|
|
—
|
|
|
|
Keith Wilson & Terry Wilson JTWROS
|
|
|
|
|
|
|
116,667
|
|
|
|
116,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Keith Weitzman
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Ivan Mark Chaitowitz
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Jonathan Sieff
|
|
|
|
|
|
|
84,000
|
|
|
|
84,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Steven Siegelaub & Deborah Siegelaub TEN ENT
|
|
|
(8
|
)
|
|
|
183,333
|
|
|
|
83,333
|
|
|
|
100,000
|
|
|
|
*
|
|
|
|
Steven E. Harris
|
|
|
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Michael and Andrea Perrillo TBET
|
|
|
(9
|
)
|
|
|
755,000
|
|
|
|
75,000
|
|
|
|
680,000
|
|
|
|
1.37
|
%
|
|
Consultant
|
Eric Varkel
|
|
|
|
|
|
|
60,000
|
|
|
|
60,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Yosi Amster
|
|
|
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Leonard J. Sokolow
|
|
|
(10
|
)
|
|
|
262,000
|
|
|
|
50,000
|
|
|
|
212,000
|
|
|
|
*
|
|
|
Director
|
Dirk Horn
|
|
|
(11
|
)
|
|
|
349,973
|
|
|
|
42,000
|
|
|
|
307,973
|
|
|
|
*
|
|
|
|
Wright/Phillips Living Trust U/A DTD 10/10/2014
|
|
|
(12
|
)
|
|
|
817,070
|
|
|
|
41,667
|
|
|
|
775,403
|
|
|
|
1.56
|
%
|
|
|
Frank Esposito
|
|
|
|
|
|
|
41,667
|
|
|
|
41,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Ryan A. Engh Trustee, RARW Common Property Trust Dated 8/11/2016
|
|
|
(13
|
)
|
|
|
586,036
|
|
|
|
33,333
|
|
|
|
552,703
|
|
|
|
1.12
|
%
|
|
|
The Feldman Family Trust
|
|
|
(12
|
)
|
|
|
404,370
|
|
|
|
16,667
|
|
|
|
387,703
|
|
|
|
*
|
|
|
|
James R. Campi
|
|
|
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Brother of John P. Campi
|
Joseph H. Kraus
|
|
|
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Richard J. Saia & Julia F Saia JTWROS
|
|
|
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Christina M. Belli & Leonard P. Belli JTWROS
|
|
|
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Daughter and Son-In-Law of John P. Campi
|
John E. Campi
|
|
|
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Son of John P. Campi
|
|
*
|
Less than 1%.
|
|
(a)
|
Based on the information
provided by our selling security holders and/or our stock transfer records as of September 5, 2017, 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 Note Warrants and (iii) 2,600,000 shares of Common Stock issuable
upon the conversion of shares of Preferred Stock.
|
|
(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 Note Warrants and (iii) 400,000 shares of Common Stock
issuable upon the conversion of shares of Preferred Stock.
|
|
(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 an executive employment agreement, (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 Note Warrants and (iii) 400,000 shares of Common Stock
issuable upon the conversion of shares of Preferred Stock.
|
|
(6)
|
The 785,944 shares
of Common Stock include (i) 285,944 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 Note Warrants and (iii) 400,000 shares of Common Stock
issuable upon the conversion of shares of Preferred Stock.
|
|
(7)
|
Mr. Harry C. Mills
Scio, as the Sole Member of Fortuny LLC, has voting power and dispositive control over these shares.
|
|
(8)
|
The 183,333 shares
of Common Stock include (i) 83,333 shares of Common Stock, all of which were obtained pursuant to the May 2015 Stock Offering
and (ii) 100,000 shares of Common Stock issuable upon the exercise options.
|
|
(9)
|
The 755,000 shares
of Common Stock include (i) 75,000 shares of Common Stock, all of which were obtained pursuant to the November 2015 Stock
Offering, (ii) 180,000 shares of Common Stock issuable upon the exercise options, (iii) 100,000 shares of Common Stock issuable
upon exercise of Note Warrants and (iv) 400,000 shares of Common Stock issuable upon the conversion of shares of Preferred
Stock.
|
|
(10)
|
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.
|
|
(11)
|
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 the conversion of shares of Preferred Stock and (iii) 50,000 shares
of Common Stock issuable upon exercise of Note Warrants.
|
|
(12)
|
Mr. Donald Wright,
as Trustee of the Wright/Phillips Living Trust, has voting power and dispositive control over these shares. 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 the conversion of shares of Preferred Stock and (iii)
260,000 shares of Common Stock issuable upon exercise of Note Warrants.
|
|
(13)
|
Mr. Ryan A. Engh,
as Trustee of the RARW Common Property Trust, has voting power and dispositive control over these shares. 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 Note Warrants and (iii) 300,000 shares of Common
Stock issuable upon the conversion of shares of Preferred Stock.
|
|
(14)
|
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 Note Warrants and (iii)
200,000 shares of Common Stock issuable upon the conversion of shares of Preferred Stock.
|
|
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 of light
fixtures and ceiling fans, into ceilings and walls by the use of a weight bearing power plug. 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, pursuant to a License Agreement between us and General Electric). Our ceiling fans and
lighting fixtures are manufactured by several well established factories in the 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. Our ceiling
fans and lighting fixtures offer unique designs, and are manufactured with and without the SQL Technology.
In
December 2016, the SQL Technology was in included the 2017 National Electrical Code (NEC).
The
Company is also developing smart home technology applications for products using the SQL Technology called “Smart SQL”,
which incorporate Bluetooth and Wi-Fi capabilities to enable remote control and automation of such products and appliances. The
Company believes that the combination of its quick connect technology, the inclusion of Smart SQL and its growing product lines
will uniquely position the Company in the marketplace.
Results
of Operations - For the Year Ended December 31, 2016 compared to the Year Ended December 31, 2015
|
|
For the years ended
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
7,014,978
|
|
|
$
|
2,885,007
|
|
|
$
|
4,129,971
|
|
|
|
143.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(6,136,395
|
)
|
|
|
(2,477,252
|
)
|
|
|
(3,659,143
|
)
|
|
|
147.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
878,583
|
|
|
|
407,755
|
|
|
|
470,828
|
|
|
|
115.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(6,866,355
|
)
|
|
|
(5,236,747
|
)
|
|
|
1,629,608
|
|
|
|
31.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(5,987,772
|
)
|
|
|
(4,828,992
|
)
|
|
|
(1,158,780
|
)
|
|
|
24.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income / (Expense)
|
|
|
(92,460,085
|
)
|
|
|
(22,061,218
|
)
|
|
|
(70,398,867
|
)
|
|
|
319.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(98,447,857
|
)
|
|
$
|
(26,890,210
|
)
|
|
$
|
(71,557,647
|
)
|
|
|
266.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.
|
|
Net loss per share - basic and diluted
|
|
|
(2.60
|
)
|
|
|
(0.76
|
)
|
|
|
(1.85
|
)
|
|
|
243.4
|
%
|
Revenue
We
had recorded revenue of $7,014,978 for the year ended December 31, 2016, as compared to revenue of $2,885,007 for the year ended
December 31, 2015. The 143.2% increase in revenue was associated with additional SKU’s offered and increased sales activity
with existing customers. Sales increased through all sales channels, including internet sales for our customers.
Cost
of Sales
We
had a cost of sales of $6,136,395 for the year ended December 31, 2016, as compared to a cost of sales of $2,477,252 for the year
ended December 31, 2015. The increase in cost of sales was associated with expanded offering and increase in sales noted above.
Gross
Profit
We
had gross profit of $878,583 for the year ended December 31, 2016, as compared to gross profit of $407,755 for the year ended
December 31, 2015. The gross profit as a percent of sales was 12.5% in 2016, as compared with 14.1% in 2015. This change in gross
profit as a percent of sales is primarily due to the introduction of new SKU’s into the market place. Gross Profit as a
percent of sales materially improved as the year progressed.
General
and Administrative Expenses
General
and administrative expense increased $1,629,608 during the year ended December 31, 2016 to $6,866,355, from $5,236,747 for
the year ended December 31, 2015.
The
increases in the general and administrative expenses were primarily due to additional business activity including:
|
■
|
$857,100
Consulting expenses, $769,000 paid with equity, for business and web activities
|
|
■
|
$261,300 Warehouse
and product quality/production oversite
|
|
■
|
$118,800 Commission
expense associated with increased sales
|
|
■
|
$98,400 Tooling
and trade for manufacturing quality reviews
|
|
■
|
$85,600 Payroll
and related expenses
|
|
■
|
$65,700 Insurance
for liability, Directors and Officers and Health
|
|
■
|
$56,000 Facility
rent expense
|
|
■
|
$49,800 Increased
travel
|
|
■
|
$40,900 Marketing
expense
|
Offsetting
the above expenses was a $35,200 decrease in Accounting and Legal fees.
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)
Total
other expenses of $92,460,085 represent the following:
|
■
|
($41,129,336)
non-cash loss on the conversion of convertible debt to preferred shares and common shares. The shares exchanged for the debt
were valued at $3.40 per share, the closing price closest to the conversion option date.
|
|
■
|
($43,634,482) non-cash
derivative expense on outstanding warrants, as a result of the share value increasing from $1.00 to $2.00, based on the Company’s
recent OTC closing price of Common Stock and the impact on the Black Scholes calculation of the intrinsic value of the equity
component.
|
|
■
|
($9,678,390) in
non-cash derivative expense associated with the fair value of options granted and warrants issued during the 2016.
|
These
non-cash charges to Other Income/(Expense) were partially offset by a decrease in interest payments of $1,874,652 due to the maturity
of the convertible debt instruments, and by a $2,949,714 non-cash gain on debt extinguishment.
Net
Loss and Net Loss per Share
The
Company’s net loss and net loss per share for the year ended December 31, 2016 was ($98,447,857), or ($2.60) per share,
as compared ($26,890,210), or ($0.76) per share for the year ended December 31, 2015. Given the reasons explained above, our loss
increased by ($71,557,647) for the year ended December 31, 2016.
Results
of Operations - For the Six-Months Ended June 30, 2017 Compared to the Six-Months Ended June 30, 2016
|
|
For
the Six-Months Ended- Unaudited
|
|
|
|
|
|
|
June
30, 2017
|
|
June
30, 2016
|
|
$
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
5,122,097
|
|
|
$
|
3,602,429
|
|
|
$
|
1,519,668
|
|
|
|
42.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
(3,981,226
|
)
|
|
|
(3,254,550
|
)
|
|
|
(726,676
|
)
|
|
|
22.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,140,871
|
|
|
|
347,879
|
|
|
|
792,992
|
|
|
|
228
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
Expenses
|
|
|
3,801,433
|
|
|
|
2,936,443
|
|
|
|
864,990
|
|
|
|
29.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(2,660,562
|
)
|
|
|
(2,588,564
|
)
|
|
|
(71,998
|
)
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income / (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
expenses
|
|
|
(2,259,028
|
)
|
|
|
(4,963,451
|
)
|
|
|
2,704,423
|
|
|
|
(54.5
|
)%
|
Change
in fair value of embedded derivative liabilities
|
|
|
(13,015,170
|
)
|
|
|
(35,461,616
|
)
|
|
|
22,446,446
|
|
|
|
(63.3
|
)%
|
Interest
Expense, Gain (Loss) on debt extinguishment, Other
|
|
|
(1,393,467
|
)
|
|
|
(758,618
|
)
|
|
|
(1,634,849
|
)
|
|
|
83.7
|
%
|
Total
other expense - net
|
|
|
(16,667,665
|
)
|
|
|
(41,183,685
|
)
|
|
|
24,516,020
|
|
|
|
(59.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income / (Loss)
|
|
$
|
(19,328,227
|
)
|
|
$
|
(43,772,249
|
)
|
|
$
|
24,444,022
|
|
|
|
(55.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income / (Loss)
Per Share - basic and diluted
|
|
$
|
(0.40
|
)
|
|
$
|
(1.00
|
)
|
|
$
|
0.60
|
|
|
|
(60.0
|
)%
|
Revenue
We
recorded revenue of $5,122,097 for the six-month period ended June 30, 2017, as compared to revenue of $3,602,429 for the six-month
period ended June 30, 2016. The increase is due to the addition of customer accounts consistent with the Company’s business
plan and represents increased volume and product offering expansion to our existing clients.
Cost
of Sales
We
had a cost of sales of $3,981,226 for the six-month period ended June 30, 2017, as compared to a cost of sales of $3,254,550 for
the six-month period ended June 30, 2016. The increase is associated with the increase in sales and increased product offering.
Gross
Profit
We
had gross profit of $1,140,871 for the six-month period ended June 30, 2017 as compared to gross profit of $347,879 for the six-month
period ended June 30, 2016. As a percent of sales, gross profit was 22.3% and 9.7% for the six-months ended June 30, 2017 and
2016, respectively. The increase in gross profit as a percent of sales is attributable to improved pricing and better volume discounts
on the cost of sales.
General
and Administrative Expenses
General
and administrative expense (G&A) increased $864,990 to $3,801,433 during the six-month period ended June 30, 2017, from $2,936,443
for the six-month period ended June 30, 2016.
The
increase in the general and administrative expenses were due to additional business activity including:
|
■
|
$437,000 Payroll
and related expenses due to additional personnel.
|
|
■
■
|
$197,000
Commission and direct selling expense associated with increased sales.
$128,800
Travel associated with operations, product development and quality.
|
|
■
■
■
■
■
|
$119,000
Marketing costs due to additional campaigns for new products.
$90,000
Trade show participation.
$57,600
Product development, innovation and quality control.
$36,700
Warehouse expense associated with increased inventory.
$30,200
Rent expense associated with former headquarters.
|
These
increases were offset by the following decreases:
|
■
|
$(153,900)
Legal expense, outside accounting and professional fees.
|
|
■
|
$(103,600 )
China expenses due to improved sourcing.
|
Loss
from Operations
Loss
from operations increased $71,998 to $2,660,562 during the six-month period ended June 30, 2017, from $2,588,564 for the six-month
period ended June 30, 2016. The increase was due to an increase in general and administrative expenses, which was partially offset
by an increase in gross profit on sale.
Other
Income (Expense)
Total
other expenses decreased $24,516,020 to $16,667,665 for the six-month period ended June 30, 2017, from a net other expense of
$41,183,685 for the six-month period ended June 30, 2016. The change is associated with a $22,446,446 decrease in the fair value
of the embedded derivative liability and a decrease of $2,704,423 non-cash derivative expense associated with an increase in the
value of our Common Stock from $1.00 to $3.00 per share, and a $1,260,000 loss on the extinguishment of debt. The Company’s
recent private placement of Common Stock impacted the Black Scholes calculation of the intrinsic value of the equity component.
This increase was partially offset by a $620,468 decrease in interest expense.
Net
Income (Loss) and Net Income (Loss) per Share
The
Company’s net loss and net loss per share for the six-month period ended June 30, 2017 was approximately $(19,328,227) and
$(0.40) per share, as compared to the six-month period ended June 30, 2016, where the net loss was approximately $(43,772,249)
and $(1.00) per share, respectively.
Results
of Operations - For the Three-Months Ended June 30, 2017 Compared to the Three-Months Ended June 30, 2016
|
|
For the Three-Months Ended-Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,504,751
|
|
|
$
|
1,854,368
|
|
|
$
|
650,383
|
|
|
|
35.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
(1,969,977
|
)
|
|
|
(1,690,505
|
)
|
|
|
(279,472
|
)
|
|
|
16.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
534,774
|
|
|
|
163,863
|
|
|
|
370,911
|
|
|
|
226.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative Expenses
|
|
|
2,048,351
|
|
|
|
1,508,663
|
|
|
|
539,688
|
|
|
|
35.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(1,513,577
|
)
|
|
|
(1,344,800
|
)
|
|
|
(168,777
|
)
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income / (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative expenses
|
|
|
(197,869
|
)
|
|
|
(4,963,451
|
)
|
|
|
4,765,582
|
|
|
|
(96.0
|
)%
|
Change in fair value of embedded derivative liabilities
|
|
|
502,252
|
|
|
|
(37,458,479
|
)
|
|
|
37,960,731
|
|
|
|
(101.3
|
)%
|
Interest Expense, Gain (Loss) on debt extinguishment, Other
|
|
|
(706,350
|
)
|
|
|
(392,578
|
)
|
|
|
(313,772
|
)
|
|
|
79.9
|
%
|
Total other expense - net
|
|
|
(401,967
|
)
|
|
|
(42,814,508
|
)
|
|
|
42,412,541
|
|
|
|
(99.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income / (Loss)
|
|
$
|
(1,915,544
|
)
|
|
$
|
(44,159,308
|
)
|
|
$
|
42,243,764
|
|
|
|
(95.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income / (Loss) Per Share - basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
0.94
|
|
|
|
(95.9
|
)%
|
Revenue
We
recorded revenue of $2,504,751 for the three-month period ended June 30, 2017, as compared to revenue of $1,854,368 for the three-month
period ended June 30, 2016. The increase is due to the addition of customer accounts consistent with the Company’s business
plan and represents increased volume and product offering expansion to our existing customers.
Cost
of Sales
We
had a cost of sales of $1,969,977 for the three-month period ended June 30, 2017, as compared to a cost of sales of $1,690,505
for the three-month period ended June 30, 2016. The increase is associated with the increase in sales and increased product offering.
Gross
Profit
We
had gross profit of $534,774 for the three-month period ended June 30, 2017 as compared to gross profit of $163,863 for the three-month
period ended June 30, 2016. As a percent of sales, gross profit was 21.4% and 8.8% for the three-months ended June 30, 2017 and
2016, respectively. The increase in gross profit as a percent of sales is attributable to improved pricing and better volume discounts
on the cost of sales.
General
and Administrative Expenses
General
and administrative expense (G&A) increased $539,688 to $2,048,351 during the three-month period ended June 30, 2017, from
$1,508,663 for the three-month period ended June 30, 2016.
The
increase in the general and administrative expenses were due to additional business activity including:
|
■
|
$223,000 Payroll
and related expenses due to additional personnel.
|
|
■
|
$107,300 Product
development and testing for innovation and quality.
|
|
■
|
$77,500 Marketing
costs due to additional campaigns for new products.
|
|
■
|
$76,500 Travel associated
with operations and quality control.
|
|
■
|
$63,800 Direct selling
expenses for channel partners.
|
|
■
|
$42,900 Commission
expense associated with increased sales.
|
|
■
|
$22,200 Insurance
related expenses.
|
These
increases were offset by the following decreases:
|
■
|
$(69,900) China
operation expenses due to improved sourcing.
|
|
■
|
$(32,300) Legal,
outside accounting and professional expenses .
|
Loss
from Operations
Loss
from operations increased $168,777 to $1,513,577 during the three-month period ended June 30, 2017, from $1,344,800 for the three-month
period ended June 30, 2016. The increase was due to an increase in general and administrative expenses, which was partially offset
by a decrease in gross profit on sale.
Other
Income (Expense)
Total
other expenses decreased $42,412,541 to $401,967 for the three-month period ended June 30, 2017, from a net other expense of $42,814,508
for the three-month period ended June 30, 2016. The change is associated with a $37,960,731 decrease in the fair value of the
embedded derivative liability and a decrease of $4,765,582 non-cash derivative expense associated with an increase in the value
of our Common Stock from $1.00 to $3.00 per share, and a $630,000 loss on the extinguishment of debt related to the conversion
of the Company’s debentures into shares of the Company’s Series A Convertible Preferred Stock (“Preferred Stock”).
The Preferred Stock was valued at $3.40 per share. This increase was partially offset by a $315,956 decrease in interest expense.
Net
Income (Loss) and Net Income (Loss) per Share
The
Company’s net loss and net loss per share for the three-month period ended June 30, 2017 was approximately $(1,915,544)
and $(0.04) per share, respectively, as compared to the three-month period ended June 30, 2016, where net loss was approximately
$(44,159,308) and $(0.98) per share, respectively.
Liquidity
and Capital Resources
As
of June 30, 2017 the Company had $7,200,560 in cash on hand. To date, the Company has not generated sufficient revenue to cover
its operating costs and continues to operate with negative cash flow. As a result, the Company has raised additional funds through
the sale of our Common Stock. The Company has also entered into a Line of Credit with a third party which will supply it with
$10,000,000 to support its purchase orders, inventory and other working capital needs. As of June 30, 2017, the Company had $6,662,111
available under the Line of Credit, which expires December 31, 2017. In order for the Company to achieve sufficient working capital
to support its operations and sales growth, the Company may be required to find additional financing to replace the expiring facility
or raise additional capital to fund its working capital needs. It currently has no such financing commitment in place.
For
the six-months ended June 30, 2017, cash flows used for operations was $(2,166,240) as compared with $(4,468,756) used for the
same period in 2016. The Company’s decrease in cash used in operations was due to the higher revenue and higher gross profit
margin, a $356,017 increase in royalty obligations payable on increased sales pursuant to the License Agreement, which were partially
offset by a $504,964 increase in accounts receivable. These amounts were further offset by a decrease of $13,015,171 in non-cash
change in derivative liabilities, a $2,259,028 increase in non-cash derivative expense, a $1,260,000 increase in Loss on Debt
Extinguishment, and a $290,121 increase in accounts payable and accrued expenses.
For
the six-months ended June 30, 2017, the Company used $(105,255) in investing activities as compared with $(30,292) used for the
same period in 2016. The difference was due to the costs of securing patents and acquisition of fixed assets.
For
the six-months ended June 30, 2017, cash flows provided $5,346,167 from financing activities as compared to $9,110,313 for the
same period in 2016. The Company received proceeds of $5,000,000 from the exercise of warrants, $78,000 from the exercise of options,
$287,000 from the issuance of shares of Common Stock. These amounts were offset by $200,000 in principal repayments of certain
convertible promissory notes of the Company and $85,745 paid in dividends to holders of our Preferred Stock.
As
a result of the above operating, investing and financing activities, the Company provided $3,074,672 in cash equivalents for six-months
ended June 30, 2017, as compared with $4,611,265 provided in the same period in 2016. The Company had $7,200,560 and $5,062,133
in cash equivalents for the six-months ended June 30, 2017 and 2016, respectively.
The
Company had a working capital deficit of $(26,162,322) as of June 30, 2017, as compared to $(21,419,526) as of December 31, 2016,
which includes $32,296,078 and $24,083,314 in derivative liabilities for the periods, respectively.
The
Company acquired and is holding $2,627,381 in inventory on its balance sheet at June 30, 2017. This inventory is to support e-commerce
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 electrical 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.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements.
Critical
Accounting Policies and Estimates
For
a discussion of our accounting policies and related items, please see the Notes to the Financial Statements, included in Part
I, Item 1.
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. The Company has reclassified debt issuance costs from prepaid expenses and other current assets and
other assets as a reduction to debt in the condensed consolidated balance sheets.
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.
In
March 2016, the FASB issued ASU 2016-09, Stock Compensation, which is intended to simplify the accounting for share-based payment
award transactions. The new standard will modify several aspects of the accounting and reporting for employee share-based payments
and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits
or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The guidance
is effective for fiscal years beginning after December 15, 2016, including interim periods within that year, and will be adopted
by the Company in the first quarter of fiscal 2017. The Company anticipates the new standard will result in an increase in the
number of shares used in the calculation of diluted earnings per share and will add volatility to the Company’s effective
tax rate and income tax expense. The magnitude of such impacts will depend in part on whether significant employee stock option
exercises occur.
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.
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
consist 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:
|
■
|
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.
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.
As
of August 11, 2017, the Company has reserved for issuance 29,485,920 shares of Common Stock associated with conversion features
on Preferred Stock, warrants and options. These shares have been reserved for issuance by the Company’s stock transfer agent,
and accordingly, no derivative liability has been calculated on these shares.
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:
|
■
|
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.
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:
|
■
|
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.
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 the Chairman’s Agreement with Mr. Rani Kohen, Executive Chairman and Chairman of the Company’s
Board, pursuant to which we are required to pay cash compensation in the amount of $250,000 per year. During 2015 and through
August 31, 2016, we were a party to the Kohen Consulting Agreement with Mr. Kohen, pursuant to which we paid cash compensation
in the amount of $150,000 per year. Both agreements are more fully described in subsection “Narrative Disclosure to Summary
Compensation and Option Tables” of section “Executive Compensation” of this prospectus.
In
February 2016, Mr. Dov Shiff, a member of our Board, loaned $500,000 to the Company pursuant to an unsecured promissory note.
Subject to other customary terms, the note is payable on demand and accrues interest at a rate or 12% per annum. As of December
31, 2016, the outstanding balance under the note was $200,000.
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”.
Corporate
History and Information
SQL
Technologies Corp. (f/k/a 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. Effective August 12, 2016, the Company changed its name from “Safety Quick Lighting & Fans Corp.”
to “SQL Technologies Corp.” 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 offices in Georgia, Florida and in Foshan, Peoples Republic of China.
Our
principal executive offices are located at 4400 North Point Parkway, Suite 265, Alpharetta, Georgia, 30022 and our telephone number
is (770) 754-4711. Our web address is http://www.safetyquicklight.com.
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
The
SQL Technology is basically characterized as 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, is licensed by GE and achieved National Electrical Code (NEC) (or NFPA 70) status
in its 2017 edition.
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 Underwriters Laboratories (UL) Listing for the SQL Technology, which expanded 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.
Smart
SQL
The
Company is developing smart home technology applications for products using the SQL Technology called “Smart SQL”,
which incorporate Bluetooth and Wi-Fi capabilities to enable remote control and automation of such products and appliances. The
Company believes that the combination of its quick connect technology, the inclusion of Smart SQL and its growing product lines
will uniquely position the Company in the marketplace.
Intellectual
Property
We
believe the SQL Technology and the forthcoming Smart SQL provides the Company 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 September 5, 2017, 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.
Company
Name Change
The
development of smart home applications into the SQL Technology inspired management to change the Company’s name to one that
better denotes the diversification in its product line introduced by the inclusion of its Smart SQL. The Company’s Board
of Directors (the “Board”), and on June 8, 2016, a majority of the shareholders of the Company, approved a name change
from
Safety Quick Lighting & Fans Corp.
to
SQL Technologies Corp. Henceforth, further reference to the Company
will be “SQL Technologies Corp.” or the “Company”.
Our
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. With the achievement of the License Agreement (as defined
below) with General Electric, our management team determined that it could improve its gross margins if it were to market light
fixtures and ceiling fans with the SQL Technology already installed on fixtures, instead of marketing the SQL Technology as an
add-on device. Our management team also determined that it might be necessary to offer light fixtures and ceiling fans under the
License Agreement without the SQL Technology for initial orders from big box retailers, to achieve acceptance as a supplier and
to provide retailers time to determine market demand for the GE labeled products (collectively, our “Business Model”).
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. To support the Company’s marketing efforts to its
target market, entered into a sales and marketing agreement with Design Solutions International, Inc. (“DSI”), a privately
held, lighting industry design and marketing firm, which was acquired by NBG Home, a leading global designer, manufacturer and
marketer of home décor products, in 2015. In the latter half of 2016, the Company took further steps to bolster its sales
and marketing effort by hiring electronic and lighting industry executives, all of whom had previously worked at General Electric.
The
License Agreement
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, 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
|
|
Royalty as a Percentage
of Net Sales
|
|
$0 -
$50,000,000
|
|
|
7
|
%
|
$50,000,001 - $100,000,000
|
|
|
6
|
%
|
$100,000,001+
|
|
|
5
|
%
|
Net Sales Made
|
|
|
Quarterly
Payment Due Date
|
|
December 1 through
February 28/29
|
|
|
26-Mar
|
|
March 1 through
May 30
|
|
|
26-Jun
|
|
June 1 through August
31
|
|
|
26-Sep
|
|
September 1 through
November 30
|
|
|
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.
Trade
Distribution Channels
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. In 2015, DSI was acquired by NBG Home, a leading global designer, manufacturer
and marketer of home décor products. 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.
With
the recent addition of lighting and electronic sales and marketing professionals to its management team, the Company is further
strengthening its distribution efforts to key retailers and is launching a distribution effort to commercial entities such as
home builders and hotels. In addition, the Company expanded its target market to include commercial entities.
Third
Party Manufacturing
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.
Line
of Credit
On
April 13, 2016, the Company entered into a Line of Credit Promissory Note with a third party (the “Line of Credit”)
in the principal sum of up to ten million U.S. Dollars (USD $10,000,000). The Line of Credit provides for monthly payments of
interest at eight percent (8%) per annum on outstanding principal, and matures on December 31, 2017, at which time the full principal
amount and accrued but unpaid interest become due. The Line of Credit is used to fund the production of our products with our
third-party manufacturers and is repaid upon the sale or delivery of the product to our customers.
Management
and Personnel
Beginning
in 2015 and throughout 2016, we began building our sales and marketing team by hiring electronic and lighting industry executives,
many of whom had previously worked at General Electric. Michael Perrillo, former CEO from DSI, joined the Company as a full-time
consultant to enhance and expand sales objectives, particularly toward construction/builders, hotels and other sales channels
that the Company is targeting. In June 2015, Mark Wells joined the Company as a consultant to provide product promotion and other
sale consulting services, and in August 2016, Mark Wells was hired as our President. Also during 2016, we hired a Vice President
of Retail Sales, Vice President of Commercial Sales and Senior Vice President or Product Development.
During
2016, the Company continued to expand its staff and team of engineers to develop the SQL Technology and Smart SQL.
Capital
Fundraising, Previous Offerings and Stock Sales
In
2013 and 2014, the Company obtained capital resources necessary to begin implementation of its Business Model pursuant to the
Notes Offering, and during 2015, 2016 and 2017, through the Stock Offerings and additional private sales, the Company obtained
additional capital resources to further implement its Business Model.
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. In 2015, DSI was acquired by NBG Home, a leading global designer, manufacturer and marketer
of home décor products. Under the terms of the DSI Agreement, which remains in effect, DSI serves as the Company’s
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. The Company’s products will also be sold through GE’s lighting sales group as a condition of it
License Agreement. The Company’s recent addition of lighting and electronic sales and marketing professionals will further
strengthen its distribution efforts to key retailers, in addition to launching a marketing program to commercial entities such
as home builders and hotels.
Customers
We
market our product to retailers and other customers who purchase large quantities of ceiling fans and lighting fixtures.
This includes OEM manufactures, electrical distributors, large “big box” retailers, builders, hotels, casinos and
industrial and commercial lighting and fan manufactures.
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.
Employees
As
of September 5, 2017, we had twelve full time employees in the United States of America and six 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.
These
salaried employees include the Company’s founder, Executive Chairman and Chairman of our Board, Rani Kohen, who serves as
an executive of the Company on operational activities; John Campi, who serves as the Company’s Chief Executive Officer;
Mark Wells, who serves as the Company’s President; and Patricia Barron, who serves as the Company’s Chief Operations
Officer. In the second half of 2016, the Company hired three former GE lighting executives: John Poole as Vice President of Retail
Sales, David Martinsen as Vice President of Commercial Sales, and Steve Briggs as Senior Vice President of Product Development.
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.
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 265, Alpharetta, Georgia. The monthly rent related to our leased
1179 square foot facility is currently $1,854.96 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’s
subleasing agreement for this property expired November 30, 2016. The lease expires on this space March 31, 2017. In addition,
we share offices with a supplier where the development of our products occurs and where our Executive Chairman works, located
at 2855 W. McNab Road, Pompano Beach, FL, for which we pay no rent.
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
|
|
73
|
|
Chief Executive Officer
|
Mr. Rani Kohen
|
|
51
|
|
Director, Executive
Chairman
|
Mr. Mark Wells
|
|
46
|
|
President
|
Ms. Patricia Barron
|
|
56
|
|
Chief Operations Officer
|
Mr. Phillips Peter
|
|
85
|
|
Director
|
Mr. Thomas Ridge
|
|
72
|
|
Director
|
Mr. Dov Shiff
|
|
70
|
|
Director
|
Mr.
Leonard J. Sokolow
|
|
60
|
|
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 and as Executive Chairman since September 2016. 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.
Mark
J. Wells
has served as the Company’s President since August 2016. Mr. Wells has held various senior leadership positions
within the General Electric Company. From December 2007 to June 2011, Mr. Wells was the General Manager of Consumer Lighting.
From October 2005 to January 2007, Mr. Wells was the President and Chief Executive Officer for GE Consumer & Industrial for
Greater China. Following his MBA studies, from October 2002 to October 2005, Mr. Wells served as Regional Manager for GE Consumer
& Industrial’s Southeast Region. Since 2011, Mr. Wells served as the Executive Vice President and General Manager of
Independence Medical and Home Healthcare Solutions, now a part of Cardinal Health. In sum, Mr. Wells has over fourteen years of
experience in finance, sales and general management with GE. Mr. Wells received his MBA from Case Western Reserve University.
Our Board believes Mr. Wells’ qualifications to serve as our President include his extensive industry experience, executive
and advisory experience and his expertise in strategic planning.
Patricia
Barron
has served as the Company’s Chief Operations Officer since June 2007. From April 1989 to June 2007, Ms. Barron
was the President and owner of LTG Services, Inc., a company focused on safety consulting services, specializing in the review
and compliance of electrical products requiring UL, CSA, and CE certifications. Prior to that, Ms. Barron worked as a consultant
and engineer in the lighting, safety and approval industry and from June 1977 to August 1984, worked as an engineering assistant
for Underwriters Laboratories in the ceiling fan category. Ms. Barron received her Master’s in Business Administration in
International Business from Georgia State University in 1989. Our Board believes Ms. Barron’s qualifications to serve as
our Chief Operation Officer include her extensive industry experience and qualifications, executive experience and her decade
of demonstrated commitment and leadership with the Company.
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 Finance, 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 on the board of directors of, and Chairman of the Audit Committee for, Marquee Energy Ltd. (TSXV: MQX). Our
Board believes Mr. Sokolow’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.
On
September 6, 2016, we established a Corporate Development Committee, consisting of two members, Rani Kohen and Leonard J. Sokolow.
Mr. Kohen is the Chairman of the Corporate Development Committee. The purpose of the Corporate Development Committee is to oversee
the implementation of the strategic plan and related initiatives, identify and evaluate corporate development opportunities, develop
criteria for use in evaluating potential strategic investments, assist management to identify critical strategic issues facing
the Company and assess potential merger and acquisition opportunities.
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 the Company and its
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.
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 five years, (ii) been
convicted in or has pending any criminal proceedings, (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 2015 and 2016, 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.
|
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 are a small publicly-traded company, have a limited number of employees and
executives and have a relatively simple compensation policy and structure.
Named
Executive Officers
Our
“named executive officers” for the 2016 fiscal year consisted of the following individuals:
|
■
|
Rani Kohen, Executive
Chairman
|
|
■
|
John P. Campi, our
Chief Executive Officer
|
|
■
|
Mark Wells, President
|
|
■
|
Patricia Barron,
Chief Operating Officer
|
Summary
Compensation Table
The
table below summarizes all compensation awarded to, earned by, or paid to our Chief Executive Officer and our two most highly
compensated executive officers (the “named executive officers” listed above) at the end of our last fiscal year for
all services rendered in all capacities to us during the years during which they served as executive officers. Where a named executive
officer is also a director, all compensation related to such individuals position as an officer.
Name and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards ($)
|
|
|
Non-equity
Incentive Plan
Compensation
($)
(1)
|
|
|
All Other
Compensation
($)
|
|
|
Total
|
|
Rani Kohen
(2)(3)
Executive Chairman, Director
|
|
|
2016
|
|
|
|
83,333
|
|
|
|
35,424
|
|
|
|
—
|
|
|
|
1,981,504
|
(4)
|
|
|
35,423
|
|
|
|
12,000
|
|
|
$
|
2,147,684
|
|
|
|
|
2015
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,376
|
|
|
|
161,640
|
|
|
$
|
176,016
|
|
John P. Campi
(5)(6)
Chief Executive Officer
|
|
|
2016
|
|
|
|
127,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,585
|
|
|
|
—
|
|
|
$
|
159,085
|
|
|
|
|
2015
|
|
|
|
102,000
|
|
|
|
—
|
|
|
|
187,500
|
(6)
|
|
|
—
|
|
|
|
13,376
|
|
|
|
—
|
|
|
$
|
290,064
|
|
Mark
Wells
(7)
President
|
|
|
2016
|
|
|
|
83,333
|
|
|
|
—
|
|
|
|
260,000
|
(8)
|
|
|
—
|
|
|
|
3,839
|
|
|
|
—
|
|
|
$
|
347,172
|
|
|
|
|
2015
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Patricia Barron
(9)
Chief Operating Officer
|
|
|
2016
|
|
|
|
105,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
988,744
|
(10)
|
|
|
17,712
|
|
|
|
—
|
|
|
$
|
1,111,456
|
|
|
|
|
2015
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
100,000
|
|
|
(1)
|
Non-equity Incentive
Plan Compensation reflects incentive and bonus compensation or commission payable pursuant to each individual’s respective
employment agreement, typically as a percent of the Company’s net revenue or sales earned, and in each case as described
below.
|
|
(2)
|
Mr. Kohen was named
Executive Chairman on November 7, 2016, effective as of September 1, 2016. Pursuant to the terms of the Chairman’s Agreement
(as defined below), Mr. Kohen received or will receive (i) an annual salary of $250,000; (ii) options to purchase up to 340,000
shares of Common Stock each year, will vest in its’ entirety January 1, 2019; (iii) annual incentive compensation of
one half of one percent (0.50%) of the Company’s net revenue; (iv) a ‘sign-on bonus’ of 120,000 shares of
Common Stock ,which will vest in its’ entirety on January 1, 2020; (v) a supplemental bonus consisting of an option
to purchase up to 1,500,000 shares of Common Stock at $3.00 per share, accruing in increments of 500,000 shares, each upon
the achievement of the Company’s market capitalization reaching milestones of $300 million, $500 million and $750 million;
(vi) a supplemental bonus consisting of an option to purchase up to 1,500,000 shares of Common Stock at $4.00 per share, accruing
in increments of 500,000 shares, each upon the achievement of the Company’s market capitalization reaching milestones
of $1 billion, $1.5 billion and $2 billion; and (vii) a supplemental bonus consisting of an option to purchase up to 1,000,000
shares of Common Stock at $5.00 per share, accruing in increments of 500,000 shares, each upon the achievement of the Company’s
market capitalization reaching milestones of $2.5 billion and $3 billion.
|
|
(3)
|
For the first eight
months of 2016, Mr. Kohen was compensated pursuant to a Consulting Agreement, whereby he was paid an annual fee of $150,000,
a $1,000 per month automobile allowance, and annual incentive compensation equal to one half of one percent (0.50%) of the
Company’s net revenue
.
All amounts included for 2015 represent the compensation as previously disclosed regarding
his role solely as Chairman of the Board, including the amount of “All Other Compensation”, which reflects compensation
paid pursuant to the Kohen Consulting Agreement. The amounts included for 2016 include compensation paid to Mr. Kohen in his
capacity as Chairman as the Board through August 31, 2016, and as both Executive Chairman and Chairman of the Board thereafter.
|
|
(4)
|
On November 15,
2015, the Board granted Mr. Kohen (i) options to purchase up to 400,000 shares of Common Stock at $0.60, which vested November
15, 2015; (ii) options to purchase up to 300,000 shares of Common Stock at $0.60, which vested November 15, 2016; and (iii)
options to purchase up to 400,000 shares of Common Stock at $0.60, which will vest November 15, 2017. The value of the option
award was calculated at $2.00 per share; for assumptions made in the valuation of the option awards, see Note 2 to our Audited
Consolidated Financial Statements.
|
|
(5)
|
Pursuant to the
terms of the
Campi Agreement (as defined below)
, Mr. Campi received or will receive
(i) an annual salary of $150,000; (ii) options to purchase up to 120,000 shares of Common Stock as a “sign-on bonus”,
which will vest in its’ entirety on December 31, 2017; (iii) an incentive bonus of one quarter of one percent (0.25%)
of the Company’s net revenue; (iv) 3% of adjusted net income; and (v) options to purchase a number of shares of Common
Stock equal to one half of one percent (0.5%) of
the Company’s quarterly net income
,
at a strike price to be determined by the Board at the time of issuance.
|
|
(6)
|
Pursuant to Mr.
Campi’s previous employment agreement, Mr. Campi received (i) a gross annual salary of $102,000 per year; (ii) 750,000
shares of Common Stock, 250,000 shares of which vested on May 20, 2015, and 500,000 shares of which vested on December 31,
2015; and (iii) incentive compensation equal to one half of one percent (0.50%) of the Company’s net revenue. The value
of the stock award was $0.25 per share, 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 such agreement.
|
|
(7)
|
Mr. Wells was named
President of the Company on November 7, 2016, effective as of August 17, 2016. Pursuant to the terms of the Wells
Agreement
(as defined below)
, Mr. Wells received or will receive (i) an annual salary of $250,000; (ii) 1,025,000 shares of Common
Stock which will vest in its’ entirety on January 1, 2019; (iii) incentive compensation equal to one quarter of one
percent (0.25%) of the Company’s net revenue; and (iv) a “sign-on” bonus
of
120,000 shares of Common Stock
, which will vest in its’ entirety on January 1, 2018.
|
|
(8)
|
Mr. Well’s
received 100,000 shares of Common Stock pursuant to a consulting agreement dated June 1, 2015, which vested on June 1, 2016;
the value of the stock award was $2.60 per share, 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 such vesting.
|
|
(9)
|
Pursuant to the
terms of the Barron
Agreement (as defined below)
, Ms. Barron will received or
will receive an annual salary of $120,000, and incentive compensation equal to one quarter of one percent (0.25%) of the Company’s
net revenue.
|
|
(10)
|
Ms. Barron received
(i) options to purchase up to 200,000 shares of Common Stock at $0.60 per share, which vested November 15, 2015; (ii) options
to purchase up to 150,000 shares of Common Stock at $1.20 per share, which vested November 15, 2016; and (iii) options to
purchase up to 150,000 shares of Common Stock at $1.80 per share, which will vest November 15, 2017. The value of the option
award was calculated at $2.00 per share; for assumptions made in the valuation of the option awards, see Note 2 to our Audited
Consolidated Financial Statements.
|
Outstanding
Equity Awards at December 31, 2016 Fiscal Year End
As
of December 31, 2016, the following named executive officers had the following unexercised options, stock that has not vested,
and equity incentive plan awards
|
|
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
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
120,000
|
|
$
|
240,000
|
|
|
—
|
|
$
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rani Kohen Executive Chairman
|
|
|
700,000
|
|
|
300,000
|
|
$
|
0.60
|
|
|
11/15/2025
|
|
|
1,140,000
|
|
$
|
2,280,000
|
|
|
—
|
|
$
|
2,876,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark J. Wells President
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,145,000
|
|
$
|
2,290,000
|
|
|
—
|
|
$
|
2,290,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patricia
Barron Chief Operating Officer
|
|
|
200,000
|
|
|
—
|
|
$
|
0.60
|
|
|
11/15/2025
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
395,193
|
|
|
|
150,000
|
|
|
—
|
|
$
|
1.20
|
|
|
11/15/2025
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
296,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
150,000
|
|
$
|
1.80
|
|
|
11/15/2025
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
297,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Narrative
Disclosure to Summary Compensation and Option Tables
John
P. Campi
In
connection with Mr. Wells’ appointment as President of the Company, Mr. Campi withdrew from his position as the Company’s
President effective upon Mr. Well’s appointment, and has continued in his position as the Company’s Chief Executive
Officer.
Effective
September 1, 2016, the Company entered into a new Executive Employment Agreement with Mr. Campi (the “Campi Agreement”),
to serve as the Company’s Chief Executive Officer, which superseded and replaced the executive employment agreement between
the Company and Mr. Campi dated November 21, 2014. The Campi Agreement provides that Mr. Campi will serve for an initial term
of one year, which may be renewed by the mutual agreement of Mr. Campi and the Company. Subject to other customary terms and conditions
of such agreements, the Campi Agreement provides that Mr. Campi will receive (i) a base salary of $150,000 per year; (ii) a sign-on
bonus of 120,000 shares of Common Stock, which shall vest in its entirety on December 31, 2017; (iii) incentive compensation equal
to (a) one quarter of one percent (0.25%) of the Company’s gross revenue and (b) three percent (3%) of the Company’s
annual net income paid in cash on an annual basis; and (iv) five-year options to purchase shares of Common Stock in an amount
equal to one half of one percent (0.50%) of the Company’s quarterly net income, the exercise price of which will be determined
at the time such options are granted.
Pursuant
to the Campi Agreement, if terminated without cause during the initial term, the Company shall pay to Mr. Campi (i) an amount
calculated by multiplying the monthly salary, at the time of such termination, times the number of months remaining in the initial
term, and (ii) all unpaid incentive compensation then in effect on a
pro rata
basis. In addition, the sign-on shares of
Common Stock shall immediately vest. For any other termination during the initial term, Mr. Campi shall receive an amount calculated
by multiplying fifty percent of the monthly salary, in effect at the time of such termination, times the number of months remaining
in the initial, and shall not be entitled to incentive compensation payments then in effect, prorated or otherwise.
Mark
J. Wells
Effective
August 17, 2016, the Company entered into an Executive Employment Agreement with Mr. Wells (the “Wells Agreement”),
to serve as the Company’s President. The Wells Agreement provides that Mr. Wells will serve for an initial term of three
years, which may be renewed by the mutual agreement of Mr. Wells and the Company. Subject to other customary terms and conditions
of such agreements, the Wells Agreement provides that Mr. Wells will receive (i) a base salary of $250,000 per year, which may
be adjusted each year at the discretion of the Board; (ii) 1,025,000 shares of Common Stock, which shall vest on January 1, 2019
(the “Wells Compensation Shares”); (iii) a sign-on bonus of 120,000 shares of Common Stock, with shall vest in its
entirety to Mr. Wells on January 1, 2018; and (iv) incentive compensation equal to one quarter of one percent (0.25%) of the Company’s
net revenue, paid in cash on an annual basis.
Pursuant
to the Wells Agreement, if terminated without cause during the initial term, the Company shall pay to Mr. Wells (i) an amount
calculated by multiplying the monthly salary, at the time of such termination, times the number of months remaining in the Initial
Term, and (ii) all unpaid incentive compensation then in effect. In addition, the sign-on bonus shares of Common Stock shall immediately
vest, and the Wells Compensation Shares shall vest on
a pro rata
basis based on the number of days served under the Wells
Agreement and the number of days in the vesting period. For any other termination during the initial term, Mr. Wells shall receive
payment of salary, at the then current rate, and all due but unpaid incentive compensation through the date termination is effective.
Rani
Kohen
On
November 25, 2013, we entered into a Consulting Agreement with our founder and the Chairman or our Board, Rani Kohen (the “Kohen
Consulting Agreement”). The term of the Consulting Agreement was for three (3) years, beginning on December 1, 2013. Subject
to the customary terms and conditions of such agreements, the Consulting Agreement provided that Mr. Kohen would receive an annual
consulting fee of $150,000, incentive compensation in the form cash, stock and/or options (i) equal to one-half a one percent
(0.50%) of our annual gross revenue; and (ii) to be determined by our Board on a project-by-project basis.
Effective
September 1, 2016, the Company entered into a Chairman Agreement with Mr. Kohen (the “Chairman’s Agreement”),
to serve
as the Company’s Executive Chairman
and Chairman of the Board, which supersedes and replaced the Consulting Agreement.
The
Chairman’s Agreement provides that Mr. Kohen will serve for an initial term of three years, which may be renewed by the
mutual agreement of Mr. Kohen and the Company. Subject to other customary terms and conditions of such agreements, the Chairman’s
Agreement provides that Mr. Kohen will receive (i) a base salary of $250,000 per year, which may be adjusted each year at the
discretion of the Board; (ii) stock compensation equal to 340,000 shares of Common Stock per year, which shall vest on January
1 of the following year (the “Chairman Compensation Shares”); (iii) a sign-on bonus of 120,000 shares of Common Stock,
with shall vest in its entirety on January 1, 2020; (iv) supplemental bonus compensation of stock options to purchase up to 4,000,000
shares of Common Stock at an exercise price ranging between $3.00 and $5.00 per share, determined based on the achievement of
specified market capitalizations of the Company; and (v) incentive compensation equal to one half of one percent (0.50%) of the
Company’s gross revenue paid in cash, stock or options on an annual basis.
Pursuant
to the Chairman’s Agreement, if terminated without cause during the initial term, the Company shall pay to Mr. Kohen (i)
an amount calculated by multiplying the monthly salary, at the time of such termination, times the number of months remaining
in the initial term, and (ii) all unpaid incentive compensation then in effect. In addition, the sign-on shares of Common Stock
shall immediately vest, and the Chairman Compensation Shares shall vest on a pro rata basis based on the number of days served
under the Chairman’s Agreement and the number of days from the beginning of the initial term through August 31, 2019. For
any other termination during the initial term, Mr. Kohen shall receive payment, at the then current rate, through the date termination
is effective.
Patricia
Barron
Ms.
Barron entered into a three-year Executive Employment Agreement, effective as of September 1, 2016 (the “Barron Agreement”).
Under the terms of the Barron Agreement, Ms. Barron will receive (i) an annual salary of $120,000, and (ii) incentive compensation
equal to
one-quarter of one percent (0.25%)
of net revenue. In addition, The Board
granted Ms. Barron (a) options to purchase up to 200,000 shares of Common Stock at $0.60 per share, which vested on November 15,
2015; (b) options to purchase up to 150,000 shares of Common Stock at $1.20, which vested on November 15, 2016; and (c) options
to purchase up to 150,000 shares of Common Stock at $1.80, which will vest on November 15, 2017.
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, and in accordance with our Director Compensation Policy.
Director
Compensation Table
The
following table shows for the fiscal year ended December 31, 2016, certain information with respect to the compensation of all
non-employee directors of the Company:
Name
|
|
Fees Earned or Paid in Cash
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Total
|
|
Rani Kohen
(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Phillips Peter
(2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Thomas Ridge
(2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Dov Shiff
(2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Leonard Sokolow
(2)(3)
|
|
$
|
—
|
|
|
$
|
12,000
|
|
|
$
|
—
|
|
|
$
|
12,000
|
|
(1)
|
Mr. Kohen has served
as a Chairman of the Board since November 2012. Fees earned in 2016 in connection with his role as Executive Chairman and
as Chairman of the Board have been reported as Executive Compensation.
|
(2)
|
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.
|
(3)
|
The Company issued
12,000 shares of Common Stock pursuant to the Director Compensation Policy in connection with Mr. Sokolow’s appointment
as the Chairman of our Audit Committee on January 5, 2016. The value of the shares 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.
|
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 Common
Stock and an option to purchase up to 150,000 shares of 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
Common Stock, or (ii) if there is no public market for Common Stock, the price per share in our most recently completed private
placement of 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 Common Stock for each Board meeting in which
such Eligible Director attends in person, or (ii) 5,000 shares of 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 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 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 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 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 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 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 Common Stock as an annual retainer,
payable quarterly.
Narrative
Disclosure to Summary Compensation and Option Tables
As
of March 30, 2017, the Company has issued shares of Common Stock and Director Options under the Director Compensation Policy only
to Mr. Sokolow. On January 25, 2016, the Company issued to Mr. Sokolow 50,000 shares of Common Stock in connection with his appointment
to the Board on November 15, 2016 and Director Options to purchase up to 150,000 shares of Common Stock at $0.60 per share in
connection with his appointment to the Board on November 15, 2016. All such amounts were reported as paid in 2015.
In
connection with Mr. Sokolow’s appointment as the Chairman of our Audit Committee on January 5, 2016, we issued 12,000 shares
of Common Stock pursuant to the Director Compensation Policy, 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.
Stock
Incentive Plan Information
The
following table sets forth equity compensation plan information as of December 31, 2016:
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
|
|
|
$
|
0.81
|
|
|
|
1,115,000
|
|
Equity compensation plans approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
3,885,000
|
|
|
$
|
0.81
|
|
|
|
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 150,000 shares of Common
Stock were granted with an exercise price to be determined by the Company. For the purposes of calculating the
weighted-average exercise price, an exercise price of $1.00 per share was assumed, based on the sales price of the Company’s
securities in a private placement on or about the time of the grant.
|
The
2015 Stock Incentive Plan
On
April 27, 2015 and on June 8, 2016, our Board and the holders of a majority of our issued and outstanding shares of Common Stock,
respectively, 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 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. As of March 25, 2016, a majority of the Company’s shareholders had not yet
approved the Incentive Plan,
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 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.
Issued
and 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 Common Stock at exercise prices ranging from $0.60
per share to $1.80 per share, vesting entirely in two years from the date of the grant, and up to 75,000 shares of Common Stock,
which vested immediately (collectively, the “November 2015 Grants”).
As
of September 5, 2017, the Company has entered into Option Award Agreements with thirteen grantees of the November 2015 Grants,
pursuant to awards granted on November 15, 2015 under the Incentive Plan, consisting of up to 3,660,000 options to purchase shares
of Common Stock, of which options to purchase up to 2,010,000 shares of Common Stock vested on November 15, 2015, options to purchase
up to 950,000 shares of Common Stock vested on November 15, 2016, and options to purchase up to 700,000 shares of Common Stock
will vest on November 15, 2017. In addition, the Company entered into Stock Award Agreements with two grantees of the November
2015 Grants to issue 75,000 shares of Common Stock, which vested immediately and were issued by the Company in 2016. In addition,
the Board terminated November 2015 Grants of options to purchase up to 150,000 shares of Common Stock.
On
April 19, 2017, the Company’s Board of Directors authorized the Company to grant certain securities under the Incentive
Plan, or any successor plan , consisting of, in the aggregate, options to purchase up to 2,150,000 shares of our Common Stock
at exercise prices ranging from $3.00 per share to $5.00 per share, vesting on June 30, 2017, December 31, 2017, December 31,
2018 and December 31, 2019 (collectively, the “April 2017 Grants”). As of September 5, 2017, the Company entered into
Stock Option Agreements with three of the grantees of the April 2017 Grants, thereby issuing, in the aggregate, options to purchase
up to 450,000 shares of our Common Stock, with 225,000 of such options vested and having an exercise price of $3.00 per share
and 225,000 of such options vesting on December 31, 2017 and having an exercise price of $4.00 per share. As of September 5,
2017, the Company had not yet entered into Stock Option Agreements with the other grantees April 2017 Grants, and therefore had
not issued the remaining 1,700,000 options to purchase shares of our Common Stock pursuant to the April 2017 Grants.
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.
RELATED
PARTY TRANSACTIONS
We
are currently party to the Chairman’s Agreement with Mr. Rani Kohen, Executive Chairman and Chairman of the Company’s
Board, pursuant to which we are required to pay cash compensation in the amount of $250,000 per year. During 2015 and through
August 31, 2016, we were a party to the Kohen Consulting Agreement with Mr. Kohen, pursuant to which we paid cash compensation
in the amount of $150,000 per year. Both agreements are more fully described in subsection “Narrative Disclosure to Summary
Compensation and Option Tables” of section “Executive Compensation” of this prospectus.
In
February 2016, Mr. Dov Shiff, a member of our Board, loaned $500,000 to the Company pursuant to an unsecured promissory note.
Subject to other customary terms, the note is payable on demand and accrues interest at a rate or 12% per annum. As of December
31, 2016, the outstanding balance under the note was $200,000.
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 our Common Stock. Unless
otherwise indicated in the footnotes to the table, all information set forth in the table is as of September 5, 2017.
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 Common
Stock.
Unless
otherwise indicated in the table or the footnotes to the table, all information set forth in the table is as of September 5,
2017, and the address for each director and executive officer of the Company is: c/o 4400 North Point Parkway, Suite 265, Alpharetta,
GA 30022.
Directors
and Named Executive Officers
Name
and Address
of
Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
(1)
|
|
|
Percent of
Class
(1)
|
|
KRNB Holdings LLC
(2)
|
|
|
8,703,969
|
|
|
|
17.39
|
%
|
|
|
|
|
|
|
|
|
|
Mr. Phillips Peter
(3)
|
|
|
500,000
|
|
|
|
1.01
|
%
|
|
|
|
|
|
|
|
|
|
Mr. Thomas Ridge
(4)
|
|
|
1,225,000
|
|
|
|
2.48
|
%
|
|
|
|
|
|
|
|
|
|
Mr. Dov Shiff
(5)
|
|
|
14,964,618
|
|
|
|
28.06
|
%
|
|
|
|
|
|
|
|
|
|
Mr. Leonard Sokolow
(6)
|
|
|
262,000
|
|
|
|
0.53
|
%
|
|
|
|
|
|
|
|
|
|
Mr. John P. Campi
(7)
|
|
|
1,050,000
|
|
|
|
2.14
|
%
|
|
|
|
|
|
|
|
|
|
Mr. Mark J. Wells
(8)
|
|
|
1,000,000
|
|
|
|
2.01
|
%
|
|
|
|
|
|
|
|
|
|
Ms. Patricia Barron
(9)
|
|
|
500,000
|
|
|
|
1.01
|
%*
|
|
|
|
|
|
|
|
|
|
All Directors and Officers as a Group (8 persons)
|
|
|
28,205,587
|
|
|
|
50.34
|
%
|
Stockholders
with 5% Beneficial Ownership
Name and Address
of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
(1)
|
|
|
Percent of
Class
(1)
|
|
Motek
7 SQL LLC
(10)
19101
Mystic Pointe Drive
Apt.
2808
Aventura,
FL 33180
|
|
|
7,771,566
|
|
|
|
15.85
|
%
|
|
|
|
|
|
|
|
|
|
David
S. Nagelberg 2003 Revocable Trust DTD 7/2/03
(11)
99
Coast Boulevard, Unit 21 DE
LaJolla,
CA 92037
|
|
|
3,615,865
|
|
|
|
6.91
|
%
|
|
|
|
|
|
|
|
|
|
Pitch
Energy Corporation
(12)
P.O.
Box 400
Ruidoso,
NM 88355
|
|
|
3,666,667
|
|
|
|
7.48
|
%
|
|
|
|
|
|
|
|
|
|
Mr.
Steven Siegelaub
(13)
2801
N. University Dr. Suite 301
Coral Springs,
FL 33065
|
|
|
4,677,875
|
|
|
|
9.00
|
%
|
*
Less than 1%
|
(1)
|
Applicable percentages
are based on 49,042,833 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. Shares of Preferred Stock are convertible, at any time at the holder’s
election, into an equal number of shares of Common Stock.
|
|
(2)
|
Mr. Rani Kohen beneficially
owns these 8,703,969 shares of Common Stock as Manager of KRNB Holdings LLC, which includes (i) 8,003,969 shares of Common
Stock held by KRNB Holdings LLC and (ii) 700,000 shares of Common Stock issuable upon exercise of options issued under the
Incentive Plan and held by KRNB Holdings LLC.
|
|
(3)
|
Mr. Phillips Peter
beneficially owns 500,000 shares of Common Stock, including (i) 200,000 shares of Common Stock, and (ii) 300,000 shares of
Common Stock issuable upon exercise of options held by Mr. Peter.
|
|
(4)
|
Mr. Thomas Ridge
beneficially owns 1,225,000 shares of 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 Note Warrants and (iv) 200,000 shares of Common Stock issuable upon conversion of Preferred Stock.
|
|
(5)
|
Mr. Dov Shiff beneficially
owns 14,964,618 shares of Common Stock, including (i) 10,674,618 shares of Common Stock, (ii) 1,690,000 shares of Common Stock
issuable upon exercise of Note Warrants, and (iii) 2,600,000 shares of Common Stock issuable upon conversion of Preferred
Stock.
|
|
(6)
|
Mr. Leonard J. Sokolow
beneficially owns 262,000 shares of Common Stock, including (i) 62,000 shares of Common Stock, (ii) 50,000 shares of Common
Stock obtained pursuant to the November 2015 Stock Offering, and (iii) 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 Common Stock, including (i) 750,000 shares of Common Stock, (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. Mark J. Wells
beneficially owns 1,000,000 shares of Common Stock, including (i) 100,000 shares of Common Stock obtained pursuant to that
certain consultant agreement between Mr. Wells and the Company, dated June 1, 2015, (ii) 150,000 shares of Common Stock purchased
by Mr. Wells pursuant to the Wells Agreement, and (iii) 750,000 shares of Common Stock issuable upon exercise of warrants
issued pursuant to the Wells Agreement.
|
|
(9)
|
Ms. Patricia Barron
beneficially owns 500,000 shares of Common Stock, including (i) 100,000 shares of Common Stock, and (ii) 400,000 shares of
Common Stock vested and issuable upon the exercise of options issued under the Incentive Plan.
|
|
(10)
|
Mr. Hillel Bronstein
beneficially owns these shares of Common Stock as Manager of Motek 7 SQL LLC.
|
|
(11)
|
The David S. Nagelberg
2003 Revocable Trust DTD 7/2/03 beneficially owns 3,615,865 shares of Common Stock, including (i) 315,865 shares of Common
Stock, (ii) 1,300,000 shares of Common Stock issuable upon exercise of Note Warrants, and (iii) 2,000,000 shares of Common
Stock issuable upon conversion of Preferred Stock.
|
|
(12)
|
Mr. Johnny Gray
and Mr. T L Chandler, as Trustees of the J C Gray Trust and T L Chandler Trust, respectively, have joint voting and dispositive
control over these shares of Common Stock, as such trusts are equal 50% shareholders of Pitch Energy Corporation.
|
|
(13)
|
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 Common Stock, including (i) 83,333 shares of Common Stock
held by him and his wife personally; (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 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 Note Warrants, and (c) 776,535 shares of Common Stock issuable upon conversion of
Preferred Stock; (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 Note Warrants issued pursuant
to the Notes Offering, and (c) 1,000,000 shares of Common Stock issuable upon conversion Preferred Stock; and (vi) 100,000
shares of Common Stock issuable upon the exercise of options issued under the Incentive Plan and held by Mr. Siegelaub.
|
DESCRIPTION
OF SECURITIES
We
are authorized to issue 500,000,000 shares of Common Stock, and 20,000,000 shares of preferred stock, no par value per share.
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.
Preferred
Stock
The
only class of our Preferred Stock designated is Series A Convertible Preferred Stock. Shares of our Preferred Stock are convertible
on a 1 to 1 ratio into shares of our Common Stock, upon the election of the holder thereof. With respect to interest on junior
securities, dividends, distributions or liquidation preference, shares of Preferred Stock rank senior to shares of our Common
Stock or other junior securities. Shares of Preferred Stock pay interest quarterly at a rate of six percent (6%), based on principal
value of $0.25 per share. Shares of Preferred Stock may be repurchased by the Company upon 30 days’ prior written notice,
in whole or in part, for $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 our Common Stock. Holders may, at any time, sell their shares
of Preferred Stock back to the Company at $0.25 per share.
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.
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 our 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, 2016 and 2015, 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
SQL TECHNOLOGIES CORP. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2016 AND 2015
Index to Consolidated Financial
Statements
|
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
SQL Tehnologies Corp. and Subsidiary
We have audited
the accompanying consolidated balance sheets of SQL Technologies Corp. and Subsidiary (“the Company”) as of December
31, 2016 and 2015 and the related consolidated statements of operations, stockholders’ deficit, and consolidated cash flows
for the years ended December 31, 2016 and 2015. 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, 2016 and 2015, and the results of its operations, changes in stockholders’ deficit and
cash flows for the years ended December 31, 2016 and 2015 in conformity with accounting principles generally accepted in the United
States of America.
/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 31, 2017
SQL Technologies Corp. and Subsidiary
Consolidated Balance Sheets
(Audited)
|
|
December
31, 2016
|
|
December
31, 2015
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,125,888
|
|
|
$
|
450,868
|
|
Accounts receivable
|
|
|
796,824
|
|
|
|
234,309
|
|
Inventory
|
|
|
2,401,048
|
|
|
|
263,871
|
|
Prepaid expenses
|
|
|
41,229
|
|
|
|
35,769
|
|
Other
current assets
|
|
|
—
|
|
|
|
210
|
|
Total current
assets
|
|
|
7,364,989
|
|
|
|
985,028
|
|
|
|
|
|
|
|
|
|
|
Furniture
and Equipment - net
|
|
|
113,605
|
|
|
|
127,521
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Patent - net
|
|
|
106,342
|
|
|
|
83,174
|
|
Debt issue costs
- net
|
|
|
—
|
|
|
|
14,605
|
|
GE trademark license
- net
|
|
|
4,675,585
|
|
|
|
7,123,746
|
|
Other
assets
|
|
|
202,346
|
|
|
|
65,714
|
|
Total other
assets
|
|
|
4,984,273
|
|
|
|
7,287,239
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
12,462,867
|
|
|
$
|
8,399,788
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
& accrued expenses
|
|
$
|
1,060,163
|
|
|
$
|
807,798
|
|
Convertible debt
- net of debt discount $-0- and $474,283 at
|
|
|
150,000
|
|
|
|
3,989,950
|
|
December 31, 2016
and December 31, 2015 respectively
|
|
|
|
|
|
|
|
|
Convertible debt
- related parties - net of debt discount $-0- and
|
|
|
50,000
|
|
|
|
50,000
|
|
$-0- at December
31, 2016 and December 31, 2015 respectively
|
|
|
|
|
|
|
|
|
Notes payable -
current portion
|
|
|
3,225,961
|
|
|
|
107,944
|
|
Notes payable -
related party
|
|
|
200,000
|
|
|
|
—
|
|
Derivative liabilities
|
|
|
24,083,314
|
|
|
|
24,157,838
|
|
Other
current liabilities
|
|
|
15,077
|
|
|
|
46,010
|
|
Total current
liabilities
|
|
|
28,784,515
|
|
|
|
29,159,540
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
|
—
|
|
|
|
—
|
|
Convertible debt
- related parties - net
|
|
|
—
|
|
|
|
—
|
|
Notes payable
|
|
|
73,598
|
|
|
|
193,800
|
|
GE
royalty obligation
|
|
|
11,302,423
|
|
|
|
11,795,855
|
|
Total long term
liabilities
|
|
|
11,376,021
|
|
|
|
11,989,655
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
40,160,536
|
|
|
|
41,149,195
|
|
Commitments and contingent
liabilities:
|
|
|
|
|
|
|
|
|
Redeemable preferred
stock - subject to redemption: $0 par value;
|
|
|
|
|
|
|
|
|
20,000,000 shares
authorized; 13,056,932 and -0- shares issued
|
|
|
|
|
|
|
|
|
and outstanding
at December 31, 2016 and December 31, 2015
|
|
|
|
|
|
|
|
|
respectively
|
|
|
44,393,569
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
Common stock: $0
par value, 500,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
47,276,499 and
41,501,251 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at December 31,
2016 and December 31, 2015 respectively
|
|
|
12,294,391
|
|
|
|
2,892,078
|
|
Common stock to
be issued
|
|
|
—
|
|
|
|
625,000
|
|
Additional paid-in
capital
|
|
|
56,910,107
|
|
|
|
6,472,427
|
|
Subscription receivable
|
|
|
(78,000
|
)
|
|
|
—
|
|
Accumulated
deficit
|
|
|
(141,182,294
|
)
|
|
|
(42,703,470
|
)
|
Total Stockholders'
deficit
|
|
|
(72,055,796
|
)
|
|
|
(32,713,965
|
)
|
Noncontrolling
interest
|
|
|
(35,442
|
)
|
|
|
(35,442
|
)
|
Total
Deficit
|
|
|
(72,091,238
|
)
|
|
|
(32,749,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities, redeemable preferred stock, and stockholders' deficit
|
|
$
|
12,462,867
|
|
|
$
|
8,399,788
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
SQL Technologies Corp. and Subsidiary
Consolidated Statements of Operations
Years Ended December 31,
(Audited)
|
|
2016
|
|
2015
|
Sales
|
|
$
|
7,014,978
|
|
|
$
|
2,885,007
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(6,136,395
|
)
|
|
|
(2,477,252
|
)
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
878,583
|
|
|
|
407,755
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
6,866,355
|
|
|
|
5,236,747
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,987,772
|
)
|
|
|
(4,828,992
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(980,867
|
)
|
|
|
(2,855,519
|
)
|
Derivative expenses
|
|
|
(9,678,390
|
)
|
|
|
—
|
|
Change in fair
value of embedded derivative liabilities
|
|
|
(43,634,482
|
)
|
|
|
(19,416,295
|
)
|
Loss on debt extinguishment
|
|
|
(41,129,336
|
)
|
|
|
—
|
|
Other income
|
|
|
13,275
|
|
|
|
992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on Debt Extinguishment
|
|
|
2,949,714
|
|
|
|
209,604
|
|
Total other income
(expense) - net
|
|
|
(92,460,086
|
)
|
|
|
(22,061,218
|
)
|
|
|
|
|
|
|
|
|
|
Net loss including noncontrolling interest
|
|
|
(98,447,858
|
)
|
|
|
(26,890,210
|
)
|
Less:
net loss attributable to noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
Net loss attributable
to Safety Quick Lighting & Fans Corp.
|
|
$
|
(98,447,858
|
)
|
|
$
|
(26,890,210
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share
- basic and diluted
|
|
$
|
(2.60
|
)
|
|
$
|
(0.76
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
during the year -
|
|
|
|
|
|
|
|
|
basic
and diluted
|
|
|
37,916,952
|
|
|
|
35,409,521
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
SQL Technologies Corp. and Subsidiary
Consolidated Statement of Stockholders'
Deficit
Years Ended December 31, 2016
and December 31, 2015
(Audited)
|
|
Common Stock,
$0 Par Value
|
|
Subscription
|
|
Paid-In
|
|
Accumulated
|
|
Noncontrolling
|
|
Stockholders'
|
|
|
Shares
|
|
To Be Issued
|
|
Amount
|
|
Receivable
|
|
Capital
|
|
Deficit
|
|
Interest
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
|
35,750,000
|
|
|
|
13,812
|
|
|
|
$189,900
|
|
|
|
—
|
|
|
|
$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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued per mutual release and waiver
|
|
|
250,000
|
|
|
|
111,188
|
|
|
|
62,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
173,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of derivative liability related to penalty and Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,613
|
|
|
|
|
|
|
|
|
|
|
|
189,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
—
|
|
|
|
(26,890,210
|
)
|
Balance,
December 31, 2015
|
|
|
41,501,251
|
|
|
|
625,000
|
|
|
|
$2,892,078
|
|
$
|
|
—
|
|
$
|
|
6,472,427
|
|
|
|
$(42,703,470
|
)
|
|
|
$(35,442
|
)
|
|
|
$(32,749,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in exchange for interest
due
|
|
|
1,000,000
|
|
|
|
(625,000
|
)
|
|
|
625,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued, net of issuance cost
|
|
|
3,155,000
|
|
|
|
—
|
|
|
|
7,538,000
|
|
|
|
(78,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,460,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services rendered
|
|
|
265,000
|
|
|
|
—
|
|
|
|
769,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
769,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued pursuant to stock award
|
|
|
25,000
|
|
|
|
—
|
|
|
|
65,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant Director Compensation Policy, appointment
to Board and Chair of Audit Committee
|
|
|
62,000
|
|
|
|
—
|
|
|
|
62,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in exchange for principal
and interest due
|
|
|
790,092
|
|
|
|
—
|
|
|
|
197,524
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
197,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes to common stock
|
|
|
443,156
|
|
|
|
—
|
|
|
|
110,789
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
110,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of derivative liability related
to convertible notes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
45,161,472
|
|
|
|
—
|
|
|
|
—
|
|
|
|
45,161,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of derivative liability related
to interest payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,798,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,798,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of derivative liability related
to options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
477,458
|
|
|
|
—
|
|
|
|
—
|
|
|
|
477,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Paid
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(30,966
|
)
|
|
|
—
|
|
|
|
(30,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(98,447,858
|
)
|
|
|
—
|
|
|
|
(98,447,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2016
|
|
|
47,276,499
|
|
|
|
—
|
|
|
|
$12,294,391
|
|
|
$
|
(78,000
|
)
|
|
$
|
56,910,107
|
|
|
|
$(147,182,294
|
)
|
|
|
$(35,442
|
)
|
|
|
$(72,091,238
|
)
|
The accompanying notes are an integral
part of these condensed consolidated financial statements.
SQL Technologies Corp. and Subsidiary
Consolidated Statements of Cash
Flows
Years Ended December 31,
(Audited)
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss attributable to Safety Quick Lighting & Fans Corp.
|
|
$
|
(98,447,858
|
)
|
|
$
|
(26,890,210
|
)
|
Net loss attributable
to noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
26,483
|
|
|
|
22,464
|
|
Amortization of
debt issue costs
|
|
|
14,605
|
|
|
|
147,341
|
|
Amortization of
debt discount
|
|
|
474,283
|
|
|
|
2,100,957
|
|
Amortization of
patent
|
|
|
7,958
|
|
|
|
5,347
|
|
Amortization of
GE trademark license
|
|
|
2,448,162
|
|
|
|
2,441,471
|
|
Change in fair
value of derivative liabilities
|
|
|
43,634,481
|
|
|
|
19,416,295
|
|
Derivative expense
|
|
|
9,678,390
|
|
|
|
—
|
|
Loss on debt extinguishment
|
|
|
41,129,336
|
|
|
|
—
|
|
Loss (Gain) on
debt forgiveness
|
|
|
(2,949,714
|
)
|
|
|
(209,604
|
)
|
Stock options issued
for services - related parties
|
|
|
931,000
|
|
|
|
173,688
|
|
Change in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(562,515
|
)
|
|
|
(234,309
|
)
|
Prepaid expenses
|
|
|
(5,460
|
)
|
|
|
(6,126
|
)
|
Inventory
|
|
|
(2,137,177
|
)
|
|
|
(263,871
|
)
|
Deferred royalty
|
|
|
—
|
|
|
|
—
|
|
Royalty payable
|
|
|
(493,432
|
)
|
|
|
(204,147
|
)
|
Other
|
|
|
(167,356
|
)
|
|
|
(32,822
|
)
|
Deferred rent
|
|
|
—
|
|
|
|
—
|
|
Accounts
payable & accrued expenses
|
|
|
252,367
|
|
|
|
(233,944
|
)
|
Net
cash used in operating activities
|
|
|
(6,166,446
|
)
|
|
|
(3,767,470
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property
& equipment
|
|
|
(12,567
|
)
|
|
|
(17,376
|
)
|
Payment
of patent costs
|
|
|
(31,127
|
)
|
|
|
(42,102
|
)
|
Net
cash used in investing activities
|
|
|
(43,694
|
)
|
|
|
(59,478
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Repayments of convertible
notes
|
|
|
(4,314,233
|
)
|
|
|
—
|
|
Reduction of Notes
converted to Preferred Stock
|
|
|
3,264,233
|
|
|
|
—
|
|
Proceeds from note
payable
|
|
|
5,293,016
|
|
|
|
—
|
|
Proceeds from note
payable - related party
|
|
|
500,000
|
|
|
|
—
|
|
Stock issued in
exchange for interest
|
|
|
158,312
|
|
|
|
429,646
|
|
Stock issued in
exchange for principal
|
|
|
150,000
|
|
|
|
—
|
|
Dividends paid
|
|
|
(30,966
|
)
|
|
|
—
|
|
Repayments of note
payable
|
|
|
(2,295,202
|
)
|
|
|
(103,351
|
)
|
Repayments of note
payable - related party
|
|
|
(300,000
|
)
|
|
|
—
|
|
Proceeds from issuance
of stock
|
|
|
7,460,000
|
|
|
|
2,710,032
|
|
Net
cash provided by financing activities
|
|
|
9,885,160
|
|
|
|
3,036,327
|
|
|
|
|
|
|
|
|
|
|
(Decrease) cash and cash equivalents
|
|
|
3,675,020
|
|
|
|
(790,621
|
)
|
Cash and cash equivalents
at beginning of period
|
|
|
450,868
|
|
|
|
1,241,489
|
|
Cash and cash
equivalents at end of period
|
|
$
|
4,125,888
|
|
|
$
|
450,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of non-cash financing
activities:
|
|
|
|
|
|
|
|
|
Reclassification
of derivative liability to additional paid-in-capital
|
|
$
|
50,437,681
|
|
|
$
|
189,613
|
|
Gain
on debt extinguishment
|
|
$
|
2,949,714
|
|
|
$
|
209,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
315,631
|
|
|
$
|
563,637
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
SQL TECHNOLOGIES CORP. AND SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 Organization and Nature of Operations
SQL Technologies Corp. (f/k/a 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. Effective August 12,
2016, the Company changed its name from “Safety Quick Lighting & Fans Corp.” to “SQL Technologies Corp.”
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 offices
in Georgia, Florida and in Foshan, Peoples Republic of China.
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 nonconductive 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 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, thereby 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 “plugin”
ceiling fans and light fixtures under the General Electric Company (“GE” or “General Electric”) 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 nonconforming 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 SQL Technologies Corp. (f/k/a Safety Quick Lighting and Fans Corp.) and the Subsidiary, SQL Lighting & Fans LLC. All intercompany
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 September 2013, increasing the ownership percentage from 94.35% back to
98.8%. During 2016 and 2015, there was no activity in the Subsidiary.
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 $4,125,888 and $450,868 in money market as of December 31, 2016, and December
31, 2015, respectively. The Company has deposits in financial institutions which exceeds the amount insured by the FDIC. The amount
of uninsured deposits was $3,366,685.
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 years ended December 31, 2016 and 2015:
|
|
December
31, 2016
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
$
|
796,824
|
|
|
$
|
234,309
|
|
Allowance for Doubtful
Accounts
|
|
|
—
|
|
|
|
—
|
|
Net Accounts
Receivable
|
|
$
|
796,824
|
|
|
$
|
234,309
|
|
All amounts are deemed collectible at December 31, 2016
and December 31, 2015 and accordingly, the Company has not incurred any bad debt expense at December 31, 2016 and December 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 (FIFO) 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, 2016 and December 31, 2015,
the Company had $2,401,048 and $263,871 in inventory, respectively. The Company will maintain an allowance based on specific inventory
items that 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, 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 to 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 September, 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.
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 9.
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 revalued 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 reassessed 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 86010 (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
|
|
•
|
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 Subtopic 505-50 of the FASB Accounting
Standards Codification (“Subtopic 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 505-50-257, if fully
vested, no 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; cost 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 years ended
December 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 antidilutive 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, 2016 and December 31, 2015:
|
|
December
31, 2016
|
|
December
31, 2015
|
|
|
|
|
|
|
|
Convertible Debt (Exercise
price - $0.25/share)
|
|
800,000
|
|
|
18,056,935
|
|
Stock Warrants (Exercise price - $0.001
- $3.00/share)
|
|
13,555,651
|
|
|
9,728,984
|
|
Stock Options (Exercise price $0.35 -
$3.50/share)
|
|
1,350,000
|
|
|
200,000
|
|
Total
|
|
15,705,651
|
|
|
27,985,919
|
|
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 derecognition,
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
carrybacks and carryforwards. 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, 2016 and 2015
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 201009 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 March 2016, the FASB issued ASU 2016-09,
Stock Compensation,
which is intended to simplify the accounting for share-based payment award transactions. The new standard
will modify several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts,
including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee
tax withholdings, as well as the accounting for award forfeitures over the vesting period. The guidance is effective for fiscal
years beginning after December 15, 2016, including interim periods within that year, and will be adopted by the Company in the
first quarter of fiscal 2017. The Company anticipates the new standard will result in an increase in the number of shares used
in the calculation of diluted earnings per share and will add volatility to the Company’s effective tax rate and income tax
expense. The magnitude of such impacts will depend in part on whether significant employee stock option exercises occur.
In April 2015, the FASB issued Accounting Standards
Update No. 2015-03, Interest—Imputation of Interest (Topic 83530): 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, 2016, and interim periods within those fiscal years. The Company has reclassified
debt issuance costs from prepaid expenses and other current assets and other assets as a reduction to debt in the condensed consolidated
balance sheets.
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, 2016 and December 31, 2015:
|
|
December
31, 2016
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
Office Equipment
|
|
$
|
9,327
|
|
|
$
|
8,096
|
|
Furniture and Fixtures
|
|
|
33,578
|
|
|
|
30,561
|
|
Tooling and Production
|
|
|
136,835
|
|
|
|
128,515
|
|
Total
|
|
|
179,740
|
|
|
|
167,172
|
|
Less: Accumulated Depreciation
|
|
|
(66,135
|
)
|
|
|
(39,651
|
)
|
Property and Equipment
- net
|
|
$
|
113,605
|
|
|
$
|
127,521
|
|
Depreciation expense amounted to $26,483 and $22,430 for
the twelve months ended December 31, 2016 and 2015, respectively.
Note 4 Intangible Assets
Intangible assets (patents) consisted of the following
at December 31, 2016 and December 31, 2015:
|
|
December
31, 2016
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
134,919
|
|
|
$
|
103,792
|
|
Less: Impairment Charges
|
|
|
—
|
|
|
|
—
|
|
Less: Accumulated Amortization
|
|
|
(28,575
|
)
|
|
|
(20,618
|
)
|
Patents - net
|
|
$
|
106,344
|
|
|
$
|
83,174
|
|
Amortization expense associated with patents amounted
to $7,958 and $5,347 for the twelve months ended December 31, 2016 and 2015, respectively.
At December 31, 2016, future amortization of intangible
assets:
Year Ending December 31
|
|
|
|
|
2017
|
|
|
$
|
8,995
|
2018
|
|
|
|
8,995
|
2019
|
|
|
|
8,995
|
2020
|
|
|
|
8,995
|
2021
|
|
|
|
8,995
|
2022 and Thereafter
|
|
|
|
61,369
|
|
|
|
$
|
106,344
|
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 GE Trademark License. The License Agreement is amortized through its expiration in November
2018.
|
|
December
31, 2016
|
|
December
31, 2015
|
GE Trademark License
|
|
$
|
12,000,000
|
|
|
$
|
12,000,000
|
|
Less: Impairment Charges
|
|
|
—
|
|
|
|
—
|
|
Less: Accumulated Amortization
|
|
|
(7,324,415
|
)
|
|
|
(4,876,254
|
)
|
Patents – net
|
|
$
|
4,675,585
|
|
|
$
|
7,123,746
|
|
Amortization expense associated with the GE Trademark
License amounted to $2,448,161 and $2,441,472 for the twelve months ended December 31, 2016 and 2015, respectively
At December 31, 2016, future amortization of intangible
assets is as follows for the remaining:
Year
Ending December 31
|
|
2017
|
|
|
|
2,441,472
|
|
|
2018
|
|
|
|
2,234,113
|
|
|
|
|
|
$
|
4,675,585
|
|
Note 6 Notes Payable
At December 31, 2016 and December 31, 2015,
the Company had a note payable to a bank in the amount of $186,823 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 certain assets of the Company
compensating balances, and is due August 2018.
On April 13, 2016, the company entered in to an agreement
with a third party for a $10,000,000 line of credit. The primary purpose of this line of credit is to fund manufacturing and product
related obligations. The note carries interest of 8%, due monthly with principal and unpaid interest due December 31, 2017. The
note is secured by the assets of the company. The outstanding balance on this note was $3,112,737 at December 31, 2016.
The Company received a $500,000 loan from a related party
in January 2016. The note is on demand and carries interest of 12%. As of December 31, 2016, the outstanding balance is $200,000.
Principal payments due under the terms of the notes described
above are as follows:
|
Principal Due in Next 12 months
|
|
|
|
|
|
2017
|
|
|
$
|
3,425,961
|
|
2018
|
|
|
|
73,598
|
|
|
|
|
$
|
3,422,294
|
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
|
|
|
474,283
|
|
|
|
—
|
|
|
|
474,283
|
|
Less Repayments/Conversions
|
|
|
(4,314,233)
|
|
|
|
—
|
|
|
|
(4,314,233)
|
|
Balance December 31, 2016
|
|
|
150,000
|
|
|
|
50,000
|
|
|
|
200,000
|
|
Less Current portion
|
|
|
(150,000)
|
|
|
|
(50,000)
|
|
|
|
(200,000)
|
|
Long-Term Convertible Debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
On November 26, 2013, May 8, 2014 and September 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 $3,574,234 outstanding as of December 31, 2016 and $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 September 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 payable twenty-four (24) months after the date of issuance. The principal and outstanding 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 September 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 predetermined
valuation of the Company. Investors of the 15% Notes received Warrants with 15% coverage based on the predetermined 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.
The Notes and Warrants were treated as derivative liabilities.
In connection with the Notes Offering, the Company entered
into Registration Rights Agreements, each dated as of November 26, 2013, May 8, 2014 and September 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”), and 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”).
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.
The Company invited the Investors holding Notes dated
November 26, 2013 to extend the first interest payment that was scheduled to be paid pursuant to the Notes dated November 26,
2013 (the “Interest Due”) to February 24, 2015 and in exchange offered to capitalize the Interest Due at a rate of
12% through payment (the “Additional Interest”), all of which was convertible into the Company’s common stock
at a price of $0.25 per share. Through December 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. As of December
31, 2016, all Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages was repaid by the Company.
During 2015, five Investors requested that the Company
withhold payments of interest due under their Notes at no cost to the Company, to allow the Company to address working capital
needs. Such interest due has been or will be paid to the five Investors, and none of such amounts have been or will be paid in
shares of the Company’s capital stock.
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. In May 2016, the Company invited the holders of all Notes, where such holders 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, which the Company thereafter extended to August 15, 2016 (the “August 2016 Election”).
This also provided a third option to all noteholders, whereby such holders could convert their respective Note(s) into shares
of Series A Convertible Preferred Stock (“Preferred Stock”).
In May 2016, the Company invited the holders of all Notes,
where such holders 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, which the Company thereafter extended to August 15,
2016 (the “August 2016 Election”). This also provided a third option to all noteholders, whereby such holders could
convert their respective Note(s) into shares of Series A Convertible Preferred Stock (“Preferred Stock”).
Through December 31, 2016, the Company received
elections, in connection with the August 2016 Election, to (i) convert three (3) Notes into 240,000 shares of common stock of the
Company representing an aggregate principal balance of $60,000, and (ii) convert 31 Notes into 13,056,936 shares of Preferred Stock
representing an aggregate principal balance of $3,264,234. Also through December 31, 2016, the Company received no elections in
connection with the August 2016 Election to redeem Notes and four (4) Investors holding Notes representing an aggregate principal
balance of $200,000 had not responded to the August 2016 Election. Other than the three (3) aforementioned Investors, all Investors
had elected to redeem or convert their Notes into shares of common stock or Preferred Stock. (See Note 7(c))
During 2016 six (6) notes with an aggregate
principal balance of $900,000 were repaid in accordance the agreement, in each case prior to the August 2016 Election.
All issuances of capital stock in the August 2016 Election
have been or will be made only for principal balances due under the Notes, and all interest has been or will be paid directly
to the Investors.
The debt carries interest between 12% and 15%, and was
due in November 2015, May 2016 and September 2016, as extended to July 31, 2016 pursuant to certain forbearance agreements.
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.
At December 31, 2016, the Company has outstanding
convertible debt of $150,000 and $50,000 from a related party which will be repaid when the appropriate documentation is received
from the Noteholder, within the next twelve months.
|
(C)
|
Offer to Convert Debt to Preferred Shares
|
By letter to each holder of the Notes, dated July 22,
2016, the Company requested that each holder indicate its election to (i) redeem its Note, (ii) convert its Note into the Company’s
common stock or (iii) elect to convert its Note into shares of Preferred Stock (the “Preferred Option”), in each case
by August 15, 2016.
For those holders electing the Preferred Option, each
holder has received or will receive shares of the Preferred Stock on a 1 to 1 ratio to the number of shares of the Company’s
common stock which are then convertible under such holder’s respective Note. 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.
Each holder electing the Preferred Option was required
to enter into an amendment to its Note, providing that the Note will be convertible into the Preferred Stock rather than the Company’s
common stock, and to thereafter elect to convert their Note, as amended, into Preferred Stock. In addition, each holder will be
required to enter into a lockup agreement, whereby the holder will agree not to offer, sell, contract to sell, pledge, give, donate,
transfer or otherwise dispose of (i) the shares of the Company’s common stock it then holds, (ii) the shares of Preferred
Stock obtained upon conversion of its Note, and (iii) the shares of the Company’s common stock underlying the Preferred
Stock. The Note amendments, conversion to Preferred Stock and lockup agreement have been entered into on August 15, 2016. The
Note amendments were approved by a majority of the holders of the then outstanding Notes. See above for more details related to
the results of that offering
Note 8 Derivative Liabilities
The Company identified conversion features
embedded within convertible debt and warrants issued in 2013 and 2014 and warrants attached to stock purchases in 2016. 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. Additionally, the Company has issued options that have vested to purchase
stock through our Incentive Plan. Shares have not been reserved with our transfer agent, therefore, they are considered “tainted”
and should be accounted for at fair value, as a derivative liability,
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:
|
|
December 31, 2016
|
|
December 31, 2015
|
Balance Beginning of period
|
|
$
|
24,157,838
|
|
|
$
|
5,140,758
|
|
Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability
|
|
|
—
|
|
|
|
(189,613
|
)
|
Extinguishment of Derivative Liability - Conversion of Interest to Shares
|
|
|
—
|
|
|
|
(209,604
|
)
|
Fair value mark to market adjustment - stock options
|
|
|
(268,098
|
)
|
|
|
134,162
|
|
Fair value at the commitment date for options granted
|
|
|
4,625,002
|
|
|
|
—
|
|
Fair value mark to market adjustment - convertible debt
|
|
|
34,088,543
|
|
|
|
18,835,664
|
|
Fair value mark to market adjustment – warrants
|
|
|
6,264,132
|
|
|
|
446,471
|
|
Fair
value at commitment date for warrants issued
|
|
|
5,053,387
|
|
|
|
—
|
|
Debt settlement on the derivative
liability associated with interest
|
|
|
3,549,904
|
|
|
|
—
|
|
Reclassification of derivative
liability to Additional Paid in Capital due to share reservation
|
|
|
(50,437,681
|
)
|
|
|
—
|
|
Gain
on debt settlement
|
|
|
(2,949,714
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
24,083,313
|
|
|
$
|
24,157,838
|
|
|
|
|
Commitment
Date
|
|
|
|
Recommitment
Date
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
150
|
%
|
|
|
150
|
%
|
Expected term
|
|
|
2-5
years
|
|
|
|
0.00
– 2.48 years
|
|
Risk Free Interest Rate
|
|
|
.29%-2.61%
|
|
|
|
1.20%-.1.47%
|
|
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 $4,402,773 as of December 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 ($43,634,482) and ($19,416,295) for the
twelve months ended December 31, 2016 and 2015, respectively.
The Company
recorded derivative expense of ($2,268,021) and $0 for the three months ended and ($9,678,390) and $0 for the twelve months ended
December 31, 2016 and 2015, respectively.
The Company
recorded loss on disposition of debt as a result of conversion to Common Stock and Preferred Stock of ($47,879,109). The loss
was a result of the conversion value of the shares received exceeded the face value of the note.
Note 10 Debt Issue Costs
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
Debt Issuance Costs
|
|
$
|
316,797
|
|
|
$
|
316,797
|
|
Total
|
|
|
316,797
|
|
|
|
316,797
|
|
Less: Accumulated Amortization
|
|
|
(316,797
|
)
|
|
|
(302,192
|
)
|
Debt Issuance Costs
|
|
$
|
—
|
|
|
$
|
14,605
|
|
The Company recorded amortization expense of $14,605 and
$117,098 for the twelve months ended December 31, 2016 and 2015, respectively.
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 nontransferable and cannot be
sublicensed. Various termination clauses are applicable; however, none were applicable as of December 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 $489,108 and $196,800 for the twelve months ended December 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
Contract Year Net Sales owed to GE
|
|
$0 $50,000,000
|
|
7%
|
$50,000,001 $100,000,000
|
|
6%
|
$100,000,000+
|
|
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, 2016, the Company has a net operating loss carryforward of approximately $15,465,000 available to offset future taxable income
expiring through 2036. 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, 2016, and 2015.
The effects
of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2016 and December 31, 2015
are approximately as follows:
|
|
December 31, 2016
|
|
December 31, 2015
|
Net operating loss carryforward
|
|
$
|
(15,512,000
|
)
|
|
$
|
(9,248,000
|
)
|
Gross Deferred Tax Assets
|
|
|
6,64,000
|
|
|
|
3,745,000
|
|
Less Valuation Allowance
|
|
|
(6,264,000
|
)
|
|
|
(3,745,000
|
)
|
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 35% to loss before taxes and 5.5% for Florida State Corporate Taxes, are approximately
as follows:
|
|
December
31, 2016
|
|
December
31, 2015
|
Computed
"expected" tax expense (benefit) – Federal
|
|
$
|
(34,457,000
|
)
|
|
$
|
(9,411,000
|
)
|
Computed "expected"
tax expense (benefit) - State
|
|
|
(5,415,000
|
)
|
|
|
(1,479,000
|
)
|
Derivative
expense
|
|
|
3,920,000
|
|
|
|
7,871,000
|
|
Change in Fair Value
of Embedded Derivative
|
|
|
17,672,000
|
|
|
|
—
|
|
Loss/(Gain) on Debt
Extinguishment
|
|
|
16,657,000
|
|
|
|
(85,000
|
)
|
Change
in valuation allowance
|
|
|
1,623,000
|
|
|
|
3,104,000
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Note 13 Stockholders Deficit
(A) Common Stock
For the twelve months ended December 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- to be issued
|
|
|
(4)
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
1.00
|
|
|
December
31 2015
|
|
|
|
|
|
|
6,751,251
|
|
|
$
|
3,313,366
|
|
|
$
|
0.25-1.00
|
|
|
Common
Stock issued Board of Directors Compensation
|
|
|
(5)
|
|
|
|
62,000
|
|
|
|
62,000
|
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued per Waiver and Conversion Agreement
|
|
|
(6)
|
|
|
|
1,790,092
|
|
|
|
822,524
|
|
|
|
0.25-0.625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock offering
|
|
|
(7)
|
|
|
|
3,155,000
|
|
|
|
7,538,000
|
|
|
|
1.00-2.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Award
|
|
|
(8)
|
|
|
|
25,000
|
|
|
|
65,000
|
|
|
|
2.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued for Services
|
|
|
(9)
|
|
|
|
300,000
|
|
|
|
804,000
|
|
|
|
1.00-3.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued for Conversion of Debt
|
|
|
(10)
|
|
|
|
443,156
|
|
|
|
110,789
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2016
|
|
|
|
|
|
|
5,575,248
|
|
|
$
|
9,370,563
|
|
|
$
|
0.25-2.70
|
|
|
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.
Shares Issued in Board of Directors Compensation.
|
(5)
|
Shares issued to Board of Directors
|
The Company added a new Director in November 2015. The
Company issued the Director 50,000 shares of Common Stock at $0.60 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, as of the twelve months ended December 31, 2016, the Company issued an
additional 2,343,191 shares of its common stock as payment for Additional Interest, Interest Due, Filing Default Damages and Effectiveness
Default Damages, representing payment to Investors of $1,210,798. Of this amount, $625,000 is prior year stock awards/grants not
issued until 2016.
|
(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.
In April 2016, the Company completed an offering of 2,000,000
shares at an offering price of $2.50 and 1,666,667 in warrants with a conversion price of $3.00 per share.
In May 2016, the Company completed an offering of 675,000
shares at an offering price of $2.60 and 1,350,000 of warrants with a conversion price between $3.00 and $3.50 over the next three
anniversary dates.
In July 2016, the Company completed an offering for 30,000
shares at $2.60 and an additional 150,000 shares at $2.70 in two separate offerings.
|
(8)
|
Shares Issued Pursuant to Stock Awards.
|
In September 2016, the Company issued 25,000 shares in
stock awards at $0.60 per share.
|
(9)
|
Shares Issued for Services
|
In September 2016, the Company issued 300,000 shares issued
representing $136,250 in services received. The share conversions were in a range of $0.25 to $1.00 per share.
|
(10)
|
Shares Issued in Conjunction
with Retirement of Debt
|
In accordance
with the Notes, 443,156 shares were issued for the retirement of debt during the period.
(B) Preferred Stock
The following is a summary of the Company’s Preferred
Stock Activity
Transaction
Type
|
|
|
|
Quantity
|
|
Valuation
|
|
Range
of Value per Share
|
|
2015 Preferred
Stock Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 2015
|
|
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
issued per Waiver and Conversion Agreement
|
|
|
|
|
|
|
13,056,932
|
|
|
|
44,393,469
|
|
|
|
$3.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2016
|
|
|
|
|
|
|
5,575,248
|
|
|
$
|
44,393,469
|
|
|
$
|
$3.40
|
|
|
In accordance
with the Company’s Convertible Notes Payable Preferred Option offering (Note 7 (C) ) 13,056,932 shares of 6% Preferred Stock.
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, and therefore the stock is classified as Mezzanine equity rather
than permanent equity The stock was valued based upon the value of Common Shares publicly traded nearest the conversion date.
During the year ended December 31, 2016, the Company distributed $30,966 to the Preferred Stock shareholders.
(C) Stock Options
The following is a summary of the Company’s stock
option activity:
|
|
|
|
|
|
Weighted
Average
|
|
Aggregate
|
|
|
|
|
Weighted
Average
|
|
Remaining
Contractual Life
|
|
Intrinsic
|
|
|
Options
|
|
Exercise
Price
|
|
(In
Years)
|
|
Value
|
Balance- December 31, 2014
|
|
|
200,000
|
|
|
|
0.375
|
|
|
|
2.18
|
|
|
$
|
324,829
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance- December 31, 2015
|
|
|
200,000
|
|
|
|
0.375
|
|
|
|
2.18
|
|
|
$
|
324,829
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Granted (1)
|
|
|
1,150,000
|
|
|
|
0.835
|
|
|
|
1.38
|
|
|
$
|
1,700,000
|
|
Forfeited/Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance- December 31, 2016
|
|
|
1,350,000
|
|
|
|
0.835
|
|
|
|
1.38
|
|
|
$
|
1,700,000
|
|
|
(1)
|
The
Company has issued options that have vested to purchase stock through our Incentive Plan.
Shares have not been reserved with our transfer agent, therefore, they are considered
“tainted”. The Company has determined that they should be accounted for at
fair value, as a derivative liability, see Note 8 for further details.
|
(D) Warrants Issued
The following is a summary of the Company’s stock
option activity:
|
Number
of Warrants
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life (in Years)
|
|
|
|
|
|
|
Balance, December 31, 2014
|
9,728,984
|
|
|
0.375
|
2.2
|
Exercised
|
—
|
|
|
—
|
—
|
Cancelled/Forfeited
|
—
|
|
|
—
|
—
|
Balance, December 31, 2015
|
9,728,984
|
|
$
|
0.375
|
2.2
|
Issued
|
3,826,667
|
|
$
|
3.28
|
2.0
|
Exercised
|
—
|
|
|
—
|
—
|
Cancelled/Forfeited
|
—
|
|
|
—
|
—
|
Balance, December 31, 2016 (1)
|
13,555,651
|
|
$
|
1.20
|
2.5
|
|
(1)
|
The
Company identified conversion features embedded within warrants attached to stock purchases
in 2016. 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. See Footnote
8 for further details.
|
During 2016, the Company issued warrants to four (4) different
groups totaling 3,826,667. These warrants had lives ranging from one to five years at strike prices between $3.0 and $3.50 per
share.
(E) 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 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. The Incentive Plan which became effective July 31, 2016.
Note 14 Commitments
In January 2014, the Company executed a 39 month lease
for a corporate headquarters. The Company paid a security deposit of $27,020. The lease expires April, 2017
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 September, 2015 the Company amended the current lease
for a smaller space at the same terms.
In October, 2014, the Company entered into a sublease
agreement to sublease its previous office space through November 2016. 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
|
2017
|
|
44,463
|
|
-
|
|
44,463
|
2018
|
|
22,989
|
|
-
|
|
22,989
|
2019
|
|
7,872
|
|
-
|
|
7,872
|
Total
|
$
|
75,324
|
$
|
-
|
$
|
75,324
|
|
(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 of the Company’s common stock to him, which vested and were issued
as follows: 250,000 shares 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. These 750,000 shares were issued
in 2016 and valued at $0.625 per share.
On September 1, 2016, the Company entered into a new employment
agreement with Mr. Campi. The agreement provides for a base salary of $150,000; 120,000 shares of The Company’s common stock
in a “Sign on Bonus” which will vest December 31, 2017; 0.25% of annual gross sales and 3% of annual adjusted gross
income in cash compensation and 0.50% of quarterly net income in options, the strike price to be determined at the time of grant.
Such options will expire 5 years after issuance.
For the twelve months ended December 31, 2016 and 2015,
Mr. Campi earned approximately $31,600 and $14,400 respectively, under this agreement. No stock or options have been issued.
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 twelve months
ended December 31, 2016 and 2015, Mr. Kohen earned approximately $35,400 and $14,400, respectively, under this agreement. No stock
or options have been issued.
On September
1, 2016, the Company modified the above agreement. The compensation was changed to $250,000 per annum, an annual grant of the
Company’s common stock of 340,000 shares which vest in its entirety January 1, 2019; Stock options equal to 0.50% of the
Company’s gross revenue with 5-year vesting. In addition, the Chairman was granted a “Sign on Bonus” of 120,000
shares of the Company’s common stock which will vest January 1, 2020 and a supplemental bonus of options which is tied to
the stock performance of the Company.
|
(D)
|
Employee Agreement - President
|
On August 17,
2016, the Company entered into an Employment Agreement with Mark Wells, its new President. Mr Wells receives a salary of $250,000;
1,025,000 shares in the Company’s common stock which will vest in its entirety January 1, 2019; 0.25% of the Company’s
net revenue and a “Sign on Bonus” of 120,000 shares of the Company’s common stock which vests January 1, 2017.
For the twelve months ended December 31, 2016, Mr. Wells earned $3,800 under his employment agreement and $10,000 in commissions
pursuant to the terms of a Consulting Agreement, dated June 1, 2015, between the Company and Mr. Wells, whereby Mr. Wells provided
independent sales consultant services.
|
(D)
|
Employment Agreement – Chief Operating Officer
|
Effective July 1, 2016, the Company entered into an Executive
Employment Agreement with Patricia Barron, its Chief Operations Officer. Ms. Barron receives a base salary of $120,000 per year
and incentive compensation equal to 0.25% of the Company’s net revenue paid in cash. For the twelve months ended December
31, 2016, Ms. Barron earned approximately $17,700 under this agreement.
Note 15 Subsequent Events
On March 24,
2017, the holder of our one-year Common Stock Purchase Warrant, issued on April 4, 2016, to purchase up to 1,666,667 shares of
our Common Stock at an exercise price of $3.00 per share, exercised such warrant in full upon tender of $5,000,000 in cash to
the Company.
From January
1, 2017 through March 31, 2017, in response to the August 2016 Election, (i) holders of two (2) outstanding Notes totaling a principal
balance of $100,000 elected to redeem their Notes, and the Company repaid the principal balance of such Notes in full, and (ii)
a holder of one (1) outstanding Note totaling a principal balance of $50,000 elected to convert the full principal balance of
its outstanding Note into Preferred Stock, and the Company thereafter issued 200,000 shares of Series A Preferred Stock to such
holder.
SQL Technologies Corp. and Subsidiary
Condensed Consolidated Balance Sheets
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Assets
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
7,200,560
|
|
|
$
|
4,125,888
|
|
Accounts
receivable, net of allowance
|
|
|
1,282,792
|
|
|
|
796,824
|
|
Inventory
|
|
|
2,627,381
|
|
|
|
2,401,048
|
|
Prepaid
expenses
|
|
|
56,840
|
|
|
|
41,229
|
|
Total
current assets
|
|
|
11,167,573
|
|
|
|
7,364,989
|
|
|
|
|
|
|
|
|
|
|
Furniture
and Equipment - net
|
|
|
167,021
|
|
|
|
113,605
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Patent
- net
|
|
|
137,673
|
|
|
|
106,342
|
|
GE
trademark license - net
|
|
|
3,462,540
|
|
|
|
4,675,585
|
|
Other
assets
|
|
|
28,934
|
|
|
|
202,346
|
|
Total
other assets
|
|
|
3,629,147
|
|
|
|
4,984,273
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
14,963,741
|
|
|
$
|
12,462,867
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders (Deficit)
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable & accrued expenses
|
|
$
|
1,350,288
|
|
|
$
|
1,060,163
|
|
Convertible
debt - net of debt discount $-0- and $-0- at June 30, 2017 and December 31, 2016 respectively
|
|
|
—
|
|
|
|
150,000
|
|
Convertible
debt - related parties - net of debt discount $-0- and $-0- at June 30, 2017 and December 31, 2016 respectively
|
|
|
—
|
|
|
|
50,000
|
|
Notes
payable - current portion
|
|
|
3,453,822
|
|
|
|
3,225,961
|
|
Notes
payable - related party
|
|
|
200,000
|
|
|
|
200,000
|
|
Derivative
liabilities
|
|
|
32,296,078
|
|
|
|
24,083,314
|
|
Other
current liabilities
|
|
|
29,707
|
|
|
|
15,077
|
|
Total
current liabilities
|
|
|
37,329,895
|
|
|
|
28,784,515
|
|
|
|
|
|
|
|
|
|
|
Long
term liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
12,649
|
|
|
|
73,598
|
|
GE
royalty obligation
|
|
|
10,946,406
|
|
|
|
11,302,423
|
|
Total
long term liabilities
|
|
|
10,959,055
|
|
|
|
11,376,021
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
48,288,950
|
|
|
|
40,160,536
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingent Liabilities:
|
|
|
|
|
|
|
|
|
Redeemable
preferred stock - subject to redemption: $0 par value; 20,000,000 shares authorized; 13,456,932 and 13,056,932 shares issued
and outstanding at June 30, 2017 and December 31, 2016 respectively
|
|
|
45,753,569
|
|
|
|
44,393,569
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit:
|
|
|
|
|
|
|
|
|
Common
stock: $0 par value, 500,000,000 shares authorized; 49,042,833 and 47,276,499 shares issued and outstanding at June 30, 2017
and December 31, 2016 respectively
|
|
|
17,581,391
|
|
|
|
12,294,391
|
|
Common
stock to be issued
|
|
|
—
|
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
63,971,540
|
|
|
|
56,910,106
|
|
Subscription
receivable
|
|
|
—
|
|
|
|
(78,000
|
)
|
Accumulated
deficit
|
|
|
(160,596,267
|
)
|
|
|
(141,182,294
|
)
|
Total
Stockholders’ deficit
|
|
|
(79,043,336
|
)
|
|
|
(72,055,796
|
)
|
Non-controlling
interest
|
|
|
(35,442
|
)
|
|
|
(35,442
|
)
|
Total
Deficit
|
|
|
(79,078,778
|
)
|
|
|
(72,091,238
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ deficit
|
|
$
|
14,963,741
|
|
|
$
|
12,462,867
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
SQL Technologies
Corp. and Subsidiary
Condensed
Consolidated Statements of Operations
For the Three and Six-Months
Ended June 30, 2017 and 2016
(Unaudited)
|
|
Three-Months
|
|
|
Six-Months
|
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,504,751
|
|
|
$
|
1,854,368
|
|
|
$
|
5,122,097
|
|
|
$
|
3,602,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(1,969,977
|
)
|
|
|
(1,690,505
|
)
|
|
|
(3,981,226
|
)
|
|
|
(3,254,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
534,774
|
|
|
|
163,863
|
|
|
|
1,140,871
|
|
|
|
347,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
2,048,351
|
|
|
|
1,508,663
|
|
|
|
3,801,433
|
|
|
|
2,936,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,513,577
|
)
|
|
|
(1,344,800
|
)
|
|
|
(2,660,562
|
)
|
|
|
(2,588,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(80,769
|
)
|
|
|
(396,725
|
)
|
|
|
(142,298
|
)
|
|
|
(762,766
|
)
|
Derivative
expenses
|
|
|
(197,869
|
)
|
|
|
(4,963,451
|
)
|
|
|
(2,259,028
|
)
|
|
|
(4,963,451
|
)
|
Change
in fair value of embedded derivative liabilities
|
|
|
502,252
|
|
|
|
(37,458,479
|
)
|
|
|
(13,015,170
|
)
|
|
|
(35,461,616
|
)
|
Loss
on debt extinguishment - net
|
|
|
(630,000
|
)
|
|
|
—
|
|
|
|
(1,260,000
|
)
|
|
|
—
|
|
Other
income
|
|
|
4,419
|
|
|
|
4,147
|
|
|
|
8,831
|
|
|
|
4,148
|
|
Total
other expense - net
|
|
|
(401,967
|
)
|
|
|
(42,814,508
|
)
|
|
|
(16,667,665
|
)
|
|
|
(41,183,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) including non-controlling interest
|
|
|
(1,915,544
|
)
|
|
|
(44,159,308
|
)
|
|
|
(19,328,227
|
)
|
|
|
(43,772,249
|
)
|
Less:
net loss attributable to non-controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
income (loss) attributable to SQL Technologies Corp.
|
|
$
|
(1,915,544
|
)
|
|
$
|
(44,159,308
|
)
|
|
$
|
(19,328,227
|
)
|
|
$
|
(43,772,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(1.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding during the year - basic and diluted
|
|
|
48,996,955
|
|
|
|
45,098,621
|
|
|
|
48,427,152
|
|
|
|
43,897,995
|
|
The accompanying notes are an integral part of these condensed consolidated
financial statements.
SQL Technologies
Corp. and Subsidiary
Condensed
Consolidated Statements of Cash Flows
Six-Months
Ended June 30, 2017 and 2016
(Unaudited)
|
|
Six-Months
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss attributable to SQL Technologies Corp.
|
|
$
|
(19,328,227
|
)
|
|
$
|
(43,772,249
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
15,404
|
|
|
|
13,006
|
|
Allowance for doubtful accounts
|
|
|
18,996
|
|
|
|
—
|
|
Amortization of debt issue costs
|
|
|
—
|
|
|
|
14,605
|
|
Amortization of debt discount
|
|
|
—
|
|
|
|
474,283
|
|
Amortization of patent
|
|
|
5,105
|
|
|
|
3,679
|
|
Amortization of GE trademark license
|
|
|
1,213,044
|
|
|
|
1,217,392
|
|
Change in fair value of derivative liabilities
|
|
|
13,015,171
|
|
|
|
35,461,616
|
|
Derivative expense
|
|
|
2,259,028
|
|
|
|
4,963,451
|
|
Loss on debt extinguishment
|
|
|
1,260,000
|
|
|
|
—
|
|
Stock options issued for services - related parties
|
|
|
—
|
|
|
|
133,250
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(504,964
|
)
|
|
|
(1,079,819
|
)
|
Prepaid expenses
|
|
|
(15,611
|
)
|
|
|
(4,560
|
)
|
Inventory
|
|
|
(226,333
|
)
|
|
|
(2,175,029
|
)
|
Royalty payable
|
|
|
(356,017
|
)
|
|
|
(243,869
|
)
|
Other
|
|
|
188,043
|
|
|
|
(8,115
|
)
|
Accounts payable & accrued expenses
|
|
|
290,121
|
|
|
|
533,603
|
|
Net cash used in operating activities
|
|
|
(2,166,240
|
)
|
|
|
(4,468,756
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property & equipment
|
|
|
(68,820
|
)
|
|
|
(10,837
|
)
|
Payment of patent costs
|
|
|
(36,435
|
)
|
|
|
(19,455
|
)
|
Net cash used in investing activities
|
|
|
(105,255
|
)
|
|
|
(30,292
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayments of convertible notes
|
|
|
(200,000
|
)
|
|
|
(940,000
|
)
|
Payments of contingent consideration
|
|
|
100,000
|
|
|
|
—
|
|
Proceeds from note payable
|
|
|
1,665,178
|
|
|
|
2,653,625
|
|
Proceeds from note payable - related party
|
|
|
—
|
|
|
|
500,000
|
|
Stock issued in exchange for interest
|
|
|
—
|
|
|
|
157,523
|
|
Stock issued in exchange for principal
|
|
|
—
|
|
|
|
40,000
|
|
Dividends paid
|
|
|
(85,745
|
)
|
|
|
—
|
|
Repayments of notes
|
|
|
(1,498,266
|
)
|
|
|
(55,835
|
)
|
Repayments of notes - related party
|
|
|
—
|
|
|
|
(300,000
|
)
|
Proceeds from the exercise of options
|
|
|
78,000
|
|
|
|
—
|
|
Proceeds from the exercise of warrants
|
|
|
5,000,000
|
|
|
|
—
|
|
Proceeds from issuance of stock
|
|
|
287,000
|
|
|
|
7,055,000
|
|
Net cash provided by financing activities
|
|
|
5,346,167
|
|
|
|
9,110,313
|
|
|
|
|
|
|
|
|
|
|
Increase cash and cash equivalents
|
|
|
3,074,672
|
|
|
|
4,611,265
|
|
Cash and cash equivalents at beginning of period
|
|
|
4,125,888
|
|
|
|
450,868
|
|
Cash and cash equivalents at end of period
|
|
$
|
7,200,560
|
|
|
$
|
5,062,133
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
|
Reduction in principal balance of notes from escrow balance
|
|
$
|
—
|
|
|
$
|
—
|
|
Debt discount recorded on convertible debt accounted for as a derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
Reclassification of derivative liability to additional paid-in-capital
|
|
$
|
7,061,434
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
138,881
|
|
|
$
|
220,485
|
|
The accompanying notes are
an integral part of these condensed consolidated financial statements.
SQL TECHNOLOGIES CORP. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Organization and Nature of Operations
SQL Technologies Corp. (f/k/a 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. Effective
August 12, 2016, the Company changed its name from “Safety Quick Lighting & Fans Corp.” to “SQL Technologies
Corp.” 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
offices in Georgia, Florida and in Foshan, Peoples Republic of China.
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 nonconductive
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 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, thereby 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 “plugin” ceiling fans and light fixtures under the General Electric Company (“GE” or “General
Electric”) 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 nonconforming 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 SQL Technologies Corp. (f/k/a Safety Quick Lighting and Fans Corp.) and the Subsidiary, SQL Lighting & Fans
LLC. All intercompany 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 September 2013, increasing the ownership percentage
from 94.35% back to 98.8%. During the six-month ended June 30, 2017 and the twelve-months ended December 31, 2016, there was no
activity in the Subsidiary.
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 $7,200,560 and $4,125,888 in money market as
of June 30, 2017, and December 31, 2016, respectively. The Company has deposits in financial institutions which exceeds the
amount insured by the FDIC. The amount of uninsured deposits was $6,700,557 at June 30, 2017.
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 the six-months ended June 30, 2017 and December 31, 2016 was as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
$
|
1,301,788
|
|
|
$
|
796,824
|
|
Allowance for Doubtful Accounts
|
|
|
(18,996
|
)
|
|
|
—
|
|
Net Accounts Receivable
|
|
$
|
1,282,792
|
|
|
$
|
796,824
|
|
For the six-months ended June 30, 2017,
the Company increased the Allowance for Doubtful Accounts to $18,996 reflecting amounts deemed potentially uncollectable. For
the three and six-months ended June 30, 2017 the Company recorded $18,996 in bad debt expense. The Company recorded no bad debt
expense in 2016.
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 (FIFO) 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 June 30, 2017 and December 31, 2016,
the Company had $2,627,381 and $2,401,048 in inventory, respectively. The Company will maintain an allowance based on specific
inventory items that have shown no activity over a twenty-four 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 June 30, 2017, and December 31, 2016, the Company has determined that no allowance was 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 3 to 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 September, 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 9.
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 revalued 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 reassessed 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: 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.
|
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 – Nonemployees
Equity 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 Subtopic 505-50 of the FASB Accounting
Standards Codification (“Subtopic 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 505-50-257, if
fully vested, no forfeitable equity instruments are issued at the date the grantor and grantee enter 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). 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 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 six-month
ended June 30, 2017 and 2016, the Company reflected net loss and a dilutive net loss, and the effect of considering any common
stock equivalents would have been antidilutive 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 June 30, 2017 and December 31, 2016:
|
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
Convertible
Debt (Exercise price $0.25/share)
|
|
|
|
—
|
|
|
|
800,000
|
|
Stock Warrants (Exercise price $0.001 - $3.00/share)
|
|
|
|
11,948,984
|
|
|
|
13,555,651
|
|
Stock Options (Exercise price $0.375 - $3.00/share)
|
|
|
|
3,725,000
|
|
|
|
1,350,000
|
|
Total
|
|
|
|
15,673,984
|
|
|
|
15,705,651
|
|
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 201009 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 March
2016, the FASB issued ASU 2016-09, Stock Compensation, which is intended to simplify the accounting for share based payment award
transactions. The new standard will modify several aspects of the accounting and reporting for employee share based payments and
related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits
or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The guidance
is effective for fiscal years beginning after December 15, 2016, including interim periods within that year, and will be adopted
by the Company in the first quarter of fiscal 2017. The Company anticipates the new standard will result in an increase in the
number of shares used in the calculation of diluted earnings per share and will add volatility to the Company’s effective
tax rate and income tax expense. The magnitude of such impacts will depend in part on whether significant employee stock option
exercises occur.
In April
2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Topic 83530): 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, 2016, and interim periods
within those fiscal years. The Company has reclassified debt issuance costs from prepaid expenses and other current assets and
other assets as a reduction to debt in the condensed consolidated balance sheets.
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 June 30, 2017 and December 31, 2016:
|
|
June 30, 2017
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Office Equipment
|
|
$
|
9,327
|
|
|
$
|
9,327
|
|
Furniture and Fixtures
|
|
|
33,578
|
|
|
|
33,578
|
|
Tooling and Production
|
|
|
178,975
|
|
|
|
136,835
|
|
Leasehold Improvements
|
|
|
26,680
|
|
|
|
—
|
|
Total
|
|
|
248,560
|
|
|
|
179,740
|
|
Less: Accumulated Depreciation
|
|
|
(81,539
|
)
|
|
|
(66,135
|
)
|
Property and Equipment net
|
|
$
|
167,021
|
|
|
$
|
113,605
|
|
Depreciation expense amounted to $8,857
and $15,404 for the three and six-month ended June 30, 2017, respectively; and $6,593 and $13,006 for the three-months and six-months
ended June 30, 2016, respectively.
Note 4 Intangible Assets
Intangible
assets (patents) consisted of the following at June 30, 2017 and December 31, 2016:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
171,354
|
|
|
$
|
134,919
|
|
Less: Impairment Charges
|
|
|
—
|
|
|
|
—
|
|
Less: Accumulated Amortization
|
|
|
(33,681
|
)
|
|
|
(28,577
|
)
|
Patents net
|
|
$
|
137,673
|
|
|
$
|
106,342
|
|
Amortization expense associated with patents
amounted to $2,828 and $5,105 for the three-months and six-months ended June 30, 2017, respectively; and $1,902 and $3,679 for
the six-months ended June 30, 2016, respectively.
At June 30, 2017, future amortization
of intangible assets for the years ending follows:
Year
Ending December 31:
|
|
|
|
|
2017
|
|
|
$
|
5,759
|
|
2018
|
|
|
|
11,424
|
|
2019
|
|
|
|
11,424
|
|
2020
|
|
|
|
11,455
|
|
2021
|
|
|
|
11,424
|
|
|
2022
and Thereafter
|
|
|
86,187
|
|
|
|
|
$
|
137,673
|
|
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 GE Trademark License. The License Agreement is amortized through its expiration in November 2018.
|
|
June 30, 2017 (Unaudited)
|
|
|
December 31, 2016
(Audited)
|
|
|
|
|
|
|
|
|
GE Trademark License
|
|
$
|
12,000,000
|
|
|
$
|
12,000,000
|
|
Less: Impairments
|
|
|
—
|
|
|
|
—
|
|
Less: Accumulated Amortization
|
|
|
(8,537,460
|
)
|
|
|
(7,324,415
|
)
|
GE Trademark License – net
|
|
$
|
3,462,540
|
|
|
$
|
4,675,585
|
|
Amortization expense associated with the GE Trademark License
amounted to $611,037 and $1,213,043 for the three-months and six-months ended June 30, 2017 and $608,695 and $1,217,391 for the
three-months and six-months ended 2016, respectively.
At June 30, 2017, future amortization of intangible assets is as
follows for the remaining:
Year Ending December 31:
|
|
|
|
|
2017
|
|
|
$
|
1,222,074
|
|
2018
|
|
|
|
2,240,466
|
|
|
|
|
$
|
3,462,540
|
|
Note 6 Deferred Lease Credits
Cash or rent abatements received upon
entering into certain office leases are recognized on a straight-line basis as a reduction to rent expense over the lease term.
The unamortized portion is included in Deferred Lease Credits, which are included in other long-term liabilities. As of June 30,
2017, and December 31, 2016 the long-term deferred credits were $29,707 and $13,034 respectively. Deferred Rent amortization was
$3,875 and $(16,673) for the three-months and six-months ended June 30, 2017 and $2,292 and $4,584 for the three-months and six-months
ended 2016, respectively.
Note 7 Notes Payable
At June 30, 2017 and December 31,
2016, the Company had a note payable to a bank in the amount of $128,581 and $186,823, respectively. The note bears interest at
prime plus 1.5% (5.5% as of June 30, 2017) and matures on August 28, 2018. The note is secured by the assets of the Company and
personal guarantees by a shareholder and an officer of the Company.
On April 13, 2016, the Company entered in to
an agreement with a third party for a $10,000,000 line of credit. The primary purpose of this line of credit is to fund manufacturing
and product related obligations. The amounts outstanding under the line of credit promissory note carries interest of 8%, due monthly
with principal and unpaid interest due December 31, 2017. The note is secured by the assets of the Company. The outstanding balance
on this note was $3,337,889 and $3,112,737 at June 30, 2017 and December 31, 2016, respectively.
The Company received a $500,000 loan from a
related party in January 2016. The note is on demand and carries interest of 12% and carried a balance of $200,000 at June 30,
2017 and December 31, 2016, respectively.
Principal payments due under the terms of the
notes described above are as follows:
Principal Due in Next 12 Months
|
|
|
|
|
2017
|
|
|
$
|
3,623,793
|
|
2018
|
|
|
|
42,677
|
|
|
|
|
$
|
3,666,470
|
|
Interest expense under the above
agreements amounted to $72,644 and $130,644 for the three-months and six-months ended June 30, 2017, respectively and $193,358
and $273,879 for the three-months and six-months ended June 30, 2016, respectively.
Note 8 Convertible Debt Net
The Company has recorded derivative
liabilities associated with convertible debt instruments, as more fully discussed at Note 9.
|
|
Third Party
|
|
|
Related Party
|
|
|
Totals
|
|
Balance December 31, 2015
|
|
$
|
3,989,950
|
|
|
$
|
50,000
|
|
|
$
|
4,039,950
|
|
Add: Amortization of Debt Discount
|
|
|
474,283
|
|
|
|
0
|
|
|
|
474,283
|
|
Less Repayments/Conversions
|
|
|
(4,314,233
|
)
|
|
|
—
|
|
|
|
—
|
|
Balance December 31, 2016
|
|
|
150,000
|
|
|
|
50,000
|
|
|
|
200,000
|
|
Add: Amortization of Debt Discount
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Less Repayments/Conversions
|
|
|
(150,000
|
)
|
|
|
(50,000
|
)
|
|
|
(200,000
|
)
|
Balance June 30, 2017
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On November 26, 2013, May 8, 2014 and September
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. 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
September 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 payable twenty-four (24) months after the date of issuance. The principal and outstanding 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 September 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 predetermined
valuation of the Company. Investors of the 15% Notes received Warrants with 15% coverage based on the predetermined 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.
The Notes and Warrants were treated as derivative
liabilities.
In connection with the Notes Offering, the
Company entered into Registration Rights Agreements, each dated as of November 26, 2013, May 8, 2014 and September 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”), and 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”).
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.
The Company invited the Investors
holding Notes dated November 26, 2013 to extend the first interest payment that was scheduled to be paid pursuant to the Notes
dated November 26, 2013 (the “Interest Due”) to February 24, 2015 and in exchange offered to capitalize the Interest
Due at a rate of 12% through payment (the “Additional Interest”), all of which was convertible into the Company’s
common stock at a price of $0.25 per share (the “Agreement and Waiver and Agreement to Convert”). Through December
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. As of December 31, 2016, all Additional Interest, Interest Due,
Filing Default Damages and Effectiveness Default Damages was repaid by the Company.
During 2015, five Investors requested that
the Company withhold payments of interest due under their Notes at no cost to the Company, to allow the Company to address working
capital needs. Such interest due has been or will be paid to the five Investors in cash or simple non-interest bearing promissory
notes, and none of such amounts have been or will be paid in shares of the Company’s capital stock.
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.
In May 2016, the Company invited the holders
of all Notes, where such holders 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, which the Company thereafter extended
to August 15, 2016 (the “August 2016 Election”). This also provided a third option to all noteholders, whereby such
holders could convert their respective Note(s) into shares of Series A Convertible Preferred Stock (“Preferred Stock”).
(See Note 8(B)).
Prior to the August 2016 Election, several
Investors had previously elected to receive payment in cash, or convert their Notes into shares of the Company’s common stock,
but most Notes remained outstanding.
For the six-months ended June 30, 2017, one
Investor redeemed $50,000 in principal balance of one Note and one Investor was issued 200,000 shares of Preferred Stock in connection
with its August 2016 Election. Pursuant to the August 2016 Elections received and effective as of August 15, 2016, through June
30, 2017 the Company redeemed or issued shares of the Company’s common stock or Preferred Stock, as applicable, in exchange
for the principal balance of the Notes, as follows: (i) the payment of, in the aggregate, $50,000 in principal balance of one Note;
(ii) the issuance of 240,000 shares of the Company’s common stock, representing $60,000 in outstanding Note principal balance;
and (iii) the issuance of 13,456,936 shares of Preferred Stock, representing $3,364,234 in outstanding Note principal balance.
As of June 30, 2017, all Notes have
either been re-paid in cash, separate debt obligation or by conversion, and all such Notes have been terminated. All
issuances of capital stock in the August 2016 Election were made only for principal balances due under the Notes, and all
interest was paid directly to the Investors.
The debt carries interest between 12% and 15%,
and was due in November 2015, May 2016 and September 2016, as extended to July 31, 2016 pursuant to certain forbearance agreements.
All Notes and Warrants issued in connection
with the Notes Offering are convertible at $0.25 and $0.375 per 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.
(B) Offer to Convert Debt to Preferred
Shares
By letter to each holder of the Notes,
dated July 22, 2016, the Company requested that each holder indicate its election to (i) redeem its Note, (ii) convert its Note
into the Company’s common stock or (iii) elect to convert its Note into shares of Preferred Stock (the “Preferred Option”),
in each case by August 15, 2016.
For those holders electing the Preferred
Option, each holder has received shares of the Preferred Stock on a 1 to 1 ratio to the number of shares of the Company’s
common stock which are then convertible under such holder’s respective Note. 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.
Each holder electing the Preferred Option
was required to enter into an amendment to its Note, providing that the Note will be convertible into the Preferred Stock rather
than the Company’s common stock, and to thereafter elect to convert their Note, as amended, into Preferred Stock. In addition,
each holder entered into a lockup agreement, whereby the holder agreed not to offer, sell, contract to sell, pledge, give, donate,
transfer or otherwise dispose of (i) the shares of the Company’s common stock it then holds, (ii) the shares of Preferred
Stock obtained upon conversion of its Note, and (iii) the shares of the Company’s common stock underlying the Preferred Stock,
for a period of twelve (12) months following the date of such agreement. The Note amendments, conversion to Preferred Stock and
lockup agreement have been entered into on August 15, 2016. The Note amendments were approved by a majority of the holders of the
then outstanding Notes. See above for more details related to the results of that offering
Note 9 Derivative Liabilities
The fair value at the commitment and re-measurement
dates for the Company’s derivative liabilities were based upon the following management assumptions as:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Unaudited
|
|
|
Audited
|
|
|
|
|
|
|
|
|
Balance Beginning of period
|
|
$
|
24,083,313
|
|
|
$
|
24,157,837
|
|
Fair value mark to market adjustment - stock options
|
|
|
1,761,071
|
|
|
|
(268,098
|
)
|
Fair value at the commitment date for options granted
|
|
|
778,902
|
|
|
|
4,625,002
|
|
Fair value mark to market adjustment - convertible debt
|
|
|
8,482,239
|
|
|
|
42,664,939
|
|
Fair value mark to market adjustment - warrants
|
|
|
2,771,860
|
|
|
|
(1,972,844
|
)
|
Fair value at commitment date for warrants issued
|
|
|
1,480,126
|
|
|
|
5,053,387
|
|
Debt settlement on the derivative liability associated with interest
|
|
|
—
|
|
|
|
3,204,363
|
|
Reclassification of derivative liability to Additional Paid-in-Capital due to share reservation
|
|
|
(7,061,433
|
)
|
|
|
(50,431,559
|
)
|
Gain on Settlement of Debt
|
|
|
—
|
|
|
|
(2,949,714
|
)
|
Balance at end of period
|
|
$
|
32,296,078
|
|
|
$
|
24,083,313
|
|
The Company recorded a change in the
value of embedded derivative liabilities income/(expense) of $502,252 and $(13,015,170) for the three-months and six-months ended
June 30, 2017, respectively;and $(37,458,479) and $(35,461,616) for the three-months and six-months ended June 30, 2016, respectively
.
|
|
Commitment Date
|
|
|
Recommitment
Date
|
|
Expected dividends
|
|
|
0%
|
|
|
|
0%
|
|
Expected volatility
|
|
|
150%
|
|
|
|
150%
|
|
Expected term
|
|
|
2-5 years
|
|
|
|
1.41 – 4.76 years
|
|
Risk Free Interest Rate
|
|
|
0.29%-2.61%
|
|
|
|
1.38%-1.89%
|
|
The Company recorded derivative expense of
$(197,869) and $(4,963,451) for the three-months and six-months ended June 30, 2017 and $(2,259,028) and $(4,963,451) for the
three-months and six-months ended June 30, 2016, respectively.
The Company recorded loss on disposition of
debt as a result of conversion to the Company’s common stock and Preferred Stock of $(1,260,000) during the six-months ended
June 30, 2017. The loss was a result of the conversion value of the shares received exceeded the face value of the note.
Note 10 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 $4,402,773 as of June 30, 2017 and December 31, 2016.
The Company recorded $197,332 and $474,283
amortization of debt discount expense for the three-months and six-months ended June 30 2016, respectively. The Debt Discount was
fully amortized as of June 30, 2017 and no expense was incurred for the periods presented.
Note 11 Debt Issue Costs
|
|
|
|
|
|
|
|
|
June 30, 2017
(Unaudited)
|
|
|
December 31, 2016
(Audited)
|
|
|
|
|
|
|
|
|
Debt Issuance Costs
|
|
$
|
316,797
|
|
|
$
|
316,797
|
|
Total
|
|
|
316,797
|
|
|
|
316,797
|
|
Less: Accumulated Amortization
|
|
|
(316,797
|
)
|
|
|
(316,797
|
)
|
Debt Issuance Costs net
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company recorded amortization
expense of $0 for the three-months and six-months ended June 30, 2017 and $ $8,569, and $14,609 for three-months and six-months
ended June 30, 2016, respectively.
Note 12 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 nontransferable and
cannot be sublicensed. Various termination clauses are applicable; however, none were applicable as of the periods presented.
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. As of June 30, 2017, and December 31, 2016
there was $10,946,406 and $11,302,423 outstanding under the License Agreement, respectively.
Payments are due quarterly based upon
the prior quarters’ sales. The Company made payments of $218,933 and $356,016 for the three-months and six-months ended June
30, 2017, respectively, and $127,570 and $220,483 for the three-months and six-months ended June 30, 2016, 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 Contract Year Net Sales owed to GE
|
|
$0 $50,000,000
|
|
|
7
|
%
|
$50,000,001 $100,000,000
|
|
|
6
|
%
|
$100,000,000+
|
|
|
5
|
%
|
The Company has limited operating history and
does not have the ability to estimate the sales of GE branded product, the liability is classified as long-term. As sales are recognized,
the Company will estimate the portion it expects to pay in the current year and classify as current.
Note 13 Stockholders Deficit
For the six-months ended June 30, 2017 and
twelve-months ended December 31 2016, the Company issued the following common stock:
Transaction Type
|
|
|
|
|
Quantity
(shares)
|
|
|
Valuation
($)
|
|
|
Range of Value
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Equity Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock issued Board of Directors Compensation
|
|
|
(1)
|
|
|
|
62,000
|
|
|
$
|
42,000
|
|
|
|
0.60-1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued per Agreement and Waiver and Agreement to Convert
|
|
|
(2)
|
|
|
|
1,790,092
|
|
|
|
822,524
|
|
|
|
0.25-.625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Offering
|
|
|
(3)
|
|
|
|
3,155,000
|
|
|
|
7,538,000
|
|
|
|
1.00-2.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Award
|
|
|
(4)
|
|
|
|
25,000
|
|
|
|
15,000
|
|
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued for Services
|
|
|
(5)
|
|
|
|
300,000
|
|
|
|
136,250
|
|
|
|
0.25-1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued for Conversion of Debt
|
|
|
(6)
|
|
|
|
443,156
|
|
|
|
110,789
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2016 Equity Transactions
|
|
|
|
|
|
|
5,775,248
|
|
|
$
|
8,664,563
|
|
|
|
0.25-2.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Equity Transactions (through June 30, 2017)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Offering
|
|
|
(7)
|
|
|
|
69,667
|
|
|
$
|
209,000
|
|
|
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commons Stock Issued per Exercise of Warrants
|
|
|
(8)
|
|
|
|
1,666,667
|
|
|
|
5,000,000
|
|
|
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued per Exercise of Options
|
|
|
(9)
|
|
|
|
30,000
|
|
|
|
78,000
|
|
|
|
2.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2017 Equity Transactions (through June 30, 2017)
|
|
|
|
|
|
|
1,766,334
|
|
|
$
|
5,287,000
|
|
|
$
|
2.60-3.00
|
|
The following is a more detailed description
of the Company’s stock issuance from the table above:
|
(1)
|
Shares Issued to Board of Directors
|
The Company appointed a new director in November
2015. Pursuant to the Company’s Director Compensation Policy (the “Director Compensation Policy”), the Company
issued the director 50,000 shares of the its common stock valued at $0.60 per share in connection with the director’s appointment.
The stock award was granted on November 15, 2015, but the shares were not issued by the Company until February 2016. In January
2016, this director agreed to serve as the Company’s Audit Committee Chair, and the Company issued the director 12,000 shares
of the its common stock valued at $1.00 per share as compensation for the additional responsibilities, pursuant to the Director
Compensation Policy.
|
(2)
|
Shares Issued in Connection with the Notes or Agreements
to Convert
|
In connection with the Agreement and Waiver
and Agreement to Convert, as of the twelve-months ended December 31, 2016, the Company issued an additional 2,343,191 shares of
its common stock as payment for Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages, representing
payment to Investors of $1,210,798. Of this amount, $625,000 represents prior year stock awards/grants that were not issued until
2016.
|
(3)
|
Shares Issued in Connection with Offering
|
On February 19, 2016, the Company completed
a second closing of its offering of shares of its common stock, which first closed on December 24, 2015, representing aggregate
gross proceeds to the Company of $300,000, and thereafter issued 300,000 shares of its common stock.
In April 2016, the Company completed an offering
of 2,000,000 shares of its common stock at an offering price of $2.50 per share, and 1,666,667 in warrants having a conversion
price of $3.00 per share.
In May 2016, the Company completed an offering
of 675,000 shares of its common stock at an offering price of $2.60 per share, and 1,350,000 of warrants having conversion price
between $3.00 and $3.50 over the next three anniversary dates.
In July 2016, the Company completed an offering
of 30,000 shares of its common stock at an offering price of $2.60 per share, and an additional 150,000 shares of its common stock
at $2.70 per share in two separate offerings.
|
(4)
|
Shares Issued Pursuant to Stock Awards.
|
In September 2016, the Company issued 25,000
shares of its common stock in stock awards granted on November 15, 2015, at $0.60 per share.
|
(5)
|
Shares Issued for Services
|
In September 2016, the Company issued 300,000
shares of its common stock representing $136,250 in services received in 2015. The share conversions were in a range of valuations
between $0.25 and $1.00 per share, based on the dates of the agreements and when the services were rendered.
|
(6)
|
Shares Issued in Conjunction with Retirement of Debt
|
In accordance with the Notes, the Company issued
443,156 shares of its common stock for the retirement of debt during the year-ended December 31, 2016.
|
(7)
|
Shares Issued for Common Stock
|
During the six-months ended June 30, 2017,
the Company received gross proceeds of $209,000 from the issuance of 69,667 shares of its common stock to three individuals at
$3.00 per share. In connection therewith, the Company issued five-year options to purchase up to 315,000 shares of its common stock
at an exercise price of $3.00 per share.
|
(8)
|
Shares Issued Pursuant to Warrants Exercised
|
In March 2017, the Company issued 1,666,667
shares of its common stock upon exercise in full of a warrant having an exercise price of $3.00 per share, and the Company received
gross proceeds of $5,000,000.
|
(9)
|
Shares Issued Pursuant to Options Exercised
|
In April 2017, the Company issued 30,000 shares
of its common stock upon exercise in full of an option having an exercise price of $2.60 per share, and the Company received gross
proceeds of $78,000.
The following is a summary of the Company’s Preferred Stock
Activity:
Transaction Type
|
|
Quantity
|
|
|
Valuation
|
|
|
Range of
Value per
Share
|
|
|
|
|
|
|
|
|
|
|
|
2016 Preferred Stock Transactions
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Issued per August 2016 Election
|
|
|
13,056,932
|
|
|
$
|
44,393,569
|
|
|
$
|
3.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2016 Preferred Stock Transactions
|
|
|
13,056,932
|
|
|
$
|
44,393,569
|
|
|
$
|
3.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Preferred Stock Transactions (through June 30, 2017)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Issued per August 2016 Election
|
|
|
400,000
|
|
|
$
|
1,360,000
|
|
|
$
|
3.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2017 Preferred Stock Transactions (through June 30, 2017)
|
|
|
400,000
|
|
|
$
|
1,360,000
|
|
|
|
3.40
|
|
In accordance with the August 2016 Elections (see Note 8(B)), the Company has issued 13,456,932 shares
of 6% Preferred Stock in exchange for Notes having a principal balance of $3,364,234. 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, and therefore the stock is classified as Mezzanine equity rather than permanent equity. The stock was valued based upon
the value of Common Shares publicly traded nearest the conversion date. During the six-month ended June 30, 2017 the Company paid
dividends in the amount of $85,745 to the Preferred Stock shareholders.
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
|
|
2016 Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
|
1,150,000
|
|
|
|
0.835
|
|
|
|
10.00
|
|
|
|
3,404,000
|
|
Forfeited/Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance- December 31, 2016
|
|
|
|
1,150,000
|
|
|
|
0.835
|
|
|
|
8.16
|
|
|
$
|
3,404,000
|
|
Exercised
|
|
|
|
(30,000
|
)
|
|
|
2.60
|
|
|
|
—
|
|
|
|
(78,000
|
)
|
Granted
|
|
|
|
3,105,000
|
|
|
|
0.883
|
|
|
|
8.38
|
|
|
$
|
6,220,850
|
|
Forfeited/Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance- June 30, 2017
|
|
|
|
3,075,000
|
|
|
$
|
0.883
|
|
|
|
8.00
|
|
|
$
|
6,142,850
|
|
The Company has issued options that
have vested to purchase stock through our Incentive Plan. The Company has issued 4,425,000 common stock options in conjunction
with all option plans. The Company has reserved 4,140,000 shares with the transfer agent for the future issuance for shares associated
with common stock options issued. As a result, 285,000 shares have not been reserved and are included in the calculation of derivative
liability (See Note 9).
The following is a summary of the Company’s stock warrant
activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Warrants
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Life (in Years)
|
|
Balance, December 31, 2015
|
|
|
|
9,728,984
|
|
|
$
|
0.289
|
|
|
|
1.7
|
|
Issued
|
|
|
|
3,826,667
|
|
|
|
3.28
|
|
|
|
1.8
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled/Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance, December 31, 2016
|
|
|
|
13,555,651
|
|
|
$
|
0.72
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
|
60,000
|
|
|
|
3.00
|
|
|
|
2.9
|
|
Exercised
|
|
|
|
(1,666,667
|
)
|
|
|
3.00
|
|
|
|
—
|
|
Cancelled/Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance, June 30, 2017
|
|
|
|
11,948,984
|
|
|
$
|
0.83
|
|
|
|
1.9
|
|
During 2016, the Company issued warrants to four (4) different
groups totaling 3,826,667. These warrants had lives ranging from one to five years at strike prices between $3.00 and $3.50 per
share.
In March 2017, 1,666,667 warrants were exercised at $3.00 per share.
In May 2017, 60,000 warrants were issued at price between $3.00
and $3.50 per share contingent on the date of exercise.
|
(E)
|
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 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.
Note 14 Commitments
In January 2014, the Company executed a thirty-nine
month lease for a corporate headquarters. The Company paid a security deposit of $27,020. The lease expires in April 2017
In October 2014, the Company executed a fifty-three
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 September 2015, the Company amended the
current lease for a smaller space at the same terms.
In October 2014, the Company entered into a
sublease agreement to sublease its previous office space through November 2016. In connection with the sublease, the Company collected
$34,981 as a security deposit.
One June 20, 2017, the Company extended the
operating lease for its corporate headquarters in conjunction with the acquisition of additional space. The new lease is effective
on July 1, 2017 and expires on September 30, 2020.
The minimum rent obligations are approximately as follows:
|
|
|
Minimum
|
|
Year
|
|
|
Obligation
|
|
2017
|
|
|
$
|
18,764
|
|
2018
|
|
|
|
76,179
|
|
2019
|
|
|
|
78,467
|
|
2020
|
|
|
|
60,320
|
|
|
|
|
$
|
233,731
|
|
|
(B)
|
Chief Executive Officer Agreement
|
In November 2014, the Company entered into
an employment agreement with John Campi, its Chief Executive Officer. In addition to salary, the agreement provided for the issuance
of 750,000 restricted shares of the Company’s common stock to him, which vested and were issued as follows: 250,000 shares
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 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 0.5% of annual sales up to $20 million and 0.25% for annual sales $20 million and 3% of annual net income. The 750,000 shares
were issued in 2016 and valued at $0.625 per share.
On September 1, 2016, the Company entered into
a new employment agreement with its Chief Executive Officer. The agreement provides for a base salary of $150,000; 120,000
shares of The Company’s common stock in a “Sign on Bonus” which will vest December 31, 2017; 0.25% of annual
gross sales and 3% of annual adjusted gross income in cash compensation and 0.50% of quarterly net income in options, the strike
price to be determined at the time of grant. Such options will expire 5 years after issuance.
For the three-months and six-months ended
June 30, 2017 Mr. Campi earned approximately $4,660 and $10,990, respectively, and for the three-months and six-months ended June
30, 2016 $9,112 and $17,575, respectively, under this and the predecessor agreement associated with performance pay as noted above.
|
(C)
|
Executive Chairman Agreement
|
The Company entered into a three year consulting agreement with a director which was terminated effective
September 1, 2016, and carries an annual payment of $150,000 cash, stock or five year options equal to 0.5% of the Company’s
annual net sales. For the three-months and six-months ended June 30, 2017, Mr. Kohen earned approximately $9,321 and $21,981, respectively,
and for the three-months and six-months ended June 30, 2016, he earned $9,112 and $17,575, respectively, under this and the predecessor
agreement associated with performance pay as noted above. No stock or options have been issued in association with this agreement.
On September 1, 2016, the Company modified
the above consulting agreement. The compensation was changed to $250,000 per annum, an annual grant of 340,000 shares of the Company’s
common stock, which vest in its entirety January 1, 2019, and stock options equal to 0.50% of the Company’s gross revenue
with five year vesting. In addition, the Chairman was granted a “Sign on Bonus” of 120,000 shares of the Company’s
common stock which will vest January 1, 2020, and a supplemental bonus of options which is tied to the performance of the Company’s
common stock.
|
(D)
|
Employee Agreement – President
|
On August 17, 2016, the Company entered into an Employment Agreement with Mark Wells, its President. Mr.
Wells receives a salary of $250,000; 1,025,000 shares in the Company’s common stock which will vest in its entirety
January 1, 2019; 0.25% of the Company’s net revenue and a “Sign-on Bonus” of 120,000 shares of the Company’s
common stock which vests January 1, 2018. Mr. Wells earned $4,660 and $10,990 for the three-months and six-months ended June 30,
2017, respectively, under this employment agreement associated with performance pay as noted above.
|
(E)
|
Employee Agreement – Chief Operating Officer
|
Effective July 1, 2016, the Company entered
into an Executive Employment Agreement with Patricia Barron, its Chief Operations Officer. Ms. Barron receives a base salary of
$120,000 per year and incentive compensation equal to 0.25% of the Company’s net revenue paid in cash. Ms. Barron earned
approximately $4,660 and $10,990 for the three-months and six-months ended June 30, 2017, respectively associated, with performance
pay as noted above.
Note 15 Subsequent Events
On April 19, 2017, the Company’s Board of
Directors authorized the Company to grant certain securities under the Company’s 2015 Incentive Plan, or any successor plan,
consisting of, in the aggregate, options to purchase up to 2,150,000 shares of our common stock at exercise prices ranging from
$3.00 per share to $5.00 per share, vesting on June 30, 2017, December 31, 2017, December 31, 2018 and December 31, 2019. As of
June 30, 2017, the Company had not yet entered into award agreements with the grantees of such grants, and therefore had not
issued options to purchase shares of the Company’s common stock pursuant to such grants. On August 2, 2017, the Company
entered into Stock Option Agreements with two of the grantees thereby issuing, in the aggregate, options to purchase up to 350,000
shares of the Company’s common stock, with 175,000 of such options vested and having an exercise price of $3.00 per share
and 175,000 of such options vesting on December 31, 2017 and having an exercise price of $4.00 per share. As of August 11, 2017,
the Company had not yet entered into Stock Option Agreements with the other grantees.
[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
September 6, 2017
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.
Each of the below transactions were exempt
from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act, Regulation D promulgated
under the Securities Act and, in the case of sales to investors who are non-US persons, Regulation S promulgated under the Securities
Act. In the past three years, the Company issued and/or sold the following unregistered securities:
|
■
|
In connection with the Company’s offering of Secured Convertible Promissory Notes from November
2013 through June 2014, the Company issued warrants to purchase up to 9,062,234 shares of its common stock, no par value per share
(“Common Stock”). All such notes have either been re-paid in cash, separate debt obligation or by conversion into Common
Stock or Series A Convertible Preferred Stock (“Preferred Stock”). In addition, all such Notes have been terminated.
In connection with elections under such notes, the Company has issued (i) 608,642 shares of Common Stock, representing $152,160
in outstanding principal balance; (ii) 13,456,936 shares of Preferred Stock, representing $3,364,234 in outstanding principal
balance; and (iii) 2,343,191 shares of Common Stock, representing $585,798 in default penalties accrued under registration rights
agreements entered into in connection with the notes, interest accrued in connection with certain extensions to pay the first interest
payments under the notes, and the first interest payments due under the notes dated November 26, 2013.
|
|
■
|
On June 12, 2015, the Company completed an initial closing of its “May 2015” offering
of up to $4,000,000 of restricted shares of our Common Stock at $0.60 per share, and issued 2,133,333 shares of Common Stock. On
August 14, 2015, the Company completed a second closing and issued 1,216,000 shares of Common Stock, and on November 6, 2015, the
Company completed a third closing of the offering and issued 433,333 shares of Common Stock in connection therewith. The offering
ended on November 6, 2015, resulting in aggregate gross proceeds to the Company of $2,269,600.
|
|
■
|
On November 15, 2015, the Board authorized the Company to grant certain securities under the Company’s
2015 Stock Incentive Plan, or any successor plan (the “Incentive Plan”), and the Company’s Directors Compensation
Plan, in the aggregate amount of up to 3,810,000 options to purchase shares of Common Stock at exercise prices ranging from $0.60
per share to $1.80 per share, vesting entirely in two years from the date of the grant, and up to 75,000 shares of Common Stock,
which vested immediately. As of September 5, 2017, the Company has entered into Option Award Agreements with thirteen grantees
of the grants, consisting of up to 3,660,000 options to purchase shares of Common Stock, of which options to purchase up to 2,010,000
shares of Common Stock vested on November 15, 2015, options to purchase up to 950,000 shares of Common Stock vested on November
15, 2016, and options to purchase up to 700,000 shares of Common Stock will vest on November 15, 2017. Also, in connection with
the grants, the Company issued 75,000 shares of Common Stock in 2016. The Board terminated grants of options to purchase up to
150,000 shares of Common Stock.
|
|
■
|
On December 24, 2015, the Company completed an initial closing of its “November 2015”
offering of up to $2,000,000 of restricted shares of its Common Stock at $1.00 per share, and issued 500,000 shares of Common Stock.
On February 19, 2016, the Company completed a second closing and issued 300,000 shares of Common Stock. The offering ended on March
31, 2016, resulting in aggregate gross proceeds to the Company of $800,000.
|
|
■
|
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 Common Stock at a purchase price of $2.50 per share and a one-year
warrant to purchase up to 1,666,667 shares of Common Stock at an exercise price of $3.00 per share. On March 24, 2017, such warrant
was exercised in full, and the Company issued 1,666,667 shares of Common Stock. The sale resulted in aggregate gross proceeds to
the Company of $10,000,000.
|
|
■
|
On May 10, 2016, the Company entered into a securities subscription agreement with an accredited
investor, pursuant to which the Company sold (i) 675,000 shares of Common Stock at a purchase price of $2.60 per share; (ii) a
three-year warrant to purchase up to 1,350,000 shares of Common Stock at an exercise price ranging between $3.00 and $3.50 per
share (depending on the date of exercise); and (iii) a right to subsequently receive “volume warrants’ to purchase
up to 1,350,000 shares of Common Stock at $3.00 per share. The sale resulted in aggregate gross proceeds to the Company of $1,755,000.
|
|
■
|
On September 22, 2016, the Company entered into a securities subscription agreement with an accredited
investor, pursuant to which the Company sold (i) 30,000 shares of Common Stock at a purchase price of $2.60 per share, (ii) an
option agreement to purchase an additional 30,000 shares of Common Stock at a purchase price of $2.60 per share within 90 days,
(iii) a three-year warrant to purchase up to 60,000 shares of Common Stock (or 120,000 shares if the option in item (ii) is exercised)
at an exercise price ranging between $3.00 and $3.50 per share (depending on the date of exercise), and (iii) a right to subsequently
receive volume warrants to purchase up to 120,000 shares of Common Stock at $3.00 per share. On May 11, 2017, the Company issued
30,000 shares of Common Stock in connection with the full exercise of the above option agreement. In connection therewith, the
Company issued an additional three-year warrant to purchase up to 60,000 shares of Common Stock at an exercise price ranging between
$3.00 and $3.50 per share (depending on the date of exercise). The sale resulted in aggregate gross proceeds to the Company of
$156,000.
|
|
■
|
On September 22, 2016, the Company issued 150,000 shares of Common Stock to an accredited investor
for a price of $2.70 per share. In connection with the sale, the Company granted warrants to purchase up to 750,000 shares of Common
Stock exercisable at a price per share of $3.00 per share, which expire on January 1, 2022. The sale resulted in aggregate gross
proceeds to the Company of $405,000.
|
|
■
|
On February 21, 2017, the Company entered into a securities subscription agreement with an accredited
investor, whereby such investor subscribed for and received 20,000 shares of Common Stock for $3.00 per share and a five-year option
to purchase up to 100,000 shares of Common Stock at $3.00 per share. On February 23, 2017, the Company received gross proceeds
of $60,000 from the subscriber, and on May 2, 2017, the Company issued 20,000 shares of Common Stock pursuant thereto.
|
|
■
|
On March 24, 2017, the Company entered into a securities subscription agreement with an accredited
investor, whereby such investor subscribed for and received 33,000 shares of Common Stock for $3.00 per share and a five-year option
to purchase up to 165,000 shares of Common Stock at $3.00 per share. On March 24, 2017, the Company received gross proceeds of
$99,000 from the subscriber, and on May 2, 2017, the Company issued 33,000 shares of Common Stock pursuant thereto.
|
|
■
|
On April 11, 2017, the Company entered into a securities subscription agreement with an accredited
investor, whereby such investor subscribed for and received 16,666 shares of Common Stock for $3.00 per share and a five-year option
to purchase up to 50,000 shares of Common Stock at $3.00 per share. On April 4, 2017, the Company received gross proceeds of $50,000
from the subscriber, and on May 2, 2017, the Company issued 16,666 shares of Common Stock pursuant thereto.
|
|
■
|
On April 19, 2017, the Company’s Board of Directors authorized the Company to grant certain
securities under the Incentive Plan consisting of, in the aggregate, options to purchase up to 2,150,000 shares of Common Stock
at exercise prices ranging from $3.00 per share to $5.00 per share, vesting on June 30, 2017, December 31, 2017, December 31, 2018
and December 31, 2019. As of September 5, 2017, the Company entered into Stock Option Agreements with three of the grantees, thereby
issuing, in the aggregate, options to purchase up to 450,000 shares of Common Stock, with 225,000 of such options vested and having
an exercise price of $3.00 per share and 225,000 of such options vesting on December 31, 2017 and having an exercise price of $4.00
per share. As of September 5, 2017, the Company had not yet entered into Stock Option Agreements with the other grantees, and therefore
had not issued the remaining 1,700,000 options to purchase shares of Common Stock pursuant to such grants.
|
Except as noted, none of the foregoing
transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the Company believes
each transaction was exempt from the registration requirements of the Securities Act as stated above. All recipients of the foregoing
transactions either received adequate information about the Company or had access, through their relationships with the Company,
to such information. Furthermore, the Company affixed appropriate legends to the share certificates and instruments issued in each
of the foregoing transactions setting forth that the securities had not been registered and the applicable restrictions on transfer.
Item 16. Exhibits and Financial Statement
Schedules.
The Exhibit Index attached hereto is incorporated
herein by reference.
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.
(b) Insofar as indemnification for
liabilities arising under the Securities Act 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 Securities and
Exchange Commission such indemnification is against public policy as expressed in the Securities Act 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
and 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 hereby, 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 and will
be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby
undertakes that it will:
(1) for determining
any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1), or (4)
or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective.
(2) for determining
any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration
statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
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 September 6, 2017.
|
SQL TECHNOLOGIES CORP.
|
|
|
|
|
|
|
By:
|
/s/ John P. Campi
|
|
|
|
John P. Campi
|
|
|
|
Chief Executive Officer
(Principal Executive Officer)
(Principal Accounting Officer)
|
|
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
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ John P. Campi
|
|
Chief Executive Officer
|
|
September 6, 2017
|
John P. Campi
|
|
|
|
|
|
|
|
|
|
/s/ Rani Kohen
|
|
Chairman of the Board and Director
|
|
September 6, 2017
|
Rani Kohen
|
|
|
|
|
|
|
|
|
|
/s/ *
|
|
Director
|
|
September 6, 2017
|
Phillips Peter
|
|
|
|
|
|
|
|
|
|
/s/ *
|
|
Director
|
|
September 6, 2017
|
Tom Ridge
|
|
|
|
|
|
|
|
|
|
/s/ *
|
|
Director
|
|
September 6, 2017
|
Dov Shiff
|
|
|
|
|
|
|
|
|
|
/s/ *
|
|
Director
|
|
September 6, 2017
|
Leonard J. Sokolow
|
|
|
|
|
*
|
|
By Rani Kohen
|
|
|
As Attorney In Fact
|
|
|
/s/ Rani Kohen
|
|
|
Rani Kohen
|
EXHIBIT INDEX
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.
|
|
(15)
|
10.25
|
|
Sublease Agreement dated October 15, 2014 between the Company and Stableford Capital, LLC.
|
|
(15)
|
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
|
|
Form of Securities Subscription Agreements for U.S. Persons used in the May 2015 Stock Offering.
|
|
(5)
|
10.30
|
|
Form of Securities Subscription Agreements for U.S. Persons used 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 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 Stock Sale.
|
|
(8)
|
10.38
|
|
Certificate Of Designation of Rights, Preferences and Privileges of Series A Convertible Preferred Stock.
|
|
(11)
|
10.39
|
|
Form of May 2016 Forbearance Agreement.
|
|
(10)
|
10.40
|
|
Form of Amendment No. 1 to Secured Convertible Promissory Note.
|
|
(11)
|
10.40
|
|
Form of August 2016 Lock-Up Agreement.
|
|
(11)
|
10.41
|
|
Executive Employment Agreement, dated August 17, 2016 between the Company and Mark J. Wells.*
|
|
(12)
|
10.42
|
|
Executive Employment Agreement, dated September 1, 2016 between the Company and John P. Campi.*
|
|
(12)
|
10.43
|
|
Chairman’s Agreement, dated September 1, 2016 between the Company and Rani Kohen.*
|
|
(12)
|
10.44
|
|
Executive Employment Agreement, dated July 1, 2016, between the Company and Patricia Barron.*
|
|
(13)
|
10.45
|
|
Form of Securities Subscription Agreement, including the terms to issue Volume Warrants, Form of Option Agreement, and form of Common Stock Purchase Warrant used in the September 2016 Stock Sale.
|
|
(13)
|
10.46
|
|
Form of Stock Option Agreement used in connection with the stock subscriptions dated February 21, 2017, March 24, 2017 and April 11, 2017.
|
|
(14)
|
21.1
|
|
List of Subsidiaries.
|
|
(6)
|
10.47
|
|
Form of Securities Subscription Agreements for Non-US Persons used in the May 2015 Stock Offering.
|
|
(5)
|
10.48
|
|
Form of Registration Rights Agreement used in the May 2015 Stock Offering.
|
|
(5)
|
10.49
|
|
Form of Securities Subscription Agreement for Non-US Persons used in the November 2015 Stock Offering
.
|
|
(5)
|
10.50
|
|
Form of Registration Rights Agreement used in the November 2015 Stock Offering.
|
|
(5)
|
10.51
|
|
Form of Common Stock Purchase Warrant used in the April 2016 Stock Sale.
|
|
(7)
|
23.1
|
|
Consent of Thompson Hine LLP.
|
|
(5)
|
23.2
|
|
Consent of L&L CPAS, PA, f/k/a Bongiovanni & Associates, PA.
|
|
(1)
|
24.1
|
|
Power of Attorney (included on signature page to this Post Effective Amendment No. 2 on Form S-1).
|
|
|
* Indicates
management contract or compensatory plan or arrangement.
|
(1)
|
Filed herewith.
|
|
(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.
|
|
(10)
|
Incorporated by reference from the Company’s Post-Effective Amendment No. 1 to Registration Statement filed with the SEC on July 20, 2016.
|
|
(11)
|
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 15, 2016.
|
|
(12)
|
Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2016.
|
|
(13)
|
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2016.
|
|
(14)
|
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2017.
|
|
(15)
|
Incorporated by reference from the Company’s Post-Effective Amendment No. 1 to
Registration Statement filed with the SEC on May 28, 2015.
|