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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES ACT OF 1934

For the fiscal years ended December 31, 2017

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES ACT OF 1934

Commission File Number: 333-196735

SQL TECHNOLOGIES CORP.

(Exact name of registrant as specified in its charter)

Florida

46-3645414

(State or other jurisdiction of
Incorporation or organization)

(IRS Employer Identification No.)

4400 North Point Parkway, Suite 265, Alpharetta, GA 30022
(Address, including zip code, of principal executive offices)

(770) 754-4711
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [X] No [ ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration statement was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]	Smaller reporting company	[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The aggregate value of the registrant’s common stock held by non-affiliates of the registrant was $147,128,499 on June 30, 2017, based on the value per share of common stock in the Company in its most recent private placement of securities on that date, which was $3.00 per share.

As of March 30, 2018, the registrant had 53,414,901 shares of common stock, no par value per share (“Common Stock”), issued and outstanding and 13,456,936 shares of Series A Convertible Preferred Stock, no par value per share (“Series A Preferred Stock”), issued and outstanding.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	10
Item 2.	Properties	10
Item 3.	Legal Proceedings	10
Item 4.	Mine Safety Disclosures	10

PART II
Item 5.	Market for the Registrant’s Common Stock and Related Stockholder Matters	11
Item 6.	Selected Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 8.	Financial Statements and Supplementary Data	2 1
Item 9.	Changes in and/or Disagreements with Accountants on Accounting and Financial Disclosure	2 1
Item 9A.	Controls and Procedures	2 1
Item 9B.	Other Information	22

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	23
Item 11.	Executive Compensation	27
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	32
Item 13.	Certain Relationships and Related Transactions and Director Independence	35
Item 14.	Principal Accountant Fees and Services	35

PART IV
Item 15.	Exhibits and Financial Statement Schedule	36

FINANCIAL STATEMENTS		39

Unless we have indicated otherwise, or the context otherwise requires, references in this Annual Report on Form 10-K to the “Company”, “we”, “us”, and “our” or similar terms are to “SQL Technologies Corp.”

FORWARD-LOOKING STATEMENTS

Statements in this report may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this report, including the risks described under “Risk Factors” and any risks described in any other filings we make with the SEC. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this report.

Management’s discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to useful lives of real estate assets, cost reimbursement income, bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.

PART I

ITEM 1. BUSINESS

Overview

We are a company engaged in the business of developing proprietary technology that enables a quick and safe installation of electronics, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes 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, wall sconce fixtures and other electrical devices. Once installed, the socket can remain affixed to the junction box, enabling any electronic fixture installed with the plug to be connected and/or removed in seconds. 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 several worldwide patents and has received a variety of final electrical code approvals, including Underwriters Laboratories (UL), United Laboratories of Canada (cUL) and C onformité E uropéene (CE), and 2017 inclusion in the National Electrical Code book issued by the National Fire Protection Association.

The Company maintains offices at 4400 North Point Parkway, Suite 265, Alpharetta, Georgia, 30022 (our principal executive office); 2855 W. McNab Road, Pompano Beach, FL 33069; and Fochan, Peoples Republic of China. Our telephone number is (770) 754-4711. Our web address is http://www.skyplug.com.

Product

The Company currently sells ceiling fans and lighting fixtures manufactured under General Electric’s guidance and branded with the General Electric logo. We offer unique designs that are manufactured with and without the SQL Technology. The Company is currently in the process of transitioning its product portfolio to advanced technologies, along with a new sales methods and marketing strategy, which will include unique, innovative advanced technologies (the “Smart SQL”).

The SQL Technology

The SQL Technology is basically characterized as a mounting receptacle that is affixed to electrical junction boxes and an attachment fitting plug that is installed in wall and ceiling 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, lighting fixtures and ceiling fans can be installed in minutes, transforming the lighting fixture and ceiling fan devices into plug-and-play electronics. Professional electricians as well as “Do it Yourself” installers will benefit from our technology. The SQL Technology is Underwriters Laboratories (UL), cUL and CE approved and achieved National Electrical Code (NEC) (or NFPA 70) status in 2017.

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. The receptacle is easily attached to the junction box. The ‘male’ plug fitting is preinstalled on a lighting fixture or ceiling fan. Lighting fixtures or ceiling fans 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 rating of our product and allows for additional fixtures, such as heating elements to be incorporated into our ceiling fans.

We have been working with several well-established factories producing ceiling fans and lights in Peoples Republic of China. Most, if not all, of these factories have been in business for over 20 years and follow strict human rights and sustainability protocols.

Intellectual Property

We rely on a combination of copyright, trademark and trade secret laws as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand. We enter into confidentiality and proprietary rights agreements with our employees, consultants and other third parties.

We protect the SQL Technology through the use of an intellectual property protection strategy that is focused on patent protection. As of July 15, 2016, we have three issued U.S. patents relating to our quick connect device for electrical fixtures. We also have patents in China (two issued patents) and India (one issued patent and one pending patent application), which protects different aspects of the same SQL Technology as the three issued U.S. patents. The Company sought intellectual property protection of the SQL Technology in China due to its current manufacturing operations and prospective sales in China’s market and sought protection in India in anticipation of future growth into India’s developing market, both with respect to the sales of the SQL Technology and potential operations of the Company. We intend to diligently 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 or electric powered product 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, a subsidiary of the Company, 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 approximately 800,000 units of the SQL Technology 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 100,000 ceiling fans with the SQL Technology embedded into the product directly to retailers. With the achievement of the License Agreement with General Electric (as defined below), 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 preinstalled, instead of marketing the SQL Technology solely 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 solely as an add-on device.

To further support the Company’s marketing efforts to its target market, it 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 former General Electric electronic and lighting industry executives.

The License Agreement

The Company 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.

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 as net sales increase 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 (the “DSI Agreement”). 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 expanded its target market to include commercial entities such as home builders and hotels.

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 with respect to products that bear the GE logo, as required by the Licensing Agreement with GE, such manufacturers 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 (US $10,000,000) to support purchase orders, inventory and general working capital needs. On January 31, 2018, the Company entered into an agreement to extend the Line of Credit through January 10, 2019. The Company may draw and/or repay this Line of Credit from time to time until the maturity hereof. The note provides for monthly payments of interest at nine percent (9%) per annum on outstanding principal and matures on January 10, 2019, at which time the full principal amount and accrued but unpaid interest become due.

Management and Personnel

Beginning in 2015 and throughout 2017, Rani Kohen, the Company’s founder and executive chairman, entrepreneur, and inventor of the SQL Technology, began building the Company’s sales and marketing team by hiring electronic and lighting industry executives, many of whom had previously worked at General Electric. John Campi, former executive vice president of Chrysler and senior vice president of procurement and vendor management for Home Depot and DuPont, as its chief executive officer; Patricia Barron, former president of LTG Services (a product compliance safety testing company), as chief operating officer; Michael Perrillo, former CEO of DSI, joined the Company as a full-time consultant to enhance and expand sales objectives, particularly toward construction/home builders, hotels and other sales channels that the Company is targeting. Mark Wells, former General Manager of Consumer Lighting for GE, joined the Company in August 2016 as our President. In addition, through 2017 we hired John Poole, former general manager of sales for GE Lighting, as Vice President of Retail Sales; Steve Briggs, former general manager of Global Product Lighting for GE, as Senior Vice President of Product Development. The Company also began building its accounting IT infrastructure and internal controls with the hiring of Julio Plutt, CPA, a former auditor with KPMG as Executive VP of Accounting & Finance

During 2017, 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 (as defined below), and during 2016 and 2017, through additional stock offering and private sales, the Company obtained additional capital resources to further implement its Business Model.

The Notes and Warrants 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 “Convertible Note” and collectively, the “Convertible Notes”), and five (5) year Common Stock 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 Convertible 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 Convertible 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 Convertible Notes, which extended the due date for the first interest payment under such holders’ Convertible 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 Convertible Note.

Forbearance

Between November 2015 and July 2016, most holders of the Convertible Notes agreed to forbear making an election under their respective Convertible Notes until (ultimately) August 15, 2016, pursuant to one or more forbearance agreements, as applicable, during such time interest under their respective Convertible Notes continued to accrue. Interest amounts due through August 15, 2016 were paid in full by such date.

The August 2016 Series A Preferred Stock Election

In July 2016, the Company requested that each holder of Convertible Notes indicate its election to (i) redeem its Convertible Note, (ii) convert its Convertible Note into shares of Common Stock or (iii) convert its Convertible Note into shares of Series 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 Series 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 Convertible Note. The Series A Preferred Stock is convertible into shares of Common Stock at the same conversion price as the Convertible Notes (i.e., USD $0.25 per share), and pays dividends quarterly at a rate of six percent (6%). The Series A Preferred Stock will be convertible upon the election of the holder thereof. Pursuant to elections received and effective as of August 15, 2016, the Company thereafter issued 13,456,936 shares of Series A Preferred Stock in exchange for $3,364,234 in outstanding Convertible Note balance.

As of December 31, 2017, interest under all Convertible Notes was paid and all Convertible Notes had been redeemed or converted into shares of either Common Stock or Series A Preferred Stock.

The 2017 Warrant Exercises and Issuance

On August 30, 2017, the Company invited holders of shares of Series A Preferred Stock to (i) exercise their one or more Note Warrants in full, on a cashless basis based on an exercise price of $5.00 per share, and (ii) receive new warrants to purchase a number of shares of Common Stock which is equal to 10% of the number of shares of Series A Preferred Stock held by such holder (or the number of shares of Common Stock that were issuable upon conversion of the principal balance of a holder’s Convertible Note(s) prior to conversion), at an exercise price of $3.30 per share (the “2017 Exchange Warrants”). In exchange, the Company asked the holders to (a) lock-up their shares of Common Stock or derivatives thereof for one year and (b) waive their rights, if any, under the one or more Note RRAs.

As of December 31, 2017, the Company received notices to exercise Note Offering Warrants from 22 different Note Warrant holders (constituting 28 Note Warrants), electing to exercise their Note Warrants, which equaled an aggregate of 4,367,100 shares of Common Stock, into 4,039,568 shares of Common Stock on a cashless basis. The Company thereafter issued all 4,039,568 shares of Common Stock and the 28 Note Warrants were terminated. In addition, pursuant to the foregoing, the Company issued 23 2017 Exchange Warrants exercisable into, in the aggregate, up to 838,040 shares of Common Stock at an exercise price of $3.30 per share. The Company inadvertently issued 92,500 shares of Common Stock in connection with the exercise of the Note Warrants and is in the process of cancelling such shares.

The 2015 Stock Offerings

Beginning in May 2015, we conducted an offering of up to $4,000,000 of restricted shares of Common Stock, no par value per share, at $0.60 per share to certain accredited and non-accredited investors (the “First 2015 Stock Offering”), and beginning in November 2015, we conducted an offering of up to $2,000,000 of restricted shares of Common Stock, no par value per share, at $1.00 per share to certain accredited and non-accredited investors (the “Second 2015 Stock Offering”). In both offerings, the Company entered into a registration rights agreement with each investor, whereby the Company agreed to, and did, file a registration statement to register the subscribed for shares of Common Stock within one hundred fifty (150) days after the date of such agreement.

Between June 12, 2015 and November 6, 2015, the Company completed three closings of the First 2015 Stock Offering, representing aggregate gross proceeds to the Company of $2,269,600, and issued 3,782,666 shares of Common Stock. Between December 24, 2015 and February 19, 2016, the Company completed two closings of the Second 2015 Stock Offering, representing aggregate gross proceeds to the Company of $800,000, and issued 800,000 shares of Common Stock.

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, resulting in gross proceeds to the Company of $5,000,000 (the “First 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, resulting in additional gross proceeds to the Company of $5,000,000, 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 “Second 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 (which such investor has provided notice of an intent to exercise), (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 “Third 2016 Stock Sale”). “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.

The Second 2016 Stock Sale resulted in aggregate gross proceeds to the Company of $1,755,000 and the Third 2016 Stock Sale resulted in aggregate gross proceeds to the Company of $78,000. In addition, the Company could receive up to an amount between $4,230,000 and $4,935,000 in gross proceeds upon exercise of warrants issued in both sales, 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.

Also, on September 22, 2016, the Company issued 150,000 shares of Common Stock to an accredited investor, in exchange for $405,000 in cash, 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 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.

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 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 more than 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 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 March 31, 2018, we had Thirteen full time employees in the United States of America and six full time employees in the Peoples Republic of China. We also employ independent contractors to support our operations. We have never had a work stoppage, and none of our employees are represented by a labor union. 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; Steve Briggs, who serves as the Company’s Senior Vice President of Product Development; Julio Plutt, who serves as the Company’s Executive VP of Accounting & Finance; Patricia Barron, who serves as the Company’s Chief Operations Officer, and John Poole, who serves as the Company’s Vice President of Retail Sales;

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. Furthermore, the Company’s entry into the commercial sector of home and hotel building is expected to reduce the Company’s exposure to seasonality of its revenue creation.

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 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.

ITEM 1A. RISK FACTORS

As a “smaller reporting company”, we are not required to provide the information required by this Item.

ITEM 1B. UNRESOLVED STAFF COMMENTS

As a “smaller reporting company”, we are not required to provide the information required by this Item.

ITEM 2. PROPERTIES

Our corporate offices are located at 4400 North Point Parkway, Suite 265, Alpharetta, Georgia. The monthly rent related to our leased 3,574 square foot facility is currently $6,255 per month, subject to increases in subsequent periods. The lease for the Company’s rented office space located at One Buckhead Plaza, 3060 Peachtree Road, Suite 265, Atlanta, Georgia 30305 expires on September 30, 2020. In addition, we share offices with a supplier where the development of our products occurs and where the majority of the Executive team 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.

ITEM 3. LEGAL PROCEEDINGS

We are not party, nor is our property subject, to any material pending legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

On September 15, 2015, the Financial Industry Regulatory Authority (“FINRA”) cleared a request to establish a market in shares of our Common Stock. On October 8, 2015, OTC Markets Group announced that the Company was verified for trading on the OTCQB® Venture Market, and shares of our Common Stock are currently quoted under the symbol “SQFL”. Presently, shares of our Common Stock not subject to restriction are eligible for trading in the OTCQB® Venture Market. 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 only a small number of shares of our Common Stock have 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.

Holders

As of March 30, 2018, there were 116 holders of record of the Common Stock. This number does not include beneficial owners whose shares may be held in the names of various security brokers, dealers, and registered clearing agencies.

Dividend Policy

We have not paid any cash dividends on our Common Stock and have no present intention of paying any dividends on the shares of our Common Stock. Holders of our Series A Preferred Stock receive dividends paid quarterly, at a rate of six percent (6%) per year, and rank senior with respect to interest on junior securities, dividends, distributions or liquidation preference. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our Board.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

On March 23, 2018, the Company issued 120,000 shares of Common Stock to Mr. Campi, which vested on December 31, 2017, pursuant to the Campi Agreement

On March 23, 2018, the Company issued 120,000 shares of Common Stock to Mr. Wells, which vested on January 1, 2018, pursuant to the Wells Agreement.

Stock Incentive Plan Information

The following table sets forth equity compensation plan information as of December 31, 2017:

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 approved by security holders:
2015 Stock Incentive Plan (1)		4,110,000	$	1.09		815,000
Equity compensation plans not approved by security holders		—		—		—
Total		4,110,000	$	1.09		815,000

(1)

The November 2015 Grants and April 2017 Grants are discussed in more detail below in the subsection entitled “Issued and Outstanding Equity Awards.” For the purposes of calculating the weighted-average exercise price, the exercise prices of issued and outstanding options range from $0.60 per share to $4.00 per share.

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.

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 March 30, 2018, 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 vested 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 March 30, 2018, the Company has entered into Stock Option Agreements with three 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 having vested on June 30, 2017 with an exercise price of $3.00 per share and 225,000 of such options having vested on December 31, 2017 with an exercise price of $4.00 per share. As of March 30, 2018, the Company had not yet entered into Stock Option Agreements with the other grantees of the April 2017 Grants, and therefore had not issued up to 1,700,000 options to purchase shares of our Common Stock pursuant to the April 2017 Grants.

ITEM 6. SELECTED FINANCIAL DATA

As a “smaller reporting company”, we are not required to provide the information required by this Item.

ITEM 7. 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 Part II, Item 8 of this Form 10-K. 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 report. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

US Dollars are denoted herein by “USD”, “$” and “dollars”.

Overview

We are a company engaged in the business of developing proprietary technology that enables a quick and safe installation by the use of a weight bearing power plug for electrical fixtures, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes. Our patented technology consists of a fixable socket and a revolving plug for conducting electric power and supporting an electrical appliance attached to a wall or ceiling. The socket is comprised of a non-conductive body that houses conductive rings connectable to an electric power supply through terminals in its side exterior. The plug, also comprised of a non-conductive body that houses corresponding conductive rings, attaches to the socket via a male post and is capable of feeding electric power to an appliance. The plug also includes a second structural element allowing it to revolve with a releasable latching which, when engaged, provides a retention force between the socket and the plug to prevent disengagement. The socket and plug can be detached by releasing the latch, disengaging the electric power from the plug. The socket is designed to replace the support bar incorporated in electric junction boxes, and the plug can be installed in light fixtures, ceiling fans and wall sconce fixtures.

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 the 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.

In December 2016, the SQL Technology was in included the 2017 National Electrical Code (NEC).

The Company is currently in the process of transitioning its product portfolio to advanced technologies, along with a new sales methods and marketing strategy, which will include unique, innovative advanced technologies (the “Smart SQL”).

Results of Operations

	Year Ended December 31,
	2017			2016			$ Change			% Change

Revenue	$	7,700,948		$	7,014,978		$	685,970			9.78	%

Cost of sales		(6,379,728	)		(6,136,395	)		243.333			3.97	%

Gross Profit		1,321,220			878,583			442,637			50.38	%

Selling, general and administrative expenses		(5,126,302	)		(4,383,751	)		742,551			16.94	%

Depreciation and amortization		(2,497,408	)		(2,482,604	)		14,804			0 .60	%

Loss on impairment		(600,000	)					600,000

Total operating expenses		8,223,710			6,866,355			1,357,355			19.77	%

Loss from Operations		(6,902,490	)		(5,987,772	)		914,718			5.28	%

Other Income / (Expense)		(19,816,195	)		(92,460,086	)		(72,643,892	)		(78.57	)%

Net Loss	$	(26,718,685	)	$	(98,447,858	)	$	(71,729,174	)		(72.86	)%

Net loss per share - basic and diluted		(0.55	)		(2.60	)		(2.05	)		(78.89	)%

Revenue

Net revenue increased to $7,700,948 for the year ended December 31, 2017, from revenue of $7,014,978 for the year ended December 31, 2016. This increase in revenues is associated with steady market acceptance and resulting sales.

Cost of Sales

We had a cost of sales of $6,379,728 for the year ended December 31, 2017, as compared to a cost of sales of $6,136,395 for the year ended December 31, 2016. The increase is associated with the increase in sales and increased product offering.

Gross Profit

We had gross profit of $1,321,220 for the year ended December 31, 2017 as compared to gross profit of $878,583 for the year ended December 31, 2016. As a percent of sales, gross profit was 17.16% and 12.52% for the years ended December 31, 2017 and 2016, respectively. The increase in gross profit as a percent of sales is attributable to improved pricing and better volume vendor discounts on the cost of sales and the introduction of new items with higher profit margins.

Selling, General and Administrative Expenses

Selling, general and administrative expense (SG&A) increased $1,357,355 to $8,223,710 during the year ended December 31, 2017, from $6,866,355 for the year ended December 31, 2016. For the year ended December 31, 2017, SG&A includes depreciation and amortization expenses of $2,497,408, plus a $600,000 loss resulting from an asset impairment. For the year ended December 31, 2016 SG&A included Depreciation and Amortization expense of $2,482,604. The increase in SG&A in 2017 was primarily due to the increase in personnel and additional product development.

Loss from Operations

Loss from operations increased $914,718 to $6,902,490 during the year ended December 31, 2017, from $5,987,772 for the year ended December 31, 2016. The increase was due to an increase in SG&A, which was partially offset by an increase in gross profit on sale. Loss from operations includes Depreciation and Amortization expenses of $2,497,708 and $2,482,604 for the years ended December 31, 2017 and 2016, respectively. It also includes a $600,000 loss on the impairment of an asset for the year ended December 31, 2017.

Other Income (Expense )

Total other expenses, mostly non-cash charges, decreased $72,643,892 to $19,816,195 for the year ended December 31. The decline in other expenses was due to decreases in non-cash amortization of derivative liabilities and derivative expenses, as a result of an exercise of Note Warrants held by the Company’s holders of Series A Preferred Stock, and a non-cash charge in 2016 of $41,129,336 related to the conversion of Convertible Notes into the Company’s Series A Preferred Stock and Common Stock.

Additionally, the Company's interest expense was reduced by $686,133 to $294,735 for the year ended December 31, 2017, from $980,867 for the year ended December 31, 2016.

Net Loss and Net Loss per Share

The Company incurred a net loss for the year period ended December 31, 2017 of $26,718,685 and $0.55 per share, as compared to the year period ended December 31, 2016, where the net loss was approximately $98,447,858 or $2.60 per share.

Liquidity and Capital Resources

As of December 31, 2017, the Company had $4,877,720 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 its Common Stock. The Company maintains 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 December 31, 2017, the Company had $6,543,268 available under the Line of Credit, which expires January 10, 2019. 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 year ended December 31, 2017, the Company used $4,349,173 of cash for operations as compared with $6,166,446 used for the same period in 2016. The decrease in cash used for operations was primarily due to the establishing of inventory levels in 2016 that remained stable in 2017, while increased general and administrative costs in 2017 were partially offset by increased gross profit.

For the year ended December 31, 2017, cash flows used was $241,653 for investing activities as compared with $43,694 used for the same period in 2016. The investments were for patents costs and fixed assets.

Cash flows provided from financing activities amounted to $5,342,658 in cash equivalents for the years ended December 31, 2017, as compared with $9,855,160 during the same period in 2016. The company received $5,365,000 from the proceeds of Common Stock, which includes the exercise of $3.00 stock purchase warrants generating $5,000,000 in cash equivalents, $100,000 from the conversion of Convertible Notes and interest into shares of Common Stock and Series A Preferred Stock, $227,395 in proceeds from the Line of Credit, net of repayments. These amounts were partially offset by $200,000 in repayment of the convertible notes at maturity and $149,737 in Series A Preferred Stock dividend payments.

As a result of the above operating, investing and financing activities, the Company provided $751,832 in cash equivalents for the year ended December 31, 2017, as compared with $3,675,020 used during the same period in 2016. The Company had $4,877,720 in cash and cash equivalents at December 31, 2017, as compared to $4,125,888 at December 31, 2016.

The Company had a working capital deficit of $23,271,348 as of December 31, 2017, which includes $19,175,754 in non-cash derivative liabilities, as compared to a working deficit of $21,419,526 as of December 31, 2016, which included $24,083,314 in non-cash derivative liabilities.

A majority of the Company’s sales do not require the Company to take delivery of inventory. Production of the SQL Technology and fixtures will be originated upon receipt of FOB (free on board) purchase contracts from customers. Upon the completion of each purchase contract, the finished products will be transported from the manufacturer directly to the ports and loaded on vessels secured by the customer, upon which the products become the property of the customer.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, management uses adjusted net income (loss) to evaluate operating and financial performance and believes the measure is useful to investors because it eliminates the impact of certain noncash and/or other items that management does not consider to be indicative of the Company’s performance from period to period. Management also believes this non-GAAP measure is useful to investors to evaluate and compare the Company’s operating and financial performance across periods, as well as facilitating comparisons to others in the Company’s industry.

We use the non-GAAP financial measure of Adjusted EBITDA, which is defined as net income (loss), plus interest income; interest expense; depreciation and amortization; unrealized derivative gains and losses, non-recurring income and expenses, and stock-based compensation expense. We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in Adjusted EBITDA.

These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States of America. These non-GAAP financial measures exclude significant expenses and income that are required by accounting principles generally accepted in the United States of America (“GAAP”) to be recorded in the company’s financial statements and are subject to inherent limitations. Investors should review the reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures that are included below.

The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure, for each of the periods presented:

	Year Ended December 31,
	2017			2016
Adjusted EBITDA reconciliation to Net Income (Loss):
Net (loss) income	$	(26,718,684	)	$	(98,447,858	)
Other Income / (Expense)
Depreciation and amortization		(2,497,408	)		(2,482,604	)
Loss on impairment		(600,000)
Interest expense		(294,734	)		(980,867	)
Derivative expenses		0			(9,678,390	)
Change in fair value of embedded derivative liabilities		(14,413,192	)		(43,634,482	)
Loss on debt extinguishment - net		(1,260,000	)		(41,129,336	)
Warrant expense		(1,869,358	)		0
Option expense		(2,003,593	)		0
Amortization of Debt Discount		0			0
Gain on debt settlement		0			0
Gain on exchange		6,843			0
Other income		17,840			13,275
Gain on Debt Extinguishment		0			2,949,714
Total adjustment		(22,913,603	)		(94,942,690	)
Adjusted EBITDA		(3,805,082	)		(3,505,168	)
		—			—
Net Income (Loss) per share - basic and diluted	$	(0.078	)	$	(0.077	)

The following table presents a reconciliation of Adjusted Accumulated deficit reconciliation for each of the periods presented:

				Year Ended December 31,

	2017			2016			2015			2014			2013
Adjusted Accumulated deficit reconciliation to Net Income (Loss):
Accumulated deficit	$	(168,050,716	)	$	(141,182,294	)	$	(42,703,470	)	$	(15,813,260	)	$	(8,519,517	)
Other Income / (Expense)
Depreciation and amortization¹		(9,906,965	)		(7,409,379	)		(4,926,776	)		(2,457,705	)		(2,719	)
Loss on impairment		(600.000	)
Interest expense		(6,442,195	)		(6,147,461	)		(5,166,594	)		(2,311,075	)		(171,590	)
Derivative expenses		(11,403,137	)		(11,403,137	)		(1,724,747	)		(1,724,747	)		(1,156,193	)
Change in fair value of embedded derivative liabilities		(77,215,799	)		(62,802,607	)		(19,168,125	)		248,171			34,250
Loss on debt extinguishment - net		(42,402,067	)		(41,142,067	)²		(12,731	)		(12,731	)		(12,731	)
Warrant expense		(1,869,358	)
Option expense		(2,003,593	)
Amortization of Debt Discount		(4,200,374	)		(4,200,374	)		(4,200,374	)		(1,742,620	)		(92,304	)
Common stock issued for service		(298,688	)		(298,688	)		(298,688	)		(125,000	)		(125,000	)
Founder shareholders		(562,500	)		(562,500	)		(562,500	)		(562,500	)		(562,500	)
Gain on debt settlement		(66,785	)		(66,785	)		(66,785	)		(66,785	)		(66,785	)
Gain on exchange
Gain on Debt Extinguishment		3,169,298			3,169,298			219,584			9,995			88014
Other income		140,598			115,915			102,640			101,814			0
Total adjustment		(153,661,387	)		(130,747,784	)		(35,805,096	)		(8,643,006	)		(2,067,627	)
Total Adjusted Accumulated deficit	$	(14,389,329	)	$	( 10,55,620	)		(6,898,374	)		(7,170,254 )		$	(6,451,890	)

(1) Includes amortization of the GE License agreement of $9,755,534; $7,324,415; $4,865,901; $2,424,160; and $0 for the years 2017 through 2013, respectively.

(2) Primarily represents conversion of Convertible Notes into the Company’s Preferred Stock and Common Stock resulting in a $41,310,119 non-cash loss due to the difference between the conversion rate and the market value at the time of conversion, and a gain of $3,288,909 reflecting the cost basis of the Convertible Notes that were converted into Common Stock during the fourth quarter of 2016.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.

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.

Recent Accounting Pronouncements

See Notes to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for recent accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company”, we are not required to provide the information required by this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required to be included in this report appear as indexed in the appendix to this report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer, who is also serving as our Principal Financial Officer and Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon this evaluation, our Principal Executive Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management including our Principal Executive Officer as appropriate to allow timely decisions regarding required disclosure.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Management’s Annual Report on Internal Controls over Financial Reporting

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of our annual financial statements, management has undertaken an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017 based on the framework in Internal Control—Integrated Framework (“1992 Framework”) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.

Based on this evaluation, under that framework, management has concluded that our internal control over financial reporting was not effective as of December 31, 2017. Our Principal Executive Officer, who is also serving as our Principal Financial Officer and Principal Accounting Officer, concluded that we have material weaknesses in our internal control over financial reporting because we do not have an adequate segregation of duties due to a limited number of employees among whom duties can be allocated. The lack of segregation of duties is due to the limited nature and resources of the Company.

Beginning January 1, 2017, we implemented ASC 606, Revenue from Contracts with Customers. Although the new revenue standard is expected to have an immaterial impact on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, new training, ongoing contract review requirements, and gathering of information provided for disclosures.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

Changes in Internal Controls over Financial Reporting

No changes were made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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. Rani Kohen	52	Director, Executive Chairman
Mr. John P. Campi	73	Chief Executive Officer
Mr. Mark Wells	47	President
Ms. Patricia Barron	57	Chief Operations Officer
Mr. Thomas Ridge	72	Director
Mr. Phillips Peter	86	Director
Mr. Dov Shiff	70	Director
Mr. Leonard J. Sokolow	61	Director

Rani Kohen is the Company founder and Executive Chairman of the Board. Mr. Kohen is a businessman, entrepreneur and inventor of the Company’s technologies, Mr. Kohen has over twenty-five years of experience in the lighting and advance home design industries, as well as in other related business areas, including founding and running a large chain of retail lighting businesses. Since founding SQL Technologies, Mr. Kohen has succeeded in attracting and engaging accomplished and prestigious Board members, talented management and several leading executives from various electronic industries, including the NFPA, UL, GE and others. Our Board believes that with Mr. Kohen’s leadership and qualifications, his depth of knowledge of the Company’s product and his advanced business strategies, he will continue to move the Company forward towards achieving its goals.

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.

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 Master 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 Safety Quick Lighting and our shareholders. Although there are many other factors, the Board seeks individuals with experience in business, financial and scientific research and development.

Board Assessment of Risk

Our risk management function is overseen by our Board. Our management keeps our Board apprised of material risks and provides our directors access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect the Company, and how management addresses those risks. Mr. John Campi, as our Chief Executive Officer works closely together with the Board once material risks are identified on how to best address such risk. If the identified risk poses an actual or potential conflict with management, our independent directors may conduct the assessment.

Shareholder Communications

Although we do not have a formal policy regarding communications with the Board, shareholders may communicate with the Board by writing to us at 4400 North Point Parkway, Suite 265, Alpharetta, Georgia, 30022, Attention: Shareholder Communication. Shareholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that the Company’s executive officers, directors and persons who own beneficially more than 10% percent of the Company’s outstanding Common Stock, file reports of ownership and changes in ownership and furnish the Company with copies of all Section 16(a) reports so filed. Based solely on a review of these reports filed with the SEC and certain written representations furnished to the Company, the Company believes that its executive officers and directors complied with all applicable Section 16(a) filing requirements during 2017, other than the following:

Mr. Shiff filed a Form 4 with the SEC on March 31, 2017, in connection with the August 15, 2016 conversion of his Convertible Note into shares of Series A Preferred Stock. Mr. Wells filed a Form 3 with the SEC on March 29, 2017, in connection with his appointment as President on November 7, 2016, and filed a Form 4 with the SEC on March 29, 2017, in connection with issued and unvested securities in the Wells Agreement dated August 17, 2016. Mr. Kohen filed a Form 4 with the SEC on March 31, 2017, in connection with unvested securities the Chairman’s Agreement dated September 1, 2016. Mr. Campi filed a Form 4 with the SEC on March 30, 2017, in connection with issued and unvested securities the Campi Agreement dated September 1, 2016. Ms. Barron filed a Form 3 with the SEC on April 27, 2017, in connection with her employment agreement to serve as Chief Operations Officer effective September 1, 2016.

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.

Family Relationships

There are no family relationships among the directors and executive officers.

Certain Relationships and Related Transactions

Unless otherwise stated in this Annual Report, 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.

We are currently party to the Chairman’s Agreement (as defined below) 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 (as defined below) 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 Item 11 of this report, in the subsection entitled “Narrative Disclosure to Summary Compensation and Option Tables”.

ITEM 11. 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 2017 fiscal year consisted of the following individuals:

	·	Rani Kohen, Executive Chairman
	·	John P. Campi, our Chief Executive Officer
	·	Mark Wells, President

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⁾		2017		270,833				—						33,156		12,000	$	315,989
Executive Chairman
		2016		183,333				—			1,981,504	(4)		24,924		12,000	$	2,201,761
John P. Campi ⁽⁵⁾⁽⁶⁾		2017		155,388		—		—			—			16.578		—	$	171,966
Chief Executive Officer
		2016		105,692		—		—			—			21.084		11,077	$	137,853
Mark Wells ⁽⁷⁾		2017		258,981		—					—			16,578		—	$	275,559
President
		2016		76,923		—		260,000	(8)		—			3,840		—	$	340,763

	(1)	Non-equity Incentive Plan Compensation reflects incentive compensation and 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 2016 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 300,000 shares of Common Stock at $0.60, which vested 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 vest on December 31, 2017 and was issued on March 23, 2018; (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 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 vested in its’ entirety on January 1, 2018 and was issued on March 23, 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.

Outstanding Equity Awards at December 31, 2017 Fiscal Year End

As of December 31, 2017, 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		—		—		—		—		120,000	$240,000		—	$	240,000

Rani Kohen		700,000		300,000	$	0.60		11/15/2025		1,140,000	$2,280,000		—	$	2,876,286

Mark J. Wells		—		—		—		—		1,145,000	$2,290,000		—	$	2,290,000

Narrative Disclosure to Summary Compensation and Option Tables

John P. Campi (Chief Executive Officer)

In November 2014, the Company entered into an employment agreement with John Campi, its Chief Executive Officer. The agreement provided that Mr. Campi would receive a base salary of $102,000 per year; (ii) included a sign-on bonus of 750,000 shares of Common Stock, which has fully vested and all such shares have been issued; and (iii) included incentive compensation equal to (a) one half of one percent (0.50%) of the first $20,000,000 of the Company’s annual gross revenue plus one quarter of one percent (0.25%) of the Company’s annual gross revenue above $20,000,000; (b) three percent (3%) of the Company’s annual net income, and (c) five-year options to purchase shares of Common Stock equal to one half of one percent (0.50%) of the Company’s quarterly net income, with a strike price to be determined at the time such options are granted.

Effective September 1, 2016, the Company entered into a new employment agreement with Mr. Campi (the “Campi Agreement”). The Campi Agreement provides that Mr. Campi will serve for an initial term of one year, which may be and was 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 vested 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 .

For the years ended December 31, 2017 and December 31, 2016 Mr. Campi earned approximately $171,966 and $137,853, respectively, under this and the agreement associated with performance pay as noted above. On March 23, 2018, the Company issued the sign-on bonus of 120,000 shares of Common Stock, with vested in its entirety on December 31, 2017.

Mark J. Wells (President)

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 vested 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 quarterly 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.

For the years ended December 31, 2017 and December 31, 2016 Mr. Wells earned approximately $275,559 and $80,763, respectively, under this and the agreement associated with performance pay as noted above. On March 23, 2018, the Company issued the sign-on bonus of 120,000 shares of Common Stock, with vested in its entirety to Mr. Wells on January 1, 2018.

Rani Kohen (Executive Chairman)

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 annual net revenue, paid in cash on a quarterly basis.; 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 superseded 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 each year, which shall vest in its entirety on January 1, 2019, and each year served thereafter (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 the end of the Chairman’s Agreement. For any other termination during the initial term, Mr. Kohen shall receive payment, at the then current rate, through the date termination is effective.

For the years ended December 31, 2017 and December 31, 2016 Mr. Kohen earned approximately $315.989 and $220.257, respectively, under this and the agreement associated with performance pay as noted above.

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 years ended December 31, 2017, 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⁾⁽³⁾

—

Thomas Ridge ⁽²⁾⁽⁴⁾

—

Dov Shiff ⁽²⁾

—

Leonard Sokolow ⁽²⁾⁽⁵⁾

—

	(1)	Mr. Kohen has served as a Chairman of the Board since November 2012. Fees earned in 2017 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)	On April 19, 2017, our Board authorized, pursuant to the April 2017 Grants, the Company to issue options to Mr. Peter to purchase up to 100,000 shares of Common Stock, with 50,000 of such options having vested on December 31, 2017 with an exercise price of $3.00 per share and 50,000 of such options vesting on December 31, 2018 with an exercise price of $4.00 per share. As of March 30, 2018, all such options have not been issued by the Company to Mr. Peter.
	(4)	On April 19, 2017, our Board authorized, pursuant to the April 2017 Grants, the Company to issue options to Mr. Ridge to purchase up to 500,000 shares of Common Stock, with 166,667 of such options having vested on December 31, 2017 with an exercise price of $3.00 per share, 166,667 of such options vesting on December 31, 2018 with an exercise price of $4.00 per share, and 166,666 of such options vesting on December 31, 2019 with an exercise price of $5.00 per share. As of March 30, 2018, all such options have not been issued by the Company to Mr. Ridge.
	(5)	On April 19, 2017, our Board authorized, pursuant to the April 2017 Grants, the Company to issue options to Mr. Sokolow to purchase up to 300,000 shares of Common Stock, with 150,000 of such options having vested on June 30, 2017 with an exercise price of $3.00 per share and 150,000 of such options having vested on December 31, 2017 with an exercise price of $4.00 per share. As of March 30, 2018, all such options have not been issued by the Company to Mr. Sokolow.

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 number 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

The Company did not issue any Director Options in 2017, and as of March 30, 2018, the Company has not issued any Director Options in connection with services performed during fiscal year 2017.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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 footnotes to the table, all information set forth in the table is as of March 30, 2018, 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⁾	9,003,969	16.55%

Mr. Phillips Peter ⁽³⁾	500,000	*

Mr. Thomas Ridge ⁽⁴⁾	1,025,000	1.91%

Mr. Dov Shiff ⁽⁵⁾	14,964,618	25.93%

Mr. Leonard Sokolow ⁽⁶⁾	262,000	*

Mr. John P. Campi ⁽⁷⁾	1,170,000	2.19%

Mr. Mark J. Wells ⁽⁸⁾	1,120,000	2.07%

Ms. Patricia Barron ⁽⁹⁾	700,000	1.30%

All Directors and Officers as a Group (8 persons)	28,745,587	47.24%

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	14.55%

David S. Nagelberg 2003 Revocable Trust DTD 7/2/03 ⁽¹¹⁾ 99 Coast Boulevard, Unit 21 DE LaJolla, CA 92037	3,718,365	6.69%

Pitch Energy Corporation ⁽¹²⁾ P.O. Box 400 Ruidoso, NM 88355	3,666,667	6.86%

Mr. Steven Siegelaub ⁽¹³⁾ 2801 N. University Dr. Suite 301 Coral Springs, FL 33065	4,677,875	8.62%

* Less than 1%

(1)	Applicable percentages are based on 53,414,901 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 Series A 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 9,003,969 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) 1,000,000 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 1,025,000 shares of Common Stock, including (i) 675,000 shares of Common Stock, (ii) 100,000 shares of Common Stock issuable upon exercise of options held by Mr. Thomas Ridge, (iii) 50,000 shares of Common Stock issuable upon exercise of warrants issued pursuant to the Notes Offering and (iv) 200,000 shares of Common Stock issuable upon conversion of Series A 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 warrants issued pursuant to the Notes Offering, and (iii) 2,600,000 shares of Common Stock issuable upon conversion of Series A 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 Second 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 1,170,000 shares of Common Stock, including (i) 870,000 shares of Common Stock issued pursuant to the Campi Agreement, (ii) 250,000 shares of Common Stock obtained pursuant to the First 2015 Stock Offering, and (iii) 50,000 shares of Common Stock obtained pursuant to the Second 2015 Stock Offering.
(8)	Mr. Mark J. Wells beneficially owns 1,120,000 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) 270,000 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 700,000 shares of Common Stock, including (i) 100,000 shares of Common Stock, (ii) 600,000 shares of Common Stock 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 3,718,365 shares of Common Stock, including (i) 1,518,365 shares of Common Stock, (ii) 200,000 shares of Common Stock issuable upon exercise of 2017 Exchange Warrants, and (iii) 2,000,000 shares of Common Stock issuable upon conversion of Series A 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 warrants issued pursuant to the Notes Offering, and (c) 776,535 shares of Common Stock issuable upon conversion of Series A 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 Warrants issued pursuant to the Notes Offering, and (c) 1,000,000 shares of Common Stock issuable upon conversion of Series A 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.

Changes in Control

We are unaware of any contract, or other arrangement or provision, the operation of which may at any subsequent date result in a change in control of our Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Except as described herein, none of the following parties (each a “Related Party”) has, in our fiscal years ended December 31, 2017 and December 31, 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.

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 plus incentives, per year. During 2017 and 2016 we were a party to the Kohen Consulting Agreement with Mr. Kohen, pursuant to which we paid cash compensation in the amount of $315,989 and $220,257, respectively. The agreement(s) are more fully described in Item 11 of this report, in the subsection entitled “Narrative Disclosure to Summary Compensation and Option Tables”.

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, 2017, the outstanding balance under the note was $200,000.

Director Independence

We are not currently subject to any listing standards of any national exchange. However, were we to apply the standards of the New York Stock Exchange, Messrs. Kohen and Shiff would not be considered “independent” under such standards.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth the aggregate fees billed to us for the years ended December 31, 2017 and December 31, 2016 by our independent auditors, L&L CPAS, PA, f/k/a Bongiovanni& Associates, PA:

	2017		2016
Audit Fees	$	37,000	$	35,000
Audit-Related Fees		17,500		16,500
Tax Fees
Other Fees
Totals	$	54,500	$	51,500

Audit fees represent amounts billed for professional services rendered for the audit of our annual financial statements. Audit-Related Fees include amounts billed for professional services rendered in connection with our SEC filings and discussions with the SEC that occurred during fiscal 2014 for us to remain a fully reporting public company. Our Board is of the opinion that the Audit-Related Fees charged by L&L CPAS, PA were consistent with companies of our size maintaining its independence from us.

The audit committee of the Company approves all auditing services and the terms thereof and non-audit services (other than non-audit services published under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or the Pubic Company Accounting Oversight Board) to be provided to us by the independent auditor; provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit services for us if the “de minimis” provisions of Section 10A(i)(1)(B) of the Exchange Act are satisfied.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

Report of Independent Registered Public Accounting Firm

Audited Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016

Audited Consolidated Statements of Operations for the Years ended December 31, 2017 and 2016

Audited Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2017, and 2016

Audited Consolidated Statements of Cash Flows for the Years ended December 31, 2017 and 2016

Notes to Audited Financial Statements

(b) Exhibit Index

Exhibit No.	Description of Exhibit	Footnote
3.1	Articles of Incorporation of Registrant, as amended.	(11)
3.2	Certificate Of Designation of Rights, Preferences and Privileges of Series A Convertible Preferred Stock.	(9)
3.3	Bylaws of Registrant.	(2)
4.1	Form of Common Stock Certificate.	(2)
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	Office Lease dated October 24, 2014 between the Company and Highwoods DLF 98/29, LLC.	(3)
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 Amendment No. 1, dated August 15, 2016, to Secured Convertible Promissory Note.	(8)
10.6	Form of Securities Subscription Agreements for U.S. Persons and Non-US Persons used in the First 2015 Stock Offering.	(4)
10.7	Form of Securities Subscription Agreements for U.S. Persons and Non-US Persons used in the Second 2015 Stock Offering.	(4)
10.8	Form of Registration Rights Agreement used in the First and Second 2015 Stock Offerings.	(4)
10.9	Form of Securities Subscription Agreement and Common Stock Purchase Warrant used in the First 2016 Stock Sale.	(6)
10.10	Form of Securities Subscription Agreement, including the terms to issue Volume Warrants, and form of Common Stock Purchase Warrant used in the Second 2016 Stock Sale.	(7)
10.11	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 Third 2016 Stock Sale.	(10)
10.12	The 2015 Stock Incentive Plan.*	(5)
10.13	Director Compensation Policy.	(4)
10.14	Executive Employment Agreement, dated July 1, 2016, between the Company and Patricia Barron.*	(10)
10.15	Executive Employment Agreement, dated August 17, 2016 between the Company and Mark J. Wells.*	(9)
10.16	Executive Employment Agreement, dated September 1, 2016 between the Company and John P. Campi.*	(9)
10.17	Chairman’s Agreement, dated September 1, 2016 between the Company and Rani Kohen.*	(9)
10.18	Form of Stock Option Agreement used in connection with the stock subscriptions dated February 21, 2017, March 24, 2017 and April 11, 2017.	(11)
10.19	Form of New Warrant utilized in the Warrant Exercise Exchange.	(12)
10.20	Form of Lock-Up Agreement utilized in the Warrant Exercise Exchange.	(12)
10.21	Form of Waiver of Registration Rights utilized in the Warrant Exercise Exchange.	(12)
21.1	List of Subsidiaries.	(6)
31.1	C ertification of Principal Executive Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	(1)
31.2	Certification of Principal Accounting Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	(1)
32.1	C ertification of Principal Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	(1)
32.2	Certification of Principal Accounting Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	(1)
101	The following materials from the Company’s Annual Report on Form 10-K for the years ended December 31, 2016 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Audited Balance Sheets, (ii) the Audited Statements of Operations, (iii) the Audited Statements of Stockholders’ Equity (Deficit), (iv) the Audited Statements of Cash Flows, and (iv) the Notes to the Audited Financial Statements.	(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 Post-Effective Amendment No. 1 to Registration Statement filed with the SEC on May 28, 2015.

(4)

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.

(5)

Incorporated by reference from the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2016.

(6)

Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on April 7, 2016.

(7)

Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 16, 2016.

(8)

Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 15, 2016.

(9)

Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2016.

(10)

Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2016.

(11)

Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2017.

(12)

Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2017.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SQL TECHNOLOGIES CORP.

By: /s/ John P. Campi

John P. Campi

Chief Executive Officer

(Principal Executive Officer)

(Principal Accounting Officer)


Signatures	Title	Date

/s/ John P. Campi	Chief Executive Officer	April 2, 2018
John P. Campi

/s/ Rani Kohen	Executive Chairman, Director	April 2, 2018
Rani Kohen

/s/ Phillips Peter	Director	April 2, 2018
Phillips Peter

/s/ Tom Ridge	Director	April 2, 2018
Tom Ridge

/s/ Dov Shiff	Director	April 2, 2018
Dov Shiff

/s/ Leonard Sokolow	Director	April 2, 2018
Leonard Sokolow

FINANCIAL STATEMENTS

SAFETY QUICK LIGHTING & FANS CORP AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

Index to Consolidated Financial Statements

		Pages

Report of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets – December 31, 2017 and 2016		F-2

Consolidated Statements of Operations – December 31, 2017 and 2016		F-4

Consolidated Statement of Stockholders’ Deficit – December 31, 2017 and 2016		F-5

Consolidated Statements of Cash Flows – December 31, 2017 and 2016		F-7

Notes to Consolidated Financial Statements		F-9

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 Technologies Corp. and Subsidiary

We have audited the accompanying consolidated balance sheets of SQL Technologies Corp. and Subsidiary (“the Company”) as of December 31, 2017 and 2016 and the related consolidated statements of operations, stockholders’ deficit, and consolidated cash flows for the years ended December 31, 2017 and 2016. 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, 2017 and 2016, and the results of its operations, changes in stockholders’ deficit and cash flows for the years ended December 31, 2017 and 2016 in conformity with accounting principles generally accepted in the United States of America.

/s/ L&L CPAS, PA

L&L CPAS, PA

Certified Public Accountants

Cornelius, North Carolina

The United States of America

April 2, 2018

F- 1

SQL Technologies Corp. and Subsidiary

Consolidated Balance Sheets

(Audited)

	December 31, 2017		December 31, 2016
Assets

Current assets:
Cash	$	4,877,720	$	4,125,888
Accounts receivable		1,049,965		796,824
Inventory		2,352,573		2,401,048
Prepaid expenses		61,714		41,229
Total current assets		8,341,972		7,364,989

Furniture and Equipment - net		194,872		113,605
Patent - net		204,412		106,342
GE trademark license – net		1,640,466		4,675,585
Other assets		40,934		202,346
Total other assets		2,080,684		5,097,878

Total assets	$	10,422,656	$	12,462,867

Liabilities and Stockholders (Deficit)

Current liabilities:
Accounts payable & accrued expenses	$	1,364,446	$	1,060,163
Convertible debt net of debt discount $-0- and				150,000
$-0- at December 31, 2017 and December 31, 2016 respectively
Convertible debt - related parties - net of debt discount $-0- and				50,000
$-0- at December 31, 2017 and December 31, 2016 respectively
Notes payable - current portion		70,222		3,225,961
Notes payable - related party		200,000		200,000
GE royalty obligation		10,760,566
Derivative liabilities		19,175,754		24,083,314
Other current liabilities		42,332		15,077
Total current liabilities		31,613,320		28,784,515

Long term liabilities:
Notes payable		3,456,732		73,598
GE royalty obligation				11,302,423
Total long-term liabilities		3,456,732		11,376,021

Total liabilities		35,070,052		40,160,536

F- 2

Commitments and contingent liabilities:
Redeemable preferred stock - subject to redemption: $0 par value;
20,000,000 shares authorized; 13,456,936 and 13,056,932 shares issued
and outstanding at December 31, 2017 and December 31, 2016
Respectively		45,753,569			44,393,569
Stockholders' deficit:
Common stock: $0 par value, 500,000,000 shares authorized;
and 53,174,901 shares issued and outstanding
at December 31, 2017 and December 31, 2016 respectively		17,581,387			12,294,391
Common stock to be issued		—			—
Additional paid-in capital		80,103,806			56,910,107
Subscription receivable					(78,000	)
Accumulated deficit		(168,050,716	)		(141,182,294	)
Total Stockholders' deficit		(70,365,523	)		(72,055,796	)
Noncontrolling interest		(35,442	)		(35,442	)
Total Deficit		(70,400,965	)		(72,091,238	)
Total liabilities, redeemable preferred stock, and stockholders' deficit	$	10,422,656		$	12,462,867

The accompanying notes are an integral part of these condensed consolidated financial statements.

F- 3

SQL Technologies Corp. and Subsidiary

Consolidated Statements of Operations

Years Ended December 31,

(Audited)

	2017			2016
Sales	$	7,700,948		$	7,014,978

Cost of sales		(6,379,728	)		(6,136,395	)

Gross profit		1,321,220			878,583

Selling, general and administrative expenses		5,126,302			4,383,751
Depreciation and amortization		2,497,408			2,482,604
Loss on impairment		600,000
Total operating expenses		8,223,710			6,866,355
Loss from operations		(6,902,490	)		(5,987,772	)

Other income (expense)
Interest expense		(294,735	)		(980,867	)
Derivative expenses					(9,678,390	)
Change in fair value of embedded derivative liabilities		(14,413,192	)		(43,634,482	)
Loss on debt extinguishment		(1,260,000	)		(41,129,336	)
Warrants expenses		(1,869,358	)		—
Options expenses		(2,003,593	)		—
Gain on exchange		6,843			—
Other income		17,840			13,275

Gain on Debt Extinguishment					2,949,714
Total other income (expense) – net		(19,816,195	)		(92,460,086	)

Net loss including noncontrolling interest		(26,718,685	)		(98,447,858	)
Less: net loss attributable to noncontrolling interest
Net loss attributable to Safety Quick Lighting & Fans Corp.	$	(26,718,685	)	$	(98,447,858	)

Net loss per share - basic and diluted		(0.55	)	$	(2.60	)

Weighted average number of common shares outstanding during the year-basic and diluted		48,943,041			37,916,952

The accompanying notes are an integral part of these condensed consolidated financial statements.

F- 4

SQL Technologies Corp. and Subsidiary

Consolidated Statement of Stockholders' Deficit

Years Ended December 31, 2017 and December 31, 2016

(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	)

F- 5


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	(141,182,294	)	(35,442	)	(72,091,238	)

F- 6

Common stock issued for the cashless exercise of warrants	4,132,068	—		—		—		—		—			—			—
																—
Funds received for stock subscription	16,667	—		49,996		78,000		—		—			—			127,996
																—
Common stock issued, net of issuance cost	53,000	—		159,000		—		—		—			—			159,000
																—
Common stock issued for the exercise of warrants	1,666,667	—		5,000,000		—		—		—			—			5,000,000
																—
Reclassification of derivative liability related to warrants	—	—		—		—		13,229,681		—			—			13,229,681
																—
Warrants expense								1,869,358								1,869,358
Common stock issued for the exercise of options	30,000	—		78,000		—		—		—			—			78,000
																—
																—
Reclassification of derivative liability related to options	—	—		—		—		6,091,070		—			—			6,091,070
																—
Options expense								2,003,591								2,003,591
Dividends Paid	—	—		—		—		—		(149,737	)		—			(149,737	)
																—
																—
Net loss	—	—		—		—		—		(26,718,685	)		—			(26,718,685)
Balance, December 31, 2017	53,174,900	—	$	17,581,387	$	—	$	80,103,806	$	168,050,716	)	$	(35,442	)	$	(70,400,965	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

F- 7

SQL Technologies Corp. and Subsidiary

Consolidated Statements of Cash Flows

Years Ended December 31,

(Audited)

	2017			2016
Cash flows from operating activities:
Net loss attributable to SQL Technologies Corp.	$	(26,718,685	)	$	(98,447,858	)
Net loss attributable to noncontrolling interest		—			—
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		50,915			26,483
Amortization of debt issue costs		—			14,605
Amortization of debt discount		—			474,283
Amortization of patent		11,395			7,958
Amortization of GE trademark license		2,435,117			2,448,162
Loss on impairment		600,000
Change in fair value of derivative liabilities		14,413,192			43,634,481
Derivative expense					9,678,390
Loss on debt extinguishment		1,260,000			41,129,336
Warrants expenses		1,869,358
Options expenses		2,003,593
Loss (Gain) on debt forgiveness		—			(2,949,714	)
Stock options issued for services - related parties		—			931,000
Change in operating assets and liabilities:
Accounts receivable		(253,141	)		(562,515	)
Prepaid expenses		(20,485	)		(5,460	)
Inventory		48,475			(2,137,177	)
Deferred royalty		—			—
Royalty payable		(541,857	)		(493,432	)
Other		188,667			(167,356	)
Deferred rent		—			—
Accounts payable & accrued expenses		304,283			252,367
Net cash used in operating activities		(4,349,173	)		(6,166,446	)

Cash flows from investing activities:
Purchase of property & equipment		(132,190	)		(12,567	)
Payment of patent costs		(109,463	)		(31,127	)
Net cash used in investing activities		(241,653	)		(43,694	)

F- 8

Cash flows from financing activities:
Repayments of convertible notes		(200,000	)		(4,314,233	)
Reduction of Notes converted to Preferred Stock		100,000			3,264,233
Proceeds from note payable		2,381,132			5,293,016
Proceeds from note payable - related party		—			500,000
Stock issued in exchange for interest		—			158,312
Stock issued in exchange for principal		—			150,000
Dividends paid		(149,737	)		(30,966	)
Repayments of note payable		(2,153,737	)		(2,295,202	)
Repayments of note payable - related party		—			(300,000	)
Proceeds from issuance of stock		5,365,000			7,460,000
Net cash provided by financing activities		5,342,658			9,885,160

(Decrease) cash and cash equivalents		751,832			3,675,020
Cash and cash equivalents at beginning of period		4,125,888			450,868
Cash and cash equivalents at end of period	$	4,877,720		$	4,125,888


Supplementary disclosure of non-cash financing activities:
Reclassification of derivative liability to additional paid-in-capital	$	19,320,751		$	50,437,681
Gain on debt extinguishment	$	—		$	2,949,714


Supplementary disclosure of cash flow information
Cash paid during the period for:
Interest	$	294,735		$	315,631

The accompanying notes are an integral part of these condensed consolidated financial statements.

F- 9

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), the CE Marking (for the European market) and, in December 2016, was approved by the National Fire Protection Association for inclusion in the NFPA 70: National Electrical Code (NEC). 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 ceiling fans and light fixtures, using a power plug installed in ceiling and wall electrical junction boxes. The Company’s base 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 an electric power supply that is connected to the electrical junction box. The plug, which is incorporated in an electrical appliance, attaches to the socket via a male post and is capable of feeding electric power to the appliance. The plug includes a second structural element allowing it to revolve and a releasable latching that provides a retention force between the socket and the plug to prevent unintentional 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 use of the Company’s technology enables the installation and replacement of ceiling fans and lights and wall sconces in a fraction of the time of similar, conventional appliances.

The Company currently 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

The following is a summary of the Company’s 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.

F- 10

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 year ended 2017 and 2016, there was no activity in the Subsidiary.

Use of Estimates

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.

Reclassifications

For comparability, reclassifications of certain prior-year balances were made in order to confirm with current-year presentations.

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.

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 $4,877,720 and $4,125,888 in money market as of December 31, 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 $4,377,720 at December 31, 2017.

F- 11

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, 2017 and 2016:

	December 31, 2017		December 31, 2016

Accounts Receivable	$	1,049,965	$	796,824
Allowance for Doubtful Accounts				—
Net Accounts Receivable	$	1,049,965	$	796,824

All amounts are deemed collectible at December 31, 2017 and December 31, 2016 and accordingly, the Company has not incurred any bad debt expense at December 31, 2017 and December 31, 2016.

Inventory

Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method. Cost principally consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes in future demand.

At December 31, 2017 and December 31, 2016, the Company had $2,352,573 and $2,401,048 in inventory, respectively. The inventory at December 31, 2017 consisted of $ 1,891,934 of Finished Goods and $465,539 in Component Parts. The December 31, 2016 inventory consisted entirely of Finished Goods. 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, 2017, and December 31, 2016, 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 an impairment adjustment of $600,000 was necessary for the year ended 2017.

F- 12

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 June 15, 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 determined an impairment adjustment of $600,000 was necessary for the year ended 2017.

F- 13

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.

The Company changed its method to estimate the valuation of valuation for fair market values of derivatives in 2017 to a lattice-binomial option-pricing model (“lattice-binomial model”) from the Black-Scholes option-pricing model (“Black-Scholes model”) which was previously used under SFAS 123 and are reflected on our condensed consolidated statement of operations as other (income) expense at each reporting period. 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. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements. Furthermore, depending on the terms of a derivative or embedded derivative, the valuation of derivatives may be removed from the financial statements upon conversion of the underlying instrument into some other security. The change in valuation methodology for accounting estimates had no material impact on the Company’s previous calculations.

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.

The Company has reserved for issuance 26,751,860 shares of Common stock associated with conversion features on Series A 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.

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.

F- 14

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 lattice-binomial 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.

F- 15

	•	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 – Nonemployees

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.

F- 16

•

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.

F- 17

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 lattice-binomial option-pricing valuation model. The ranges of assumptions for inputs are as follows:

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.

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.

F- 18

Revenue Recognition

The Company derives revenues from the sale of GE branded fans and lighting fixtures to large retailers through retail and online sales.

Sales are recognized at the time title transfers to the customer, generally upon shipment and when all 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.

Trade allowances and a provision for estimated returns and other allowances are recorded at the time sales are made, considering historical and anticipated trends.

On January 1, 2017, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The adoption has had an immaterial impact to our comparative net income and as such comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis.

A majority of our sales revenue continues to be recognized when products are shipped from our manufacturing facilities and from our third-party logistics facility.

Cost of Sales

Cost of sales represents costs directly related to produce, acquire and source inventory for sale, and provisions for inventory shrinkage and obsolescence. These costs include costs of purchased products, inbound freight, custom duties.

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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling expenses include costs incurred in the selling of merchandise. General and administrative expenses include costs incurred in the administration or general operations of the business. Selling, general and administrative expenses include employee and related costs, marketing, professional fees, distribution , warehouse costs, and other related selling costs.

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, 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 December 31, 2017 and December 31, 2016:

	December 31, 2017	December 31, 2016

Convertible Debt (Exercise price - $0.25/share)	—		800,000
Stock Warrants (Exercise price - $0.375 - $3.00/share)	8,419,924		13,555,651
Stock Options (Exercise price $0.375 - $4.00/share)	4,875,000		1,350,000
Total	13,294,924		15,705,651

Income Tax Provision

From the inception of the Company and through November 6, 2012, the Company was taxed as a pass-through entity (a limited liability company) under the Internal Revenue Code and was not subject to federal and state income taxes; accordingly, no provision had been made.

The financial statements reflect the Company’s transactions without adjustment, if any, required for income tax purposes for the period from November 7, 2012 to December 31, 2012. The net loss generated by the Company for the period January 1, 2012 to November 6, 2012 has been excluded from the computation of income taxes.

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment date.

F- 20

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, 2017 and 2016

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.

F- 21

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 May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” on revenue recognition. This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The original effective date of this guidance was for interim and annual reporting periods beginning after December 15, 2016, early adoption is not permitted, and the guidance must be applied retrospectively or modified retrospectively. In July 2015, the FASB approved an optional one-year deferral of the effective date.

On January 1, 2017 We adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis.

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.

F- 22

In May 2015, the FASB issued ASU 2015-07, "Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)," which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. Further, the amendments remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The new guidance should be applied on a retrospective basis to all periods presented. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement –Period Adjustments.” Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquired business recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquired business. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. We adopted this guidance in the first quarter 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

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 February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis," which makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

In January 2015, the FASB issued ASU 2015-01, "Income Statement – Extraordinary and Unusual Items (Subtopic 225-20)," effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This update eliminates from GAAP the concept of extraordinary items. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

In November 2014, the FASB issued ASU 2014-16, "Derivatives and Hedging (Topic 815)." Entities commonly raise capital by issuing different classes of shares, including preferred stock, that entitle the holders to certain preferences and rights over the other shareholders. The specific terms of those shares may include conversion rights, redemption rights, voting rights, and liquidation and dividend payment preferences, among other features. One or more of those features may meet the definition of a derivative under GAAP. Shares that include such embedded derivative features are referred to as hybrid financial instruments. The objective of this update is to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

F- 23

In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements – Going Concern (Subtopic 205-40), effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This standard provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The guidance is effective for annual reporting periods ending after December 15, 2016, and early adoption is permitted. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

In March 2016, the FASB issued an accounting standard update which simplifies the accounting for share-based payment transactions, inclusive of income tax accounting and disclosure considerations. This guidance is effective for fiscal and interim periods beginning after December 15, 2016 and is required to be applied retrospectively to all impacted share-based payment arrangements. We adopted this guidance on January 1, 2017. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. We are currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued an accounting standard update which modifies the accounting for leasing arrangements, particularly those arrangements classified as operating leases. This update will require entities to recognize the assets and liabilities arising from operating leases on the balance sheet. This guidance is effective for fiscal and interim periods beginning after December 15, 2018 and is required to be applied retrospectively to all leasing arrangements. We are currently assessing the effects this guidance may have on our financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business ("ASU 2017-01"). The standard clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Under ASU 2017-01, to be considered a business, the assets in the transaction need to include an input and a substantive process that together significantly contribute to the ability to create outputs. Prior to the adoption of the new guidance, an acquisition or disposition would be considered a business if there were inputs, as well as processes that when applied to those inputs had the ability to create outputs. Early adoption is permitted for certain transactions. Adoption of ASU 2017-01 may have a material impact on our consolidated financial statements if we enter into future business combinations.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not anticipate the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements.

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.

F- 24

Note 3 Furniture and Equipment

Property and equipment consisted of the following:

	December 31,			December 31,
	2017			2016
Machinery and Equipment	$	31,456		$	31,456
Computer Equipment		6,846			6,846
Furniture and Fixtures		36,059			36,059
Tooling and Production		207,016			105,379
Leasehold Improvements		30,553			—
Total		311,930			179,740
Less: Accumulated Depreciation		(117,058	)		(66,135	)
Property and Equipment net	$	194,872		$	113,605

Depreciation expense amounted to $50,915 and $26,483 for the years ended December 31, 2017 and 2016, respectively.

Note 4 Intangible Assets

Intangible assets (patents) consisted of the following:

	December 31, 2017			December 31, 2016

Patents	$	244,382		$	134,917
Less: Impairment Charges		—			—
Less: Accumulated Amortization		(39,970	)		(28,575	)
Patents - net	$	204,412		$	106,342

Amortization expense on intangible assets was $11,395 and $7,958 for the years ended December 31, 2017 and 2016, respectively.

At December 31, 2017, the estimated amortization of intangible assets for the next five years and thereafter was as follows:

Year Ending December 31
2018	$	16,276
2019		16,276
2020		16,276
2021		16,276
2022		16,276
2023 and Thereafter		123,034
	$	204,412

F- 25

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, 2017			December 31, 2016
GE Trademark License	$	12,000,000		$	12,000,000
Less: Impairment Charges		(600,000)			—
Less: Accumulated Amortization		(9,759,534	)		(7,324,415	)
GE trademark license – net	$	1,640,466		$	4,675,585

Amortization expense associated with the GE Trademark License amounted to $2,435,117 and $2,448,161 for the years ended December 31, 2017 and 2016, respectively. The Company determined an impairment adjustment of $600,000 was necessary for the year ended 2017.

At December 31, 2017, future amortization of intangible assets is as follows for the remaining:

Note 6 Deferred Lease Credits

Cash or rent abatements received upon entering 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 current liabilities. As of December 31, 2017, and December 31, 2016 the deferred credits were $42,332 and $13,034 respectively. Deferred Rent amortization was $ 29,297 and $(11,987) for the years ended December 31, 2017 and 2016, respectively.

Note 7 Notes Payable

At December 31, 2017 and December 31, 2016, the Company had a note payable to a bank in the amount of $70,222 and $186,823, respectively. The note bears interest at prime plus 1.5%, which was 6% as of December 31, 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 into a Line of Credit Promissory Note with a third party (the “Line of Credit”), as amended and extended, in the principal sum of up to ten million U.S. Dollars (US $10,000,000) to support purchase orders, inventory and general working capital needs. The Company may draw and/or repay this Line of Credit from time to time until the maturity hereof. The Note provides for monthly payments of interest at nine percent (9%) per annum on outstanding principal and matures on January 10, 2019, at which time the full principal amount and accrued but unpaid interest become due.

The Line of Credit note is secured by the assets of the Company. As of December 31, 2017, and December 31, 2016, the outstanding balance on this note was $3,456,732 and $3,112,737, 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%. As of December 31, 2017, 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
2018	$	270,222
2019		3,456,732
	$	3,726.954

F- 26

Note 8 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, 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 December 31, 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.

F- 27

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.

At December 31, 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 September 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.

F- 28

At December 31, 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.

(A)

Terms of Debt

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.

F- 29

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:

	December 31, 2017		December 31, 2016
Balance Beginning of period	$	24,083,314	$	24,157,838
Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability		(13,229,681)		—
Extinguishment of Derivative Liability - Conversion of Interest to Shares		—		—
Fair value mark to market adjustment - stock options		2,036,621		(268,098	)
Fair value at the commitment date for options granted				4,625,002
Fair value mark to market adjustment - convertible debt		—		34,088,543
Fair value mark to market adjustment – warrants		12,376,571		6,264,132
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		(6,091,070)		(50,437,681	)
Gain on debt settlement		—		(2,949,714	)

Balance at end of period	$	19,175,754	$	24,083,314

The Company reclassified $13,229,681 to additional paid in capital. The reclassification is mainly due to the share reservation in transfer agent for options, warrants and conversion of convertible notes. The Company recorded a change in the value of embedded derivative liabilities income/(expense) $(14,413,192) and $(43,634,482) for the years ended December 31, 2017 and 2016, respectively.

	Commitment Date		Recommitment Date
Expected dividends		0%		0%
Expected volatility		150%		150%
Expected term		0.90 – 9.56 years		1.16 – 9.56 years
Risk Free Interest Rate		0.76%-2.40%		1.47%-2.33%

For the year ended December 31, 2017, the Company and the third-party investors agreed to convert their warrants to the Company's common shares in cashless basis. The Company recognizes the warrant expense of $1,869,358. The fair value of stock warrant is estimated using the Binomial valuation method and based on the information as of the conversion date: exercise price of $3.30, volatility of 150.0%, steps of 20.29 and risk-free rate of 1.98%.

For the year ended December 31, 2017, the Company recognizes the option expense of $2,003,593. The fair value of stock option is estimated using the Binomial valuation method and based on the price of the date granted: exercise price of $4.00, volatility of 150.0%, steps of 37.78 and risk-free rate of 2.40%.

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 debt discount amounted to -0- as of December 31, 2017 and $4,402,773 for the year ended December 31, 2016.

The Company recorded a change in the value of embedded derivative liabilities income/(expense) of ($14,413,192) and ($43,634,482) for the years ended December 31, 2017 and 2016, respectively.

The Company recorded derivative expense of ($0) and ($9,678,390) for the years ended December 31, 2017 and 2016, respectively.

The Company recorded loss on disposition of debt as a result of conversion to Common Stock and Preferred Stock of ($1,260,000) for the year ended 2017. The loss was a result of the conversion value of the shares received exceeded the face value of the note.

F- 30

Note 11 Debt Issue Costs

	December 31,		December 31,
	2017		2016
Debt Issuance Costs	$	0	$	316,797
Total		0		316,797
Less: Accumulated Amortization		0		(316,797	)
Debt Issuance Costs	$	—	$	—

The Company recorded amortization expense of $-0- and $14,605 for the years ended December 31, 2017 and 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 December 31, 2017, and December 31, 2016.

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 $541,858 and $489,108 for the years ended December 31, 2017 and 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%

As of December 31, 2017, and December 31, 2016 the outstanding balance was $10,760.566 and $11,302,423, respectively.

Note 13 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, 2017, the Company has a net operating loss carryforward of approximately $22,281,117 available to offset future taxable income indefinitely. 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, 2017, and 2016.

F- 31

The effects of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2017 and December 31, 2016 are approximately as follows:

	December 31, 2017		December 31, 2016
Net operating loss carryforward	$	(22,281,117)	$	(15,512,000	)
Gross Deferred Tax Assets		5,904,496		6,64,000
Less Valuation Allowance		(5,904,496)		(6,264,000	)
Total Deferred Tax Assets – Net	$	—	$	—

There was no income tax expense for the years ended December 31, 2017 and 2016 due to the Company’s net losses

The Company’s tax expense differs from the “expected” tax expense for the years ended December 31, 2017 and December 31, 2016 (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, 2017		December 31, 2016
Computed "expected" tax expense (benefit) – Federal	$	(4,868,395)	$	(34,457,000	)
Computed "expected" tax expense (benefit) - State		(1,275,056)		(5,415,000	)
Derivative expense		774,346		3,920,000
Change in Fair Value of Embedded Derivative		3,401,139		17,672,000
Loss/(Gain) on Debt Extinguishment		333,900		16,657,000
Change in valuation allowance		1,634,066		1,623,000
	$	—	$	—

F- 32

Note 14 Stockholders Deficit

(A) Common Stock

For years ended December 31, 2017 and years 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
Common Stock Offering	(7)		69,667	$	209,000		3.00

Common 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

Common Stock Issued for the cashless exercise of warrants	(10)		4,132,068		0		0.0

Total 2017 Equity Transactions			5,898,402	$	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.

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(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 nine-months ended September 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.

(10)

Common Stock Issued for the cashless Exercise of Warrants

In November 2017, the Company issued 4,132,068 shares of its common stock upon exercise of warrants, and it was cashless exercise.

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(B) Preferred Stock

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		13,056,936	$	44,393,569	$	3.40

Total 2016 Preferred Stock Transactions		13,056,936	$	44,393,569	$	3.40

2017 Preferred Stock Transactions

Preferred Stock Issued per August 2016 Election		400,000	$	1,360,000	$	3.40

Total 2017 Preferred Stock Transactions		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 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 shares of the Company’s common stock publicly traded nearest the conversion date. During the year ended December 31, 2017 the Company paid dividends in the amount of $149,737 to the Preferred Stock shareholders.

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 December 31, 2017 and December 31, 2016, respectively

(C) Stock Options

The following is a summary of the Company’s stock option activity:

			Weighted Average		Weighted Average Remaining Contractual Life		Aggregate Intrinsic
	Options		Exercise Price		(In Years)		Value
Balance, December 31, 2015		200,000	$	0.375		2.68	$	525,000
Exercised		—		—		—		—
Granted		1,150,000		0.835		8.88		2,490,000
Forfeited/Cancelled		—		—		—		—
Balance, December 31, 2016		1,350,000	$	0.767		7.81	$	3,015,000
Exercised		(30,000)		2.60		—		(78,000)
Granted		3,555,000		1.307		7.47		6,230,250
Forfeited/Cancelled		—		—		—		—
Balance, December 31, 2017		4,875,000	$	1.150		7.40	$	9,167,250

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The Company has issued options, some of which have vested, to purchase shares of common stock through our Incentive Plan. The Company has issued options to purchase, in the aggregate, up to 4,875,000 shares of common stock options, in conjunction with our Incentive Plan, agreements or otherwise. 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, 735,000 shares have not been reserved and are included in the calculation of derivative liability (See Note 9).

During the year ended December 31, 2017, options to purchase up to 2,710,000 shares of our common stock were issued in lieu of services to non-employees, in connection with our Incentive Plan. These options are for ten years, have an average vesting period between zero and three years, and have strike prices ranging between $0.60 and $4.00. These options were issued in connection with grants that were made on November 15, 2015 and April 19, 2017. For the year ended December 31, 2017, the Company recognized an option expense of $2,003,591 (See Note 9).

(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, 2015		9,728,984	$	0.289		1.5
Issued		3,826,667		3.28		1.6
Exercised		—		—		—
Cancelled/Forfeited		—		—		—
Balance, December 31, 2016		13,555,651	$	0.72		1.5

Issued		898,040		3.31		4.63
Exercised		(6,033,767)		(3.00)		—
Cancelled/Forfeited		—		—		—
Balance, December 31, 2017		8,419,924	$	1.64		2.42

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 2017, the Company issued warrants to twenty-four (24) different groups totaling 898,040. These warrants had lives ranging from three to five years at strike prices between $3.30 and $3.50 per share. For the year ended December 31, 2017, the Company recognized warrant expense of $1,869,358 (See Note 9).

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 .

In October 2017, 4,367,100 warrants were cashless exercised.

In October 2017, 838,040 warrants were issued at $3.30 per share contingent on the date of exercise.

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(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 15 Commitments

(A)

Operating Lease

On September 20, 2017, the Company entered into an operating lease for its Georgia location. The new lease commenced on July 1, 2017 and expires on September 30, 2020. We recognize rent expense under such arrangements on a straight-line basis.

On September 27, 2017 the Company entered into two separate residential leases near the Florida office for two of its employees. The term for each lease is 12 months and, each lease carries a rent of $2,000 per month. The collective rent payment are $4,000 per months and will reduce travel costs for the Company.

The minimum rent obligations are approximately as follows:

	Minimum
Year	Obligation
2018	$	110,180
2019		78,467
2020		60,320
		0
	$	248,967

(B)

Employment Agreement – Chief Executive Officer

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.

F- 37

On September 1, 2016, the Company entered into a new employment agreement with its Chief Executive Officer (the “Campi Agreement”). The Campi 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 net sales, paid in cash on an quarterly basis, 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 years ended December 31, 2017 and December 31, 2016 Mr. Campi earned approximately $171,966 and $137,853, respectively, under the Campi Agreement associated with performance pay, as noted above.

(C)

Chairman 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.

F- 38

For the years ended December 31, 2017 and December 31, 2016 Mr. Kohen earned approximately $315,989 and $220,257, respectively, under this and the agreement associated with performance pay as noted above.

(D)

Employee Agreement - President

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 quarterly basis.

(D)

Employment Agreement – Chief Operating Officer

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, paid in cash on a quarterly basis. 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.

For the years ended December 31, 2017 and December 31, 2016 Ms. Barron’s earned approximately $142,927 and $141,018, respectively, under this and the agreement associated with performance pay as noted above.

Note 15 Subsequent Events

On January 31, 2018, the Company entered into an agreement to extend the Line of Credit through January 10, 2019.

On March 23, 2018, the Company issued 120,000 shares of Common Stock to Mr. Campi, which vested on December 31, 2017, pursuant to the Campi Agreement

On March 23, 2018, the Company issued 120,000 shares of Common Stock to Mr. Wells, which vested on January 1, 2018, pursuant to the Wells Agreement.

F- 39

Year Ending December 31

Thereafter