What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-08 compared with 2018-04-02 · 463 added, 410 removed, 30 unchanged (97% of the section changed)

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

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

Venture Market, and shares of our Common Stock are currently quoted under the symbol “SQFL”.

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

Therefore, while our shares of Common Stock are eligible for trading, a liquid public market has not yet developed.

predict the future prices at which our shares will trade, or the liquidity of a public market for our shares of Common Stock,

should one develop.

As of 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.

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.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

February 10, 2022, our common stock began trading on Nasdaq under the symbol “SKYX”.

of February 25, 2022, there were approximately 218 holders of record of our 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.

have never declared or paid any cash dividends on our common stock.

Holders of our Series A Preferred Stock receive interest payments

quarterly, at a rate of 6% per year, and rank senior with respect to interest on junior securities, dividends, distributions or liquidation

We anticipate that we will retain all available funds and future earnings, if any, for use in the operation of our business

and do not anticipate paying cash dividends in the foreseeable future.

In addition, future debt instruments may materially restrict our

ability to pay dividends on our common stock.

Payment of future cash dividends, if any, will be at the discretion of the board of directors

after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs,

the requirements of then-existing senior equity and debt instruments and other factors the board of directors deems relevant.

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.

Incentive Plan Information

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

of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted-average

exercise price of outstanding options, warrants and rights

of securities remaining available for future issuance under equity compensation plans (excluding securities reflected

in column (a)

Equity compensation

plans approved by security holders:

Stock Incentive Plan (1)

compensation plans not approved by security holders

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.

2015 Stock Incentive Plan

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.

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.

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.

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.

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.

and Restricted Stock Awards

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.

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.

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.

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.

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.

Income Tax Consequences

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.

and Outstanding Equity Awards

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.

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.

SELECTED FINANCIAL DATA

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

following is a summary of issuances of unregistered securities during 2021:

Stock Issuances (Excluding Option and Warrant Exercises)

February 2021, the Company issued 2,084 shares of common stock to a service provider.

March 2021, the Company issued an aggregate of 43,000 shares of common stock to Mr.

Sokolow as part of his director compensation.

March 2021, the Company issued 10,000 shares of common stock to four investors pursuant to the investment banking agreement with Newbridge

Securities Corporation, of which Mr.

Sokolow received 4,500 shares and Newbridge Securities Corporation received 3,600 shares.

a series of transactions from February 2021 to August 2021, Bridge Line Ventures, LLC Series ST-1 (“Bridge Line Ventures”)

purchased an aggregate of 231,624 shares of common stock for aggregate proceeds of approximately $2.8 million at a purchase price of

$12.00 per share.

The share purchases consisted of 25,373 shares purchased in February 2021;

37,500 shares purchased in March 2021;

shares purchased in April 2021;

150,000 shares purchased in June 2021;

and 16,667 shares purchased in August 2021.

Such shares have certain

piggyback registration and anti-dilution rights.

October 2021, in private placement transactions with four investors, the Company sold an aggregate of 37,502 shares of common stock,

at $12.00 per share, and warrants to purchase up to 37,502 shares of common stock at an exercise price of $12.00 per share for aggregate

gross proceeds of approximately $450,000.

Such shares and warrants have certain piggyback registration and anti-dilution rights.

November 2021, the Company issued 33,334 shares of common stock to a joint venture partner pursuant to a 2018 agreement.

November 2021, in a private placement transaction with two investors, the Company sold an aggregate of 125,001 shares of common stock,

at $12.00 per share, and warrants to purchase up to 125,001 shares of common stock at an exercise price of $12.00 per share for aggregate

gross proceeds of approximately $1,500,000.

Such shares and warrants have certain piggyback registration and anti-dilution rights.

December 2021, in a private placement transaction, the Company sold an aggregate of 41,668 shares of common stock, at $12.00 per share,

and warrants to purchase up to 41,668 shares of common stock at an exercise price of $12.00 per share for aggregate gross proceeds of

approximately $500,000.

Such shares and warrants have certain piggyback registration and anti-dilution rights.

in December 2021, the Company received gross proceeds in the aggregate amount of approximately $8.3 million from the sale of 692,667

shares of common stock at $12.00 per share to several investors, in a private placement.

Such shares have certain piggyback registration

and anti-dilution rights.

December 2021, the following shares of common stock were issued to the Company’s named executive officers, non-employee directors

and other employees, advisors and consultants:

1,140,000 shares of common stock issued to Mr.

Kohen, pursuant to his employment agreement;

55,000 shares of common stock issued to each of Mr.

Ridge and Mr.

Shiff as director compensation;

24,000 shares of common

stock issued to Mr.

Sokolow as director compensation;

25,000 shares issued to Mr.

Schmidt, pursuant to his consulting agreement;

455,000 shares of common stock issued pursuant to various employment, advisory and consulting agreements.

Grants and Exercises

December 2021, Mr.

Sokolow exercised an option to purchase 75,000 shares, dated January 1, 2017, with an exercise price of $2.60 per

share, and Mr.

Shiff exercised an option to purchase 25,000 shares, dated January 1, 2017, with an exercise price of $2.60 per share.

of common stock underlying the following option awards to the Company’s named executive officers, non-employee directors and other

employees and consultants have been issued:

five-year options to purchase 3.0 million shares of common stock, which vested on the effective

grant date and were granted to Rani Kohen, the Company’s Executive Chairman, pursuant to his employment agreement, of which 1.5

million have an exercise price of $3.00 per share, 500,000 have an exercise price of $4.00 per share and 1.0 million have an exercise

price of $6.00 per share, all of which expire November 21, 2024;

five-year options to purchase 1,140,000 shares of common stock, granted

Kohen pursuant to his 2019 employment agreement, which have an exercise price of $6.00 per share, vest as to 120,000 shares January

1, 2020 and as to 340,000 shares on each of September 1, 2020, 2021 and 2022, and expire September 1, 2024;

the Performance Options,

as described in “Executive Compensation—Agreements with Named Executive Officers”;

five-year options to purchase 1,140,000

shares of common stock, granted to Mr.

Kohen pursuant to his 2022 employment agreement, which have an exercise price of $12.00 per share,

vest as to 120,000 shares January 1, 2023 and as to 340,000 shares on each of January 1, 2023, 2024 and 2025, and expire January 1, 2027;

five-year options to purchase 120,000 shares of common stock, granted to John Campi, the Company’s Chief Executive Officer and

then-Chief Financial Officer, pursuant to his employment agreement, which have an exercise price of $6.00 per share, vest in full on

December 31, 2020 and expire September 1, 2024;

five-year options to purchase 100,000 shares of common stock, granted to Patricia Barron,

the Company’s Chief Operations Officer, pursuant to her employment agreement, which have an exercise price of $6.00 per share,

vest in full on December 31, 2020 and expire September 1, 2024;

five-year options to purchase 220,000 shares of common stock, granted

to Steven Schmidt, the Company’s President, pursuant to his consulting agreement, of which (i) 60,000 have an exercise price of

$0.10 per share, vest in three equal installments on each of October 1, 2020, 2021 and 2022, and expire October 1, 2024, (ii) 60,000

have an exercise price of $6.00 per share, vest in three equal installments on each of October 1, 2020, 2021 and 2022, and expire October

1, 2024, and (iii) 100,000 have an exercise price of $12.00 per share, vest in four equal installments on each of June 1, 2021, 2022,

2023 and 2024, and expire June 1, 2026;

three-year options to purchase 10,000 shares of common stock, granted to Marc-Andre Boisseau,

Chief Financial Officer, pursuant to his employment agreement, which have an exercise price of $12.00 per share, vest in four equal quarterly

installments at the end of each quarter in 2022;

five-year options to purchase an aggregate of 125,000 shares, granted to each of Phillips

Peter, Thomas Ridge and Dov Shiff as director compensation, all of which vested on the effective grant date and of which, for each director,

(i) 25,000 have an exercise price of $3.00 per share and expire January 1, 2023, (ii) 25,000 have an exercise price of $3.00 per share

and expire January 1, 2024, (iii) 25,000 have an exercise price of $12.00 per share and expire January 1, 2025, (iv) 25,000 have an exercise

price of $12.00 per share and expire December 31, 2025 and (v) 25,000 have an exercise price of $12.00 per share and expire December

five year options to purchase an aggregate of 500,000 options, granted to Leonard Sokolow as director compensation, all of

which vested on the effective grant date and of which (i) 100,000 have an exercise price of $3.00 per share and expire January 1, 2023,

(ii) 100,000 have an exercise price of $3.00 per share and expire January 1, 2024, (iii) 100,000 have an exercise price of $12.00 per

share and expire January 1, 2025, (iv) 100,000 have an exercise price of $12.00 per share and expire December 31, 2025 and (v) 100,000

have an exercise price of $12.00 per share and expire December 31, 2026;

and options to purchase an aggregate of 1,772,182 shares of

common stock, granted to various employees, advisors and consultants pursuant to their employment, advisory and consulting agreements,

which generally have five year terms and vest within three years of the effective grant date, have exercise prices ranging from $1.00

to $12.00 per share, and expire on dates ranging from December 1, 2022 to September 21, 2026.

A Preferred Stock Conversions

February 2021, a holder of Series A Preferred Stock converted 200,000 shares of the Series A Preferred Stock into 200,000 shares of common

Issuances and Exercises

June 2020, the Company issued a three-year volume warrant to purchase up to 1,125,000 shares of common stock to an existing stockholder.

The exercise price was $3.00 if exercised prior to June 1, 2021, $3.25 if exercised on or after June 1, 2021 and prior to June 1, 2022

and $3.50 if exercised on or after June 1, 2022 through June 1, 2023 (in each case, subject to adjustment, including in the event of

certain subsequent equity sales by the Company).

The warrant was exercisable in whole or in part at any time prior to or on June 1, 2023.

In December 2020, the investor exercised the warrant in full, and in January 2021, the Company issued an aggregate of 1,012,500 shares

of common stock, including 675,000 shares of common stock for cash proceeds of approximately $2.0 million and a net total of 337,500

shares of common stock pursuant to a cashless exercise of the remainder of the warrant.

2021, the Company issued warrants to Newbridge Securities Corporation and its affiliations as compensation for their placement agent

services (the “2021 Newbridge Warrants”), which are three-year warrants to purchase an aggregate of up to 89,685 shares of

common stock at an exercise price of $12.00 per share (subject to adjustment, including in the event of certain subsequent equity sales

by the Company), including (i) warrants dated October 26, 2021 to purchase an aggregate of up to 3,750 shares of common stock, including

warrants to purchase up to 725 shares and 1,088 shares issued to Newbridge Securities Corporation and Mr.

Sokolow, respectively, (ii)

warrants dated November 29, 2021 to purchase an aggregate of up to 12,501 shares of common stock, including warrants to purchase up to

2,250 shares and 3,375 shares issued to Newbridge Securities Corporation and Mr.

Sokolow, respectively, and (iii) warrants dated December

22, 2021 to purchase an aggregate of up to 73,434 shares, including warrants to purchase up to 13,216 shares and 19,827 shares issued

to Newbridge Securities Corporation and Mr.

Sokolow, respectively.

The 2021 Newbridge Warrants may be exercised, in whole or in part,

at any time on or prior to the third anniversary of the effective date of the warrant.

Among other terms, the 2021 Newbridge Warrants

provide for cashless exercise if, one year following the effective date of the warrant, there is no effective registration statement

registering the shares of common stock issuable upon exercise of the 2021 Newbridge Warrants, and for certain anti-dilution rights.

2021 Newbridge Warrants also provide for certain piggyback registration rights, subject to certain exceptions, including if the registration

statement is for an initial public offering, such that, if the Company registers any of its securities either for its own account or

for the account of other security holders, the holders of the 2021 Newbridge Warrants are entitled to include their shares in the registration.

Subject to certain exceptions, if the offering is being underwritten, the Company and the underwriters may limit the number of shares

included in the underwritten offering if the underwriters believe that including such shares would adversely affect the offering.

May 2021, a warrant holder acquired an aggregate of 21,250 shares of common stock pursuant to a cashless exercise of 30,000 warrant shares.

The warrant had an exercise price of $3.50 per share.

each of June 2021 and August 2021, Bridge Line Ventures received three-year warrants to purchase up to 214,957 and 16,667 shares of the

Company’s common stock, respectively, at an initial exercise price of $12.00 per share (subject to adjustment, including in the

event of certain subsequent equity sales by the Company) (the “Bridge Line Ventures Warrants”).

The Bridge Line Ventures

Warrants may be exercised, in whole or in part, at any time on or prior to June 30, 2024 or August 31, 2024, respectively.

terms, the Bridge Line Ventures Warrants provide for cashless exercise of the Bridge Line Ventures Warrants if, after June 30, 2022 or

August 31, 2022, respectively, there is no effective registration statement registering the shares of common stock issuable upon exercise

of the Bridge Line Ventures Warrants, and provide for certain anti-dilution rights.

In addition, the Bridge Line Ventures Warrants contain

certain piggyback registration rights.

October 2021 and November 2021, in private placement transactions with six investors, the Company sold an aggregate of 162,503 shares

of common stock and warrants to purchase up to 162,503 shares of common stock at an exercise price of $12.00 per share, for aggregate

gross proceeds of approximately $1,950,000.

The warrants have a three year term and an exercise price of $12.00 per share (subject to

adjustment, including in the event of certain subsequent equity sales by the Company).

In addition, the warrants provide for cashless

exercise if, after one year, there is no effective registration statement registering the shares of common stock issuable upon exercise

of the warrants, for certain anti-dilution rights and for certain piggyback registration rights, such that, subject to certain exceptions,

including if the registration statement is for an initial public offering, if the Company registers any of its securities either for

its own account or for the account of other security holders, the warrant holders are entitled to include their shares in the registration.

December 2021, in a private placement transaction, the Company sold an aggregate of 41,668 shares of common stock and warrants to purchase

up to 41,668 shares of common stock at an exercise price of $12.00 per share, for aggregate gross proceeds of approximately $500,000.

The warrants have substantially the same terms as those issued in the October and November 2021 offerings, as described above.

sold one three-year subordinated convertible promissory note to an investor in the principal face amount of $50,000.

Subject to other

customary terms, the note matures on January 13, 2024 and accrues interest at a rate of 6% per annum, which is payable annually in cash

or common stock, at the holder’s discretion.

At any time after issuance and prior to or on the maturity date, the note is convertible

at the option of the holder into shares of common stock at a conversion price of $15.00 per share.

Upon notice to the holder, the Company

may prepay, in whole or in part, the outstanding balance of the note at any time prior to the maturity date;

provided, that the holder

has the right to convert the note into shares of common stock in lieu of prepayment.

Upon the occurrence of certain events of default

and written notice from the holder, the note will become immediately due and payable and, until paid in full, will bear interest at a

rate of 12% per annum.

sales or issuances of the securities described above were deemed to be exempt from registration pursuant to Section 4(a)(2) of the Securities

Act of 1933, as amended (the “Securities Act”), including Regulation D and Rule 506 promulgated thereunder, as transactions

by the Company not involving a public offering or Rule 701 promulgated under the Securities Act as transactions pursuant to compensatory

benefit plans.

February 14, 2022, we completed our initial public offering, in which we sold 1,650,000 shares of our common stock at a price to the

public of $14.00 per share.

The offer and sale of the shares in the offering were registered under the Securities Act pursuant to a Registration

Statement on Form S-1 (File No.

333-261829), which was declared effective by the SEC on February 9, 2022.

We received $23.1 million in

gross proceeds (excluding proceeds from the sale of shares under the over-allotment option, which has not been exercised) and approximately

$20.5 million in net proceeds after deducting underwriting discounts and commissions of $1.8 million and offering expenses

of approximately $700,000.

No payments for such expenses were made directly or indirectly to (i) any of our officers or directors

or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates.

The Benchmark

Company, LLC acted as the underwriter of our initial public offering.

There has been no material change in the use of proceeds from our

initial public offering as described in the prospectus included as part of our Registration Statement.

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

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.

Dollars are denoted herein by “USD”, “$”

and “dollars”.

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

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”).

should read the following discussion and analysis of our financial condition and results of operations together with our financial statements

and the related notes appearing elsewhere in this Form 10-K.

This discussion and other parts of this Form 10-K contain forward-looking

statements that involve risks and uncertainties, such as statements regarding our plans, objectives, strategy, expectations, outlook,

intentions and projections.

Our actual results could differ materially from those discussed in these forward-looking statements.

that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors”

section of this Form 10-K.

have a series of advanced-safe-smart platform technologies.

Our first-generation technologies enable light fixtures, ceiling fans and

other electrically wired products to be installed safely and plugged-in into a ceiling’s electrical outlet box within seconds,

and without the need to touch hazardous wires.

The plug and play technology method is a universal power-plug device that has a matching

receptacle that is simply connected to the electrical outlet box on the ceiling, enabling a safe and quick plug and play installation

of light fixtures and ceiling fans in just seconds.

The plug and play power-plug technology eliminates the need of touching hazardous

electrical wires while installing light fixtures, ceiling fans and other hard wired electrical products.

In recent years, we have expanded

the capabilities of our power-plug product to include advanced safe and quick universal installation methods, as well as advanced smart

capabilities.

The smart features include control of light fixtures and ceiling fans by the SkyHome App, through WIFI, BLE and voice control.

It allows scheduling, energy savings eco mode, dimming, back-up emergency light, night light, light color changing and much more.

second-generation technology is an all-in-one safe and smart advanced platform that is designed to enhance all-around safety and lifestyle

of homes and other buildings.

Our products are designed to improve all around home and building safety and lifestyle.

While we have developed

and created working prototypes of our advanced and smart products, we are continuing to refine the product prototypes and expect to begin

commercial manufacturing and marketing in the first half of 2022 for the advanced products and the smart universal power-plug, ceiling

fans and lighting products and the second half of 2022 for the Smart Sky Platform.

We hold over 60 U.S.

and global patents and patent

applications and have received a variety of final electrical code approvals, including UL, United Laboratories of Canada (cUL) and Conformité

Européenne (CE), and 2017 and 2020 inclusion in the NEC Code Book.

ongoing COVID-19 pandemic has caused significant disruption in the international and United States economies and financial markets.

have been following the recommendations of local health authorities to minimize exposure risk for our employees, including the temporary

closures of our offices and having employees work remotely to the extent possible, which has to an extent adversely affected their efficiency.

In addition, the cancellation of in-person meetings and conferences has had an adverse impact on our business and financial condition

and has hampered our ability to meet with customers to promote products, generate revenue and access usual sources of liquidity on reasonable

terms, which in turn has negatively impacted our financial performance.

As the situation continues to evolve, we will continue to closely

monitor market conditions and respond accordingly.

March 2020, the CARES Act was enacted.

Among other things, the CARES Act established the PPP, which funded eligible businesses through

federally guaranteed loans.

Under the PPP, companies are eligible for forgiveness of principal and accrued interest if the proceeds are

used for eligible costs, which include, but are not limited to, payroll, benefits, mortgage, lease, and utility expenses.

We have applied

for and received certain financial assistance under the CARES Act, as described further below.

of Operations

Year Ended December 31,

Cost of sales

Selling, general and

administrative expenses

Depreciation and amortization

Loss on impairment

Total operating expenses

Loss from Operations

Other Income / (Expense)

Net loss per share - basic and diluted

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.

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.

of the Years Ended December 31, 2021 and 2020

the Year Ended

Cost of revenues

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

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

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.

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.

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.

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

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

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

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.

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.

Financial Measures

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.

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

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.

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

Year Ended December 31,

Adjusted EBITDA reconciliation to Net Income (Loss):

Net (loss) income

Other income / (expense)

Depreciation and amortization

Loss on impairment

Interest expense

Derivative expenses

Change in fair value of embedded derivative liabilities

Loss on debt extinguishment - net

Warrant expense

Option expense

Amortization of Debt Discount

Gain on debt settlement

Other income, loan forgiveness

Gain on exchange

Gain on Debt Extinguishment

Total adjustment

Adjusted EBITDA

Net Income (Loss) per share - basic and diluted

The following

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

Year Ended December 31,

Adjusted Accumulated deficit reconciliation to Net Income (Loss):

Accumulated deficit

Interest income

Total other expense, net

Net loss including noncontrolling interest

Less net loss attributable to noncontrolling interest

Preferred dividends

Net loss attributed to common shareholders

$ (5,859,870 )

$ (9,372,311 )

Not meaningful

decrease in revenues was directly related to the planned reduction of discontinued inventory as we continued to shift our focus to the

development of our new patented “Smart”

platforms and technologies.

During 2021 and 2020, we opted to sell through our existing

inventory of discontinued products to facilitate our planned transition into our new patented product lines.

reduction in cost of revenues was related to the decrease in sales, which resulted from our decision to discontinue our old products

and transition to our patented “Smart”

platforms and technologies.

General and Administrative Expenses

general and administrative expenses consist primarily of an allocation of product development, sales, finance, legal, human resources,

including salaries, wages, and benefits, and depreciation and amortization, including non-cash equity-based compensation

decrease in selling, general, and administrative expenses during 2021 when compared to the prior period was primarily due to a decrease

in stock-based compensation of $3.6 million during 2021.

The decrease in stock-based compensation during 2021 was primarily due to fewer

options and shares of common stock granted during 2021.

Income (Expense)

increase in interest expense in 2021 when compared to the prior period was primarily due to higher weighted-average interest-bearing

obligations during 2021, resulting from the compounding of accrued interest.

decrease in other income loan forgiveness during 2021 when compared to 2020 was primarily due to a non-recurring forgiveness of a PPP

loan during 2020, which did not occur during 2021.

and Capital Resources

of December 31, 2021 and December 31, 2020, we had $10,426,249 and $2,308,871 in cash and cash equivalents, respectively.

As we develop

our revenue base, we have raised additional funds through the sale of our common stock and issuance of debt, including completing our

initial public offering in February 2022 for gross proceeds of $23.1 million.

We believe that our sources of liquidity and capital will

be sufficient to finance our continued operations for at least the next 12 months.

Our debt previously included a $10,000,000 secured

loan, arranged in April 2016 pursuant to a promissory note between us and NBG, to support our working capital needs.

As of December 31,

2020, we had $5,458,642 outstanding under the note (exclusive of interest).

On December 14, 2021, we entered into a new secured promissory

note with NBG, in the amount of approximately $5.9 million, which amended and replaced the April 2016 promissory note.

The unpaid principal

accrues interest at the Wall Street Journal prime rate plus 1.75% per year.

The amended note will mature sixty months following the date

The Company agreed to make the following payments to NBG:

on the date of issuance, $243,000;

on December 30, 2021, an amount

equal to all accrued and unpaid interest as of such date, plus $100,000;

and on each of July 1, 2022, December 30, 2022, July 1, 2023

and December 30, 2023, an installment payment in an amount equal to all accrued and unpaid interest as of the respective date, plus $200,000.

Commencing January 15, 2024, the Company will begin paying equal monthly installments of $144,176 in principal, plus all accrued and

unpaid interest as of the payment date.

The Company may prepay the amounts due under the amended note at any time and from time to time.

The note contains customary events of default and, in the event that an event of default occurs, the amended note and all accrued interest

will become immediately due and payable.

The amended note is secured by the existing pledge and security agreement and by a first priority

security interest in substantially all of the Company’s assets.

addition, we have agreed to pay GE certain minimum royalty payments under the License Agreement.

In December 2020, we agreed to pay a

total of approximately $5.1 million to GE in quarterly installments through December 2023.

As of December 31, 2021, the outstanding balance

of such royalty payments was approximately $3.8 million.

following is a summary of our cash balances and cash flows as of and for the years ended December 31, 2021 and 2020:

Year Ended December 31,

Net Cash Flows

Cash Flows from Operating Activities

$ (4,627,755 )

1 unchanged sentence

$ (1,498,462 )

Other Income / (Expense)

Depreciation and amortization¹

Loss on impairment

Cash Flows from Investing Activities

Cash Flows from Financing Activities

Cash and Cash Equivalents, End of Year

2021, we used $4.6 million in our operating activities, which consisted of our net loss of $5.7 million adjusted for non-cash equity

compensation of $1.5 million and a decrease of accounts payable and other obligations of approximately $600,000.

We also incurred approximately

$179,000 in payments related to our patents pursuant to our investing activities.

There were no changes to our inventory carrying

values at December 31, 2021 when compared to the prior year measurement date.

Our inventory consists primarily of analog components that

we intend to use in the manufacturing of our products upon launch in 2022.

generated $12.9 million in financing activities, of which $13.2 million was generated from the issuance of our shares of common stock

and approximately $178,000 from the issuance of a note payable pursuant to the PPP, offset by principal repayments of a note payable

2020, we used $3.1 million in our operating activities, which consisted of our net loss of $9.2 million adjusted for non-cash equity

compensation of $5.1 million, as well as a decrease in accounts receivable and inventory of approximately $418,000 and $325,000, respectively,

and an increase of accounts payable and other obligations of approximately $376,000.

also incurred approximately $95,000 in payments related to our patents pursuant to our investing activities.

generated $3.7 million in financing activities, of which $2.1 million and $1.3 million were generated from the issuance of our shares

of common stock and convertible notes, respectively, and approximately $280,000 from the issuance of a note payable pursuant to the Paycheck

Protection Program.

Working capital:

Total current assets

Total current liabilities

Working capital

had working capital of $8,751,934 as of December 31, 2021, as compared to $1,018,361 as of December 31, 2020.

Working capital improved

by approximately $7.7 million, which was primarily attributable to an increase in cash proceeds from stock issuances, which was offset,

in part, by an increase in accrued expenses and the current portion of notes payable.

majority of our sales do not require us to take delivery of inventory.

Production of the Sky technology and products 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.

Our sales were impacted during the years ended December 31, 2021 and 2020 as we executed the liquidation

of discontinued inventory as we continued the development of our new patented “Smart”

platforms and technologies.

Financial Measures

supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles

in the United States of America (“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 our performance from period to period.

Management also believes this non-GAAP measure

is useful to investors to evaluate and compare our operating and financial performance across periods, as well as facilitating comparisons

to others in our industry, although other companies may calculate this non-GAAP measure differently, which may limit the usefulness of

this measures for comparative purposes.

use the non-GAAP financial measure of Adjusted EBITDA, which is defined as net income (loss), plus interest income;

interest expense;

Derivative expenses

(11,403,137 )

Change in fair value of embedded derivative liabilities

(77,215,799 )

(62,802,607 )

depreciation and amortization;

unrealized derivative gains and losses;

non-recurring income and expenses;

and stock-based compensation

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.

non-GAAP measures should not be considered in isolation or as a substitute for, or superior to, financial measures calculated in accordance

These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in our

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.

Investors should not rely on any single financial measure

to evaluate our business.

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,

Adjusted EBITDA reconciliation to Net Loss:

$ (5,730,414 )

Loss on debt extinguishment - net

$ (9,242,105 )

(41,142,067 )²

Warrant expense

Option expense

Amortization of Debt Discount

Common stock issued for service

Founder shareholders

Gain on debt settlement

Other Income / (Expense)

Equity-based compensation

Depreciation and amortization

Interest expense

Other income, loan forgiveness

Gain on exchange

Gain on Debt Extinguishment

Interest income

Total adjustment

(153,661,387 )

(130,747,784 )

(35,805,096 )

Total Adjusted Accumulated deficit

$ (14,389,329 )

Adjusted EBITDA

$ (3,640,763 )

$ (3,811,240 )

Includes amortization of the GE License agreement

of $9,755,534;

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.

Net loss per share –

basic and diluted

Adjusted EBITDA per share - basic and diluted

Balance Sheet Arrangements

do not have any off-balance sheet arrangements.

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.

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.

Impact of COVID-19

negative impact of the COVID-19 pandemic on companies continues and we are currently unable to assess with certainty the broad effects

of COVID-19 on our future business.

As of December 31, 2021, we had no material assets that would be subject to impairment or change

in valuation due to COVID-19.

Accounting Policies

significant accounting policies are disclosed in Note 2 to our consolidated financial statements for the year ended December 31, 2021.

The following is a summary of those accounting policies that involve significant estimates and judgment of management.

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts

reported in our financial statements and accompanying notes.

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.

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.

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.

Accounting Pronouncements

Notes to the Consolidated Financial Statements in “Item 8.

Financial Statements and Supplementary Data”

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.

Value of Financial Instruments

about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance

sheet, where it is practicable to estimate that value.

As of December 31, 2021 and 2020, we believe the amounts reported for cash, prepaid

expenses, accounts payable, accounts payable –

related party, accrued expenses and other current liabilities, accrued interest,

notes payable and convertible note payable approximate fair value because of their short maturities.

value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date.

ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs

used in measuring fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets

or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

These tiers include:

1, defined as observable inputs such as quoted prices for identical instruments in active markets;

2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted

prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active;

3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions,

such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

compensation is accounted for based on the requirements of ASC 718 –

“Compensation–Stock Compensation ”,

which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange

for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award

(presumptively, the vesting period).

The ASC also requires measurement of the cost of employee and director services received in exchange

for an award based on the grant-date fair value of the award.

compensation is measured at the grant date based on the value of the award granted using the Black- Scholes option pricing model based

on projections of various potential future outcomes and recognized over the period in which the award vests.

For stock awards no longer

expected to vest, any previously recognized stock compensation expense is reversed in the period of termination.

The stock-based compensation

expense is included in general and administrative expenses.

account for revenues in accordance with Accounting Standards Update No.

2014-09, “Revenue from Contracts with Customers”

Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects

the consideration we expect to be entitled to in exchange for those goods or services.

determine revenue recognition through the following steps:

identification

of the contract, or contracts, with a customer;

identification

of the performance obligations in the contract;

determination

of the transaction price;

of the transaction price to the performance obligations in the contract;

of revenue when, or as, we satisfy a performance obligation.

Accounting Pronouncements

there are several new accounting pronouncements issued or proposed by the Financial Accounting Standards Board, which we have adopted

or will adopt, as applicable, we do not believe any of these accounting pronouncements has had or will have a material impact on our

financial position or results of operations.

the notes to the consolidated financial statements for the year ended December 31, 2021 included elsewhere in this Form 10-K for additional

discussion regarding recent accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

financial statements required to be included in this report appear as indexed in the appendix to this report beginning on page

CHANGES IN AND DISAGREEMENTS WITH

ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity