Item 1. Business
ITEM
1. BUSINESS
Our
Mission
As electricity is a standard in every home and building,
our mission is to make homes and buildings become safe advanced and smart as the standard.
Overview
Sky
Technologies has a series of highly disruptive advanced-safe-smart platform technologies, with over 60 U.S. and global patents and patent
pending applications. Our technologies place an emphasis on high quality and ease of use, while significantly enhancing both safety and
lifestyle in homes and buildings. We believe that our products are a necessity in every room in both homes and other buildings in the
U.S. and globally.
Our
first-generation technologies enable light fixtures, ceiling fans and other electrically wired products to be installed safely and plugged
in to 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 developed prototypes that expand the capabilities of our power-plug product, to include
advanced safe and quick universal installation methods, as well as advanced smart capabilities, which are currently in the third and
final prototype stage prior to launching. The smart features contained in the final prototype include control of light fixtures and ceiling
fans by the SkyHome App, through WIFI, Bluetooth Low Energy (“BLE”) and voice control connections. The SkyHome App will allow
scheduling, energy savings eco mode, dimming, back-up emergency light, night light, light color changing and much more.
We
believe that due to safety, convenience, cost, and time that all hard-wired electrical products, such as light fixtures, ceiling fans
and other products, should become plug and play and smart, as the standard, enabling consumers to plug their fixtures and control them
through their smart phones at any time.
Our
second-generation technology, which is in the second stage prototype, is an all-in-one safe and smart advanced platform (the “Smart
Sky Platform”) that is designed to enhance all-around safety and lifestyle of homes and other buildings.
We
believe that our patented advanced, safe and smart home platform technologies will enhance and promote safety in homes and
buildings and make them smart, as a standard, in a fraction of the time and cost, as compared to other market
products.
We
believe that our smart home products will enable builders to deliver smart homes as a standard, in the same way they deliver electricity
and appliances as a standard.
As
our products, including our prototype advanced, safe and smart products, can be easily implemented and installed in both existing and
new homes and buildings in just minutes, installing our products is expected to save a major part of the cost and time associated with
installation of smart home products. As many people spend the majority of time at their homes, we believe that they should have an affordable,
easily installed, standard solution to make their homes safe, secured and smart. Similar to how smartphones serve people as an all-in-one
personal smart platform, we believe that our all-in-one Smart Sky Platform will enable every room in homes and other buildings to include
a smart platform as a standard.
The
Smart Sky Platform technology is an open system that can integrate with both existing and new smart home features, devices, and systems.
The Smart Sky Platform prototype is designed and built in a way that it can accommodate additional smart home features, enabling the
platform to serve as a gateway for safe and smart technologies into rooms/homes, buildings, and that it can act like a “Panama-Canal”
that can accommodate other type of software systems, wireless systems, electronic chips and more.
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Since
2015, we have generated over $29 million in sales from our standard products, which include ceiling fans and light fixtures with our
standard “plug and play” feature built in and are described further below under “Products—Our First Product:
The Weight Bearing Power-Plug”. We have decided to wind down the sales of our standard products by discontinuing production of
light fixtures and ceiling fans that include the older version of our standard Sky Plug & Receptacle in favor of launching our
new line of products, which are in the third and final prototype stage prior to launching and include a universal “plug and
play” adapter kit, our smart products, which will include smart light fixtures and ceiling fans with our smart “plug and
play” features, and our Smart Sky Platform. Additional information regarding our new line of products is described below under
“Products—Advanced Products” and “—Smart Products.” We elected to do so since we believe that
the market has great demand for smart advanced products, and that we will be able to generate significant sales from our new line of
advanced and smart products from direct sales as well as from licensing. Our first generation of advanced and smart products are in
the third and final prototype stage prior to launching. We expect that all advanced and smart products will be commercially
available during 2023. As part of the launch of certain
products, we have allowed customers to pre-order prior to general availability.
Recent
Developments
On
February 6, 2023 (the “Signing Date”), we entered into the Stock Purchase Agreement (the “Stock Purchase Agreement”)
with the stockholders (the “Sellers”) of Belami, a California corporation, pursuant to which we agreed to acquire all of
the issued and outstanding shares of Belami from the Sellers (the transactions contemplated by the Stock Purchase Agreement, the “Acquisition”).
Belami is a strategic e-commerce lighting and home décor conglomerate that the Company expects will serve as a marketing and growth
platform and will provide several distribution channels, including to retail customers, builders and professionals.
At
the closing of the Acquisition (the “Acquisition Closing”), Belami’s stock will transfer to the Company, and the Company
will pay to the Sellers as consideration (i) $7.0 million in cash, net of indebtedness (other than permitted indebtedness), transaction
expenses (as provided in the Stock Purchase Agreement), and bonuses to certain employees and consultants, and the release to Sellers
of a $1.0 million payment held in escrow, which the Company paid into escrow on the Signing Date, and (ii) 2,018,692 shares of the Company’s
common stock, no par value (the “common stock”), which is equal to $6.48 million divided by $3.21, which is the average closing
price per share of the common stock on The Nasdaq Stock Market LLC (“Nasdaq”) for the 20 trading days immediately preceding
the Signing Date. The Company will also pay to the Sellers, on the first anniversary of the Acquisition Closing date (the “Deferred
Payment Date”), (i) $3.22 million in cash and (ii) a number of shares of common stock equal to approximately $6.4 million divided
by the average closing price per share of the common stock on Nasdaq for the 20 trading days immediately preceding the Deferred Payment
Date, subject to a minimum price per share of $3.00 and a maximum price per share of $4.00. The deferred payment will be increased or
decreased by the amount of a working capital adjustment, as provided for in the Stock Purchase Agreement, and will be subject to offset
for indemnification claims. Any payment of the working capital adjustment by the Company will be paid one-third in cash and two-thirds
in common stock, equal to such adjustment amount divided by the average closing price per share of common stock on Nasdaq for the 20
trading days immediately preceding the date of the post-closing adjustment, up to 100,000 shares of common stock (with any additional
amount to be paid in cash).
In
addition, prior to the Acquisition Closing, an amount of cash equal to Belami’s retained earnings is required to be distributed
to the Sellers. If the amount of cash distributed is insufficient, the Company will be required to deliver a promissory note to Sellers
at the Acquisition Closing equal to the difference between retained earnings and the cash distributed, with a term of one year and an
interest rate equal to the short-term applicable federal rate then in effect. The Company also agreed to assume Belami’s loan agreement
with PNC Bank, National Association, consisting of a $2.0 million revolving line of credit and a term loan of approximately $2.5 million.
4
In
connection with the Acquisition, the Company closed private placement offerings (the “Private Placements”) pursuant to
securities purchase agreements with certain existing Company investors, providing for the issuance and sale by the Company to such
investors of (i) subordinated secured convertible promissory notes in the aggregate principal amount of $10.35 million and (ii)
warrants to purchase an aggregate of up to 1,391,667 shares of the Company’s common stock for certain investors. The proceeds will be used for the cash
component of the Acquisition consideration and to pay certain transaction expenses in connection with the Acquisition and the
Private Placements.
In
March 2023, the Company also acquired 50% of the equity of a strategic e-commerce private label lighting website, for $225,000. The other
50% of the equity is owned by Belami. The Company expects that this acquisition will serve as another marketing and growth platform for
the Company and will provide additional distribution to both professional and retail channels for the Company’s products.
Safety
We
believe that safety is a necessity and the top priority in all aspects of life. Therefore, our technologies and products emphasize human
safety, home, building and property safety and security, while combining safety features with high demand smart home features. We believe
our products should contribute to the elimination of many cases of hazardous incidents, including ladder falls, electric shock/electrocutions,
fires, carbon monoxide poisonings, injuries and deaths, as management believes that our products will result in easier installment processes
and enhance the use of life saving products such as smoke detectors, carbon monoxide detectors, and emergency lights, among other products.
Our products, including the Smart Sky Platform’s second-generation prototype, incorporate our “plug and play” technology,
which eliminates the need to touch wires during the later plug-in install, replacement and maintenance, and cleaning and, accordingly,
could result in reduced incidents of electrical shocks and fires resulting from faulty wiring. The installation of our products and retrofitting
of electrical services does not require the services of a licensed electrician but does not preclude the services of a licensed electrician.
As more individuals engage in do-it-yourself (DIY) lighting projects, using our products rather than traditional lighting products could
reduce incidents of incorrect wiring, shocks, injury and even death. In addition, we believe installing our products will allow installers
to spend less time on a ladder during initial installation. Installers often wire light fixtures and fans while also holding such fixture
or fan; with our products, including the Smart Sky Platform, the initial receptacle installation will be completed on the ladder and,
afterwards, the fixture can simply be plugged into place, resulting in a faster and, we believe, much safer process, as installers can
focus on wiring without also holding potentially heavy or breakable fixtures. Further, the Smart Sky Platform will incorporate a hard-wired
smoke detector with battery back-up and a carbon monoxide monitor, which we believe could reduce injuries and deaths from fire and carbon
monoxide poisoning.
Products
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, as described below, we are continuing to refine the product prototypes and expect that all advanced
and smart products will be commercially available during 2023.
Our
First Product: The Weight Bearing Power-Plug
Our
first patented technology was the Power-Plug, a weight bearing power plug that acts as a safe and quick installation device, designed
for “plug and play” installation of weight bearing electronics, such as light fixtures, ceiling fans and other electrical
products, into ceiling electrical outlet boxes.
Our
patented technology consists of a fixable socket and a revolving plug (the Power-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 Power-Plug, which is comprised of a non-conductive body that
houses corresponding conductive rings, attaches to the socket via a male post and can feed electric power to an appliance. The Power-Plug
also includes a second structural element allowing it to revolve with a releasable latch that, when engaged, provides a retention force
between the socket and the Power-Plug to prevent disengagement. The socket and Power-Plug can be detached by releasing the latch, disengaging
the electric power from the Power-Plug. The socket is designed to replace the support bar incorporated in electric junction boxes, and
the Power-Plug can be installed in light fixtures, ceiling fans, wall sconce fixtures and other electrical devices and products. Once
installed, the socket can remain affixed to the junction box, enabling any electronic fixture installed with the Power-Plug to be connected
and/or removed in seconds. The combined socket and Power-Plug technology are referred to throughout this Form 10-K as the “Sky
Plug & Receptacle”.
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We
have previously sold products with the Sky Plug & Receptacle built in, including ceiling fans and light fixtures. We have decided
to wind down the sales of our standard products by discontinuing production of light fixtures and ceiling fans that include the older
version of our standard Sky Plug & Receptacle in favor of launching our new line of products described below.
Advanced
Products
Sky
– Universal Power-Plug & Receptacle : Our universal “plug and play” Sky Plug & Receptacle technology is
comprised of two devices. The first device is a male Power-Plug Retrofit Kit, which can be easily embedded in the base of light fixtures
and ceiling fans. The second device is a Ceiling Receptacle, which can be connected to a ceiling outlet box. After a one-time installation
of the Ceiling Receptacle to a ceiling outlet box, a light fixture or ceiling fan that includes the Power-Plug Retrofit Kit can be plugged
into the Ceiling Receptacle within seconds. The Universal Power-Plug & Receptacle should contribute to the elimination of hazardous
incidents in homes and buildings including ladder falls, electric shock/electrocutions, fires, injuries, and deaths, etc.
Smart
Products
SkyHome
App : Our proprietary SkyHome Application works with both iPhones and Android phones. The SkyHome App controls products through WIFI
and BLE and is designed to control our products through additional communication methods as needed. The SkyHome App controls various
products, features and specifications, including scheduling, controlling, voice control, safety features, security features, lifestyle
features, sound, lights, dimming, emergency back-up battery and much more.
Sky
Smart – Universal Power-Plug & Receptacle : Our Sky Smart Plug & Receptacle system contains two devices. First, the
male Smart Power-Plug, which includes a smart electronic board, comes as a Retrofit Kit, that can be simply embedded to the base of light
fixtures and ceiling fans, enabling them to become both Plug and Play and Smart. The second device is a Ceiling Receptacle that can be
simply connected to a ceiling outlet box. After a one-time simple installation of the Ceiling Receptacle to a ceiling outlet box,
a light fixture or ceiling fan that includes the male Smart Plug Retrofit Kit can be plugged into the Ceiling Receptacle within seconds.
Our Smart Power-Plug is controlled by our proprietary SkyHome App or through voice control and is an open system that can integrate
with other smart home devices and systems. Our Smart Power-Plug is connected through WIFI and BLE, and includes numerous smart features,
including scheduling, energy saving-eco mode, dimming, back-up emergency light, night light, light color changing and more. We believe
that, due to safety, convenience, cost and time, all hard-wired electrical products, such as light fixtures and ceiling fans, should
become plug and play and smart, as the standard, enabling consumers to plug their fixture and control them through their smart phones
at any time. The Smart Universal Power-Plug & Receptacle should contribute to the elimination of hazardous incidents in homes and
buildings including ladder falls, electric shock/electrocutions, fires, injuries, and deaths, etc.
Sky
– Smart Plug and Play Ceiling Fans : Our line of high-end smart plug and play ceiling fans can be installed to our matching
ceiling receptacle within seconds. Our smart ceiling fans incorporate advanced technologies, have unique modern designs, and are controlled
by our proprietary SkyHome App or through voice control, and are an open system that can integrate with other smart home devices and
systems. Our Smart Plug and Play Ceiling Fan is connected through WIFI and BLE, and includes numerous smart features, including scheduling,
energy saving-eco mode, dimming, back-up emergency light, night light, light color changing and more. We believe that, due to safety,
convenience, cost and time, all hard-wired electrical products, such as ceiling fans, should become plug and play and smart, as the standard,
enabling consumers to plug their fixture and control them through their smart phones at any time. The Smart Plug and Play Ceiling Fan
should contribute to the elimination of hazardous incidents in homes and buildings including ladder falls, electric shock/electrocutions,
fires, injuries, and deaths, etc.
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Sky
– Smart Plug and Play Lighting : Our line of high-end Smart Plug and Play light fixtures can be installed to our matching ceiling
receptacle within seconds. Our smart light fixtures incorporate advanced technologies, have unique modern designs, and are controlled
by our proprietary SkyHome App or through voice control, and are an open system that can integrate with other smart home devices and
systems. Our smart light fixture is connected through WIFI and BLE, and includes numerous smart features, including scheduling, energy
saving-eco mode, dimming, back-up emergency light, night light, light color changing and more. We believe that, due to safety, convenience,
cost and time, all hard-wired electrical products, such as light fixtures should become plug and play and smart, as the standard, enabling
consumers to plug their fixture and control them through their smart phones at any time. The Smart Plug and Play Lighting should contribute
to the elimination of hazardous incidents in homes and buildings including ladder falls, electric shock/electrocutions, fires, injuries,
and deaths, etc.
Sky
– All-In-One Smart Sky Platform : As most people spend a majority of their time in their homes, we believe that they should have an
easy solution to make their homes safe, secured, and smart in a simple way and as the standard. We believe that our patented advanced-safe-smart
home platform technologies will make homes and buildings safe, have numerous technological features and smart as a standard, in a fraction
of time and cost, compared to other market products. Our all-in-one Smart Sky Platform is designed to enhance the all-around safety and
lifestyle of homes and buildings and can be easily implemented and installed to the ceiling receptacle in both existing and new homes
and buildings within minutes. Our Smart Sky Platform includes distinctive advanced smart and safety technologies, has unique modern designs
and is controlled by our proprietary SkyHome App or through voice control. It is an open system that can integrate with other smart home
devices and systems.
As
smart phones serve people as an all-in-one personal smart platform, we believe that our all-in-one Smart Sky Platform technology enables
every room in homes and buildings to have a smart platform as a standard. Our Smart Sky Platform is connected through WIFI and BLE, includes
numerous smart and safety features, including a smart smoke detector, a smart carbon monoxide detector, time scheduling, temperature
sensor, humidity sensor, WIFI extender, energy saving-eco mode, high quality speakers, back-up battery that can power back-up internet
and an emergency light, as well as dimming, night light, light color changing and more. The platform’s electrical power and transformer,
combined with the size of our platform’s data storage space, which represents vast electronic “Real-Estate” in terms
of today’s technology, driven by microchips, enables the platform to accommodate a significant amount of software as well as electronic
microchips, while the unique ceiling location of the platform significantly enhances the performance of the platform’s features,
including WIFI and BLE.
The
Smart Sky Platform is inconspicuous to the décor. It is designed to install over existing ceiling electrical outlet boxes while
allowing any pre-existing fixture to reconnect to the same box utilizing our Retrofit Kits. This innovation gives us access to the best
location for the gathering and distribution of electronic signals, virtually unlimited power for our low-voltage safety and smart features,
and a vast amount of electronic real estate.
This
open-system Smart Sky Platform is intended to seamlessly integrate unrelated safe and smart products into a single, spatially designed
unit whose functionality is controlled by an all-in-one app, the SkyHome App. The Smart Sky Platform will eliminate the need for installation
of numerous stand-alone devices and their integration into a working unit.
The
Smart Sky Platform’s location on the ceiling significantly advances smart home products’ performance, including the speed
and range of both WIFI and Bluetooth, as well as the performance of sensors and alarms.
The
adoption of the Smart Sky Platform should contribute to the elimination of hazardous incidents in homes and buildings including ladder
falls, electric shock/electrocutions, fires, carbon monoxide poisonings, injuries, and deaths, etc.
Installation
takes only minutes and fixtures previously hung from that location can still be plugged into the Smart Sky Platform.
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Sustainability
We
aim to provide safe and sustainable solutions to consumers, who increasingly consider sustainability and energy efficiency when purchasing
products. We believe that creating sustainable products and streamlining our operations drives efficiency, innovation and, ultimately,
long-term value-creation. In designing and improving our products, we consider and apply sustainability strategies, as appropriate. For
example, our products’ features include an energy savings economical mode, which can help users reduce their energy consumption, and we
generally use LED lighting in our ceiling fans and light fixtures, which is more energy-efficient than traditional lighting products.
Cyber
Security
We
have implemented measures and protocols to ensure that our users’ information is safe and fully protected. We use high
level of cyber security measures and protocols to ensure that our software, technologies, servers, products, platform, and devices are
all protected to prevent any type of unauthorized or illegal access or interference to our software, technologies, servers, products,
platforms, and devices.
Our
products, platforms and devices communicate over MQTT and are encrypted over Transport Layer Security, with each individual product,
platform and device having its own set of certificates, keys, and universally unique identifiers, which ensures that each device can
only communicate with its own topic. This ensures that even in extreme cases of illegally gaining control over a specific device, it
will not affect any other devices.
Each
login to the platform generates the user a temporary token that grants access to the services for a limited amount of time, which ensures
that there is no permanent access token that can be used by hackers for unauthorized access. Each token has permissions to access only
the user’s resources.
Our
solutions are designed in a way that the user will need to conduct a restricted set of permissions, thus minimizing the risk of unwanted
users gaining control over other locations.
Sky
Plug & Receptacle – NEC Code
The
NEC (National Electrical Code) is the U.S. electrical safety building code, and is the benchmark for safe electrical design, installation,
and inspection to protect people and property from electrical hazards. It has been adopted in some form in all 50 states in the United
States and is intended to improve safety in U.S. homes and buildings.
Based
on the safety aspects of the Sky Plug & Receptacle, it was voted into the NEC and is represented by 10 different segments in the
NEC Code Book. The Company has provided data relating to safety aspects of its receptacle as to electrocutions, fires and ladder falls
to NEC.
One
of the key votes and segments relating to our technologies in the NEC Code Book was the change of the definition of “receptacle”
in the Code Book, which we believe is one of the most significant additions to the NEC in the past 120 years. The NEC leads the United
States and globally with respect to electrical safety standards; as such, we believe the reputable standards of the NEC can assist with
the adoption of our technology in additional countries.
Pursuant
to these NEC provisions, the Sky Plug & Receptacle enables builders to expedite and obtain a Certificate of Occupancy without the
need to install a light fixture to the ceiling.
During
the third quarter of 2022, the Company received NEC generic name approval for its weight-bearing safe plug and play outlet/receptacle
for ceilings as WSCR (Weight-Supporting Ceiling Receptacle) for its universal ceiling outlet and WSAF (Weight-Supporting Attachment Fitting)
for its ceiling plug. The specifications for the WSCR and WSAF received a standardization approval vote by the American National Standards
Institute (ANSI) and the National Electrical Manufacturers Association (NEMA), leading U.S. standardization organizations. The American
National Standards Institute’s and the National Electrical Manufacturers Association’s vote for the standardization of the
Company’s weightbearing plug and outlet/receptacle for ceilings does not guarantee approval by the National Fire Protection Association’s
(NFPA) Committee on the National Electrical Code (which consists of multiple code-making panels and a technical correlating committee
and develops the National Electrical Code (NEC)) or any other trade or regulatory organization and does not guarantee that any of the
Company’s products will become NEC mandatory in any jurisdiction, or that any of the Company’s current or future products
or technologies will be adopted by any state, country, or municipality, within any specific timeframe or at all.
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Intellectual
Property
Developing
and maintaining a strong intellectual property position is one of the most important elements of our business. We rely on a combination
of patents, copyright, trademarks, and trade secret laws, as well as confidential procedures and contractual provisions, to protect our
proprietary technology and our brands. We enter into confidentiality and proprietary rights agreements with our employees, consultants
and other third parties. We have sought, and will continue to seek, patent protection for our technology and for improvements to our
technology, as well as for any of our other technologies where we believe such protection will be advantageous. In addition, certain
intellectual property and proprietary information held by a third party is central to our products and technologies. If we lose our rights
to use such intellectual property and proprietary information in the future, our business or operating results and our ability to complete
could be adversely impacted.
We
protect our intellectual property through various aspects and strategies including broad and particular intellectual
property claims. We have over 60 U.S. and global patents and patent applications, including in China, India, and Europe as well in other
countries around the world. These patents and patent applications protect different aspects of our technologies. We sought intellectual
property protection of our technologies in China due to our current manufacturing operations and prospective sales in China’s market,
and we sought protection in India in anticipation of future growth into India’s developing market, both with respect to the sales
of our products and our potential operations. As of December 31, 2022, in the U.S., we owned seven issued patents, which expire from
2036 to 2038, and six pending or published but not yet issued patents, and outside of the U.S., we owned eight issued patents, which
expire from 2026 to 2039, and 46 pending or published but not yet issued patents. We intend to diligently maintain and vigorously defend
the intellectual property of Sky Technologies, and to enhance our patent protections actively and continuously in the U.S. and globally.
The
issued patents are directed to various aspects our platform technologies, including our smart and standard plug and play products, as
well as our safe and smart platform technologies. As further innovations are developed, we intend to seek additional patent protection
to enhance and maintain our competitive advantage. Additionally, we have submitted 10 trademark applications, seven of which have been
issued and three of which are pending.
GE
- General Electric Agreements
We
have two U.S. and global agreements with GE related to our products.
● The
first agreement is a U.S. and Global Trademark Agreement dated June 15, 2011 (as later amended)
(sometimes referred to as the “License Agreement”), which expires November 30,
2023 and is generally renewed for five-year periods. Pursuant to such agreement, the Company
may use the GE brand logo on certain products, including plug and play smart and standard
ceiling fans and the Company’s standard and smart plug and play devices. We have exclusive
U.S. and global rights, including Canada, Asia, Europe, China, Australia, New Zealand and
India, subject to a mutually agreed to commercialization plan, to market plug and play smart
and standard ceiling fans and the Company’s standard and smart plug and play devices
under the GE brand. GE will assist us with manufacturing standards, audit of factories, audit
of materials, and quality control under “Six Sigma” guidelines, as well as with
public relations for products and other.
● The
second agreement is a U.S. and Global Licensing and Master Service Agreement dated June 14,
2019. The agreement expires on June 14, 2024 and includes automatic renewal provisions. Pursuant
to such agreement, GE’s licensing team has the rights to exclusively license the Company’s
Standard and Smart plug-and-play products in the U.S. and worldwide. Pursuant to the agreement,
we expect that GE’s licensing team will seek and arrange licensee partners for our
products in the U.S. and globally, including negotiating agreement terms, managing contracts,
collecting payments, auditing partners, assisting with patent strategy and protection, and
assisting in auditing product quality control under the “Six Sigma” guidelines.
For products licensed to third parties, we and GE will each receive a specified percentage
of the earned revenue realized from such licensing, unless otherwise provided in the applicable
statement of work.
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On
June 15, 2011, we entered into the License Agreement with GE, pursuant to which we have the right to market certain ceiling light and
fan fixtures displaying the GE brand. We and GE subsequently amended the License Agreement, including on April 17, 2013, August 13, 2014,
September 25, 2018, May 2019 and December 1, 2020. The License Agreement imposes certain manufacturing and quality control conditions
that we must maintain to continue to use the GE brand. The License Agreement is nontransferable and cannot be sublicensed. Various
termination clauses are applicable to the License Agreement; however, none were applicable as of December 31, 2022.
On
August 13, 2014, we entered into a second amendment to the License Agreement pertaining to our royalty obligations. Under the
initial terms of the amendment, we agreed to pay GE a minimum trademark license fee of $12.0 million by November 30, 2018 (the
“Initial Royalty Obligation”) for the rights assigned in the original contract. The amendment provided that, if we did
not pay to GE royalties equal to the Initial Royalty Obligation over the term of the License Agreement, we would owe the difference
to GE in December 2018.
We
are expanding our relationship with GE to collaborate on mutual capabilities, and in December 2020, we entered into the current
amendment to the License Agreement. The amendments following the second amendment expanded our product range, including smart, and
added additional global territory rights. The License Agreement has been extended for an additional five years and expires on
November 30, 2023. Pursuant to the third amendment, entered September 2018, the approximate remaining payment of $10.0 million
pursuant to the Initial Royalty Obligation was waived, and we agreed to pay GE an aggregate amount
of $6.0 million, consisting of three annual installments of $2.0 million to be paid to GE in each of December 2018, 2019 and 2020.
In December 2020, we restructured the royalty payment obligations due of approximately
$4.4 million, plus $0.7 million in interest. We agreed to pay a total of $5.1 million to GE in quarterly installments through
December 2023, including $100,000 due December 2020, an aggregate of $500,000 due in four equal installments in 2021, an aggregate
of $1.2 million due in four equal installments in 2022 and an aggregate of $3.3 million due in four equal installments in 2023 (the
“Minimum Payments”). In the event the Company receives significant funding rounds of at least $50.0 million in funding,
it is required to use a portion of such funding to pay certain amounts to GE. The Minimum Payments will be in addition to the
royalty payments made to GE during the respective year, as set forth below.
Royalty
payments are due quarterly, using a December 1 – November 30 contract year and based upon the prior quarter’s sales. Royalty
payments 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
to $50,000,000
7%
$50,000,001
to $100,000,000
6%
$100,000,000+
5%
As
of December 31, 2022, the remaining royalty obligations amounted to $2,638,000, which are expected to be paid in 2023.
Employees
Our
management members include leading executives from various industries and have joined us as they believe in our vision, technology, and
strategy. Many of our key personnel are employed pursuant to an employment agreement or a consulting agreement.
As
of December 31, 2022, we had 37 total employees and consultants, 29 of which are full-time. 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 consider our relations with our employees to be good. We expect to continue to expand our staff and team of engineers to develop our products.
Our
human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our current
and future employees. We encourage and support the growth and development of our employees. Continual learning and career development
is advanced through ongoing performance and development conversations with employees, and reimbursement is available to employees for
seminars, conferences, formal education and other training events employees attend in connection with their job duties.
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Our
core values of accountability, openness, and integrity underscore everything we do and drive our day-to-day interactions. The safety,
health and wellness of our employees is a top priority.
Business
Strategy
Our
business strategy is to enhance safety and advance smart living lifestyle in homes and other buildings.
Following
commercial launch of our advanced and smart products, we plan to educate retail and commercial consumers about our products through a
coordinated public relation campaign that will cover the safety aspects of our products and all the related hazardous incidents and property
damage that our products can prevent, including ladder falls, electric shock/electrocutions, fires, carbon monoxide poisonings, injuries,
deaths and more.
We
will also educate on all our advanced smart technology features.
We
believe our total addressable market in the United States exceeds $500 billion, based on the Company’s internal calculations derived
from the estimation of the total target user pool, projected average selling price, and projected units per household. We believe there
are billions of installations of light and other electrical fixtures globally. Our estimates of the addressable market for our products
may prove to be incorrect. The projected demand for our products could materially differ from actual demand. Even if the total addressable
market for our products is as large as we have estimated and even if we are able to gain market awareness and acceptance, we may not
be able to penetrate the existing market to capture additional market share.
Lead
and Seed Strategy : We expect to lead by selling our highly disruptive line of products through a variety of channels as well
as seed our products through licensing to various industries.
● Lead
Through Direct Sales : We expect to sell our products through various representatives
to online customers, builders, rental properties, hotels, big box retail, OEM customers and
more. We expect to sell our products to personal consumers primarily through direct sales
via our website, to large retailers, distributors and dealers, and through warehouse programs.
We plan to rely primarily on product distribution arrangements with third parties and expect
that our multi-channel sales strategy will evolve and expand in the future. We expect our
primary customers to be retail consumers, retail showrooms, builders residential/commercial,
hotels, OEM and licensing.
● Seed
Through Licensing : After our public relation campaign and our official product launch,
we expect to license a variety of our standard and smart products to companies in various
industries, including electrical companies, lighting and ceiling fan companies, as well as
smart home companies. We intend to expand our sales and marketing operations and activities
and intend to build strong customer relationships and expand our brand awareness.
As
part of our sales campaign, we intend to use online channels and may also utilize social media influencers. As part of the launch
of certain products, we have allowed, and may in the future allow customers to pre-order prior to general availability. Our future revenue
streams may also include data aggregation and subscriptions. We can provide no assurance that we will be able to successfully expand
our operations or activities, gain market awareness or acceptance of our products, or achieve our expectations described above.
Product
Usage
Our
products and technologies can be used in new and existing homes and buildings, including by builders, rental properties, hotels, cruise
ships, elder living facilities, schools, hospitals, offices, commercial, and retail. We provide a one-year full performance warranty
on all our products, as well as part replacements. We intend to provide extended warranty coverage plans in the future.
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Our
Opportunity
Based
on the significance of the safety aspects and lifestyle features of our products, we believe that our products are a necessity in most
rooms, homes, and other buildings, both in the U.S. and globally, and that they can help prevent most related hazardous incidents in
homes and buildings, including ladder falls, electric shock/electrocutions, fires, carbon monoxide poisonings, injuries, and deaths.
Therefore, we believe our product is a necessity in rooms, homes and other buildings.
We
believe that our series of highly disruptive advanced-safe-smart platform technologies are a necessity as they are expected to disrupt
and positively influence various industries, both in the U.S. and globally.
● Lighting
Industry : We believe that due to ease of the installation, time savings, cost savings
on installations and the safety aspect of our product, our product provides a competitive
advantage within the light fixture, ceiling fan and smart home industries.
We
believe that all light fixtures should become plug and play, smart and controlled by an app as a standard, and that light fixtures should
be installed to the ceiling within seconds, safely and without the need to touch dangerous electrical wires. Our product is intended
to help prevent most of related ladder falls, electric shock/electrocutions, fires, carbon monoxide poisonings, injuries, and deaths.
● Ceiling
Fan Industry : We believe that due to the ease of installation, time savings, cost savings
on installations and the safety aspect of our product, our product is a necessity for the
ceiling fan industry.
We
believe that all ceiling fans should become plug and play, smart and controlled by an app as a standard, and that ceiling fans should
be installed to the ceiling within seconds, safely and without the need to touch dangerous electrical wires. Our product is intended
to help prevent most of related ladder falls, electric shock/electrocutions, fires, carbon monoxide poisonings, injuries, and deaths.
● Smart
Home Industry : We believe that due to ease of the installation, time savings, cost savings
on installations and the safety aspect of our product, our product is a necessity for the
smart home industry.
We
believe that homes and buildings should become safe and smart as a standard. Our Advanced All-In-One Safe Smart Sky Platform enables
rooms, homes, and buildings to become safe and smart.
Our
Advanced Smart Sky Platform significantly enhances smart home products’ performance, including the speed and range of both WIFI
and Bluetooth, as well as the performance of sensors and alarms. We believe that widespread adoption of the Smart Sky Platform should
contribute to the elimination of most related hazardous incidents in homes and buildings including ladder falls, electric shock/electrocutions,
fires, carbon monoxide poisonings, injuries, and deaths. Therefore, we believe our product is a necessity in rooms, homes, and buildings.
Our
Advanced All-In-One Safe Smart Sky Platform can be used in existing homes and buildings, by builders, rental properties, hotels, cruise
ships, elder living facilities, schools, hospitals, offices, commercial, retail and other.
We
launched our new universal power plug, our SkyHome App, and our smart universal plug, as well as the smart ceiling fans and lighting
fixtures containing such plug, in December 2022. Bringing our products to market will require us to take certain steps, including, but
not limited to, the following:
Manufacturing : While we have manufactured and sold
our prior products and intend to continue to use the third-party manufacturers with which we have an ongoing relationship, we have
not yet begun manufacturing our new advanced or smart products. We expect it may take approximately 90 days to complete manufacturing
of our new universal power plug and/or our smart universal plug after we place an order. However, it may take longer than expected
due to, among other things, difficulties finding suppliers, shipping delays resulting in late deliveries of necessary supplies and
materials, chip shortages and geopolitical matters.
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● Marketing
and Public Relations : We will need to gain brand awareness and attract customers. In
connection with our product launch, we plan to educate retail and commercial consumers about
our products through a coordinated public relation campaign that will cover the safety aspects
of our products and all the related hazardous incidents and property damage that our products
can contribute to preventing, as well as our advanced smart technology features. We currently
rely, and plan to rely primarily, on product distribution arrangements with third parties.
We expect to enter in additional sales, distribution and/or licensing agreements in the
future, and we may not be able to enter into these agreements on terms that are favorable
to us, if at all. We may also need to hire additional sales personnel.
● Government
Approval : While we have received a variety of final electrical code approvals, including
Underwriters Laboratories (“UL”), United Laboratories of Canada (cUL) and Conformité
Européenne (CE), and 2017 and 2020 inclusion in the NEC Code Book, we may need or
desire to obtain additional UL, cUL or CE certifications for new product configurations,
which may increase the time and costs to complete our product launches. In addition, we may
be unable to obtain new certifications or NEC mandatory status for our product offerings
within a reasonable time, or at all.
Expected
Revenue Stream
We
believe our products will enable us to access a global market with multiple revenue streams, including:
● Global
market with numerous potential product applications
● Product
sales
● Royalties/Licensing
● Subscription
model
● Monitoring
services
● Sale
of product and licensing rights to additional countries
Royalties
from the Sky Plug & Receptacle. Management has agreed to license products in the U.S. and globally through the efforts of
its GE licensing and trademark agreements. We anticipate we will also license our smart technologies products currently in development.
Selling/Licensing
Country Rights. Management is considering selling and licensing marketing rights to certain countries in exchange for payment
and on-going royalties.
Product
Sales. We currently generate revenue from our product sales, and management will strive to achieve strong market penetration
worldwide for our current products and products in development. We have previously sold our standard products in the United States, Canada
and Mexico, and expect to begin selling our new smart products in these markets in 2023. We intend to expand our sales footprint in certain
countries in Latin America, Europe and Asia. We may be unable to gain market acceptance in such markets and cannot provide any assurance
that we will be successful in our efforts to expand our market reach.
Subscription
& Monitoring Services. Our future plans include offering subscription services as part of our Smart Sky Platform, including,
among other services, communications, fire alarms, home intrusion alerts, emergency response services and monitoring services. Our smart
platform will include, among other features, a smart smoke detector, a smart carbon monoxide detector, and a WIFI extender. We intend
to expand our operations to enable us to provide services relating to these functions, including high-speed internet services, monitoring
systems designed to sense movement, smoke, fire, carbon monoxide, temperature, and other environmental conditions and hazards, monitor
home access and visitors and address personal emergencies such as injuries and other medical emergencies. We intend to market such services
to homeowners and other types of facilities, including rental properties, hotels, cruise ships, elder living facilities, schools, hospitals,
offices, commercial, and retail. Our ability to provide such services will depend on a variety of factors, including, but not limited
to, subscriber interest and financial resources, any applicable licensing and regulatory compliance, our ability to manage our anticipated
expansion and to hire, train and retain personnel, and general economic conditions. We may partner with other businesses to provide such
services. We expect to begin providing such services in 2023 but cannot provide any assurance that we will be able to do so.
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Our
History
We
began in 2004 and started developing the Sky Plug & Receptacle technology in 2007 for installation of light fixtures and ceiling
fans during manufacturing and as a Retrofit Kit for installing the Sky Technology in existing light fixtures and ceiling fans. Historically,
we have sold hundreds of thousands of units of the Sky Plug & Receptacle technology through original equipment manufacturing and
through other channels to lighting manufacturers and retailers who installed the Sky Plug & Receptacle technology into their lighting
fixtures for sale at retail stores. We also sold, directly to retailers, approximately hundreds of thousands of Sky Plugs & Receptacles
embedded with ceiling fans.
Since
our inception, we have sold hundreds of thousands of units of our standard Sky Plug & Receptacle. Since 2015 we generated over $29
million in sales. We have wound down our standard product sales by discontinuing production of light fixtures and ceiling fans that include
the older version of our standard Sky Plug & Receptacle, in favor of licensing our product and developing our Smart Power-Plug and
Smart Sky Platform technologies.
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 for Canada (cUL) and Conformité Européenne (CE), and 2017 and 2020 inclusion in the NEC Code Book.
Third-Party
Manufacturing and Suppliers
Our
business model entails the use of third-party manufacturers to produce the Sky Technology product. The manufacturers currently used by
us are in 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 certain quality standards are met. To further ensure that quality specifications are maintained, we
maintain an office in the Guangdong province in China that is staffed with GE trained auditors who regularly inspect the products that
are being produced by third-party manufacturers.
Raw
materials used in our products include copper, aluminum, zinc, steel, acrylonitrile butadiene styrene (ABS) plastic and wood. We also
purchase integrated circuit chip sets or other electronic components from third-party suppliers or rely on third-party independent contractors,
some of which are customized or custom made for us. While we have experienced shortages in obtaining necessary materials, including zinc,
copper and steel, as well as integrated circuit chips to be used in our products, we have been able to make other arrangements and find
additional suppliers as necessary. With respect to circuit chips, we believe we have obtained enough to manufacture our
products by the anticipated launch date. Going forward, we believe we can obtain more chips and other materials as needed within a reasonable
time period and may be able to replace components with different products or modify our design if necessary. Geopolitical
matters may also impact our manufacturing.
Our
principal suppliers are Mei Pin Metal & Electrical Co., Ltd (Guangdong, China), Siterwell Electronics Co., Ltd (Zhejiang, China),
Zhongshan Paragon Source Lighting Co., Ltd. (Noble) (Zhongshan, Guangdong, China), Artisan Industrial Co., Ltd. (Jiangmen, Guangdong,
China) and Youngo Limited (Aircool) (Huizhou City, Guangdong, China).
Competition
We
believe our technologies are highly disruptive and with an edge compared to other market technologies. Our competitors vary based on
our products, market, and industry.
● Our
main competitors for our Universal Power Plug and Play, Sky Plug & Receptacle product
are: we do not have significant direct competition at this point to Universal Power Plug
and Play, Sky Plug & Receptacle product, although all lighting and ceiling fan manufacturers
are potential competitors.
● Our
main competitors for our Smart Universal Power Plug and Play Sky Plug & Receptacle product
are: we do not have significant direct competition at this point to Smart Universal Power
Plug and Play Sky Plug & Receptacle product, although all lighting and ceiling fan manufacturers
are potential competitors.
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● Our
main competitors for our Smart Plug and Play Light Fixture products are: we do not have significant
direct competition at this point to our Smart Plug and Play Light Fixtures, although there
are lighting manufacturers that have smart lights that are controlled through smart wall
switches/app or other, including companies such as Casainc, Global Electric, Designers, Fountain,
Enbrighten, NBG, Minka, Hampton Bay and other. To the best of our knowledge there are no
other light fixtures that have an all-in-one combination of light fixtures that have both
plug and play and smart.
● Our
main competitors for our Smart Plug and Play Ceiling Fan Products: we do not have significant
direct competition at this point to our Smart Plug and Play Ceiling Fan products, although
there are ceiling fan manufacturers that have smart fans that are controlled through smart
wall switches/app or other, including companies such as Hunter, Minka, Home Decorators, Fanomation,
Modern Homes, Hampton Bay and others.
● Our
main competitors for our Plug and Play All-In-One Safe-Smart Platform product: we do not
have direct competition at this point to our Plug and Play All-In-One Safe-Smart Platform
product, although there are many smart home companies that can be our competitors, including
companies such as Control 4, Vivint, Apple, Google, Microsoft, Amazon, ADT, Blue, Cove and
many others and many other smart home companies that have a variety of smart home products.
To the best of our knowledge there are no other Plug and Play All-In-One Safe-Smart Platform
products.
Government
and Environmental Regulation
Although
not legally required to do so, we strive to obtain certifications for substantially all our products, both in the United States, and,
where appropriate, in jurisdictions outside the United States. Products certified by a Nationally Recognized Testing Laboratory (“NRTL”),
such as UL, Intertek Testing Lab (ETL) or Canadian Standards (CSA), bear a certification mark signifying that the product complies with
the requirements of the product safety standard. UL Standards are used for evaluation of USA products, CSA Standards for Canada and IEC
(International Electrotechnical Commission) Standards for European countries. We use UL as our main third-party NRTL safety laboratory.
While we have received a variety of safety certifications on our products, including UL, United Laboratories for Canada (cUL), Conformité
Européenne (CE) and IECEE Certification Body (CB) scheme, we may need or desire to obtain additional certifications for new product
configurations, which will increase the time and costs to complete our product launches and which we may be unable to obtain within a
reasonable time, or at all. In addition, certain electronic products require Federal Communications Commission (“FCC”) certification,
and we have obtained FCC certification on applicable products to ensure electromagnetic interference compliance. Although we believe
that our broad knowledge and experience with electrical codes and safety standards have facilitated certification approvals, we cannot
provide any assurance that we will be able to obtain any such certifications for our new products or that, if certification standards
are amended, we will be able to maintain such certifications for our existing products.
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
as 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.
Corporate
History and Information
We
were originally organized in May 2004 as a Florida limited liability company under the name of Safety Quick Light, LLC. We converted
to a Florida corporation on November 6, 2012. Effective August 12, 2016, we changed our name from “Safety Quick Lighting &
Fans Corp.” to “SQL Technologies Corp.,” and, effective June 14, 2022, we changed our name to “SKYX Platforms
Corp.” We currently do business as “Sky Technologies.” Our principal executive offices are located at 2855 W. McNab
Road, Pompano Beach, Florida 33069, and our telephone number is (855) 759-7584. Our website can be found at www.skyplug.com. The information
contained in or accessible from our website is not incorporated into this Form 10-K, and you should not consider it part of this Form
10-K. We have included our website address in this Form 10-K solely as an inactive textual reference.
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Available
Information
We
are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Exchange
Act requires us to file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”).
The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website at http://www.sec.gov.
We
maintain a website at www.skyplug.com , and we make our annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K and amendments to those reports available on our website, free of charge, as soon as reasonably practicable after
such reports have been filed with or furnished to the SEC. Information contained on or accessible through our website is not a part of,
and is not incorporated by reference into, this Annual Report on Form 10-K or any other report or document we file with the SEC. Our
Code of Business Conduct and Ethics, as well as any waivers from and amendments to the Code of Business Conduct and Ethics, is also posted
on our website.