SKYX Platforms Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS SKYX PLATFORMS CORP. Consolidated Balance Sheets (Unaudited) March 31, 2023 (Audited) December 31, 2022 Assets Current assets: Cash and cash equivalents $ 14,521,818 $ 6,720,543 Investments, available-for-sale 3,862,744 7,373,956 Inventory 2,102,320 1,923,540 Prepaid expenses and other assets 132,234 311,618 Total current assets 20,619,116 16,329,657 Other assets: Furniture and equipment, net 193,856 215,998 Restricted cash 1,000,000 2,741,054 Restricted investments, available-for-sale 3,704,738 - Right of use assets, net 22,584,674 23,045,293 Intangible assets, definite life, net 682,054 662,802 Other assets 407,191 182,306 Total other assets 28,572,513 26,847,453 Total Assets $ 49,191,629 $ 43,177,110 Liabilities and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable and accrued expenses $ 2,084,450 $ 1,949,823 Notes payable, current 401,682 405,931 Operating lease liabilities, current 1,631,694 1,130,624 Royalty obligation 2,638,000 2,638,000 Convertible notes, current-related parties 950,000 950,000 Convertible notes, current 350,000 350,000 Total current liabilities 8,055,826 7,424,378 Long term liabilities: Notes payable 5,133,916 4,867,004 Operating lease liabilities 22,330,469 22,758,496 Convertible notes, net 4,923,281 - Total long-term liabilities 32,387,666 27,625,500 Total liabilities 40,443,492 35,049,878 Commitments and Contingent Liabilities: - Redeemable preferred stock - subject to redemption: $ 0 par value; 20,000,000 shares authorized; 880,400 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 220,099 220,099 Stockholders’ Equity (Deficit): Common stock and additional paid-in-capital: $ 0 par value, 500,000,000 shares authorized; and 83,189,729 and 82,907,541 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 122,573,318 114,039,638 Accumulated deficit ( 114,040,627 ) ( 106,070,358 ) Accumulated other comprehensive loss ( 4,653 ) ( 62,147 ) Total stockholders’ equity (deficit) 8,528,038 7,907,133 Non-controlling interest — - Total equity (deficit) 8,528,038 7,907,133 Total Liabilities and Stockholders’ Equity (Deficit) $ 49,191,629 $ 43,177,110 The accompanying notes are an integral part of the unaudited consolidated financial statements. 4 SKYX Platforms Corp. Consolidated Statements of Operations and Comprehensive Loss (Unaudited) 2023 2022 For the three months ended March 31, 2023 2022 Revenue $ 10,025 $ 6,971 Cost of revenues ( 1,468 ) ( 5,640 ) Gross income 8,557 1,331 Selling, general and administrative expenses ( 7,248,205 ) ( 11,947,440 ) Loss from operations ( 7,239,648 ) ( 11,946,109 ) Other income / (expense) Interest expense, net ( 730,621 ) ( 90,505 ) Other income, loan forgiveness — 178,250 Total other income (expense), net ( 730,621 ) 87,745 Net loss ( 7,970,269 ) ( 11,858,364 ) Common stock issued pursuant to antidilutive provisions — ( 4,691,022 ) Preferred dividends — ( 21,232 ) Non-controlling interest ( 35,442 ) Net loss attributed to common shareholders $ ( 7,970,269 ) $ ( 16,606,060 ) Unrealized gain on debt securities 57,494 — Net Comprehensive loss attributed to common stockholders $ ( 7,912,775 ) $ ( 16,606,060 ) Net loss per share - basic and diluted $ ( 0.10 ) $ ( 0.23 ) Weighted average number of common shares outstanding during the period – basic and diluted 82,965,182 72,818,108 The accompanying notes are an integral part of the unaudited consolidated financial statements. 5 SKYX Platforms Corp. Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) 2023 2022 For the three months ended March 31, 2023 2022 Shares of Common stock Balance, beginning of period 82,907,541 66,295,288 Common stock issued pursuant to offerings — 1,650,000 Common stock issued pursuant to services 282,188 448,409 Common stock issued pursuant to conversion of preferred stock — 9,976,536 Common stock issued pursuant to exercise of options — 200,000 Common stock issued pursuant to cashless exercise of warrants — 311,750 Common stock issued pursuant to antidilutive provisions — 335,073 Balance, end of period 83,189,729 79,217,056 Common stock and paid-in capital Balance, beginning of period $ 114,039,638 $ 70,880,386 Common stock issued pursuant to offerings — 20,552,000 Common stock issued pursuant to services — 5,717,010 Common stock issued pursuant to conversion of preferred stock — 2,494,134 Stock-based compensation 2,963,702 3,050,883 Common stock issued pursuant to exercise of options — 210,000 Debt discount 5,569,978 — Common stock issued pursuant to antidilutive provisions — 4,691,022 Balance, end of period 122,573,318 107,595,436 Accumulated Deficit Balance, beginning of period $ ( 106,070,358 ) $ ( 74,269,898 ) Net loss ( 7,970,269 ) ( 11,858,364 ) Non-controlling interest — ( 35,442 ) Common stock issued pursuant to antidilutive provisions — ( 4,691,022 ) Preferred Dividends — ( 21,232 ) Balance, end of period ( 114,040,627 ) ( 90,875,958 ) Accumulated other comprehensive loss Balance, beginning of period ( 62,147 ) — Unrealized gain on debt securities 57,494 — Balance, end of period ( 4,653 ) — Beginning balance - - Net loss - - Total stockholders’ Equity (Deficit) $ 8,528,038 $ 16,719,478 Ending balance $ 8,528,038 $ 16,719,478 The accompanying notes are an integral part of the unaudited consolidated financial statements. 6 SKYX Platforms Corp. Consolidated Statements of Cash Flows (Unaudited) 2023 2022 For the three months ended March 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 7,970,269 ) $ ( 11,858,364 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 497,373 21,900 (Other income), loan forgiveness — ( 178,250 ) Amortization of debt discount 143,257 — Non-cash equity-based compensation expense 2,963,702 8,767,894 Change in operating assets and liabilities: Inventory ( 178,780 ) — Prepaid expenses and other assets ( 45,501 ) ( 1,395,366 ) Operating lease liabilities ( 171,963 ) — Accretion operating lease liabilities 245,009 — Royalty obligation — ( 300,000 ) Accounts payable and accrued expenses 398,183 1,583,700 Net cash used in operating activities ( 4,118,988 ) ( 3,358,486 ) Cash flows from investing activities: Investments, available-for-sale ( 136,033 ) — Purchase of property and equipment ( 306 ) ( 191,034 ) Payment of patent costs ( 33,559 ) ( 48,544 ) Net cash used in investing activities ( 169,898 ) ( 239,578 ) Cash flows from financing activities: Proceeds from common stock issuance — 23,100,000 Placement cost — ( 2,548,000 ) Proceeds from exercise of options — 210,000 Proceeds from issuance of convertible notes 10,350,000 — Dividends paid — ( 21,232 ) Principal repayments of notes payable ( 893 ) ( 839 ) Net cash provided by financing activities 10,349,107 20,739,929 Increase in cash, cash equivalents and restricted cash 6,060,221 17,141,865 Cash, cash equivalents, and restricted cash at beginning of period 9,461,597 10,426,249 Cash, cash equivalents and restricted cash at end of period $ 15,521,818 $ 27,568,114 Supplementary disclosure of non-cash financing activities: Preferred stock conversion to common $ — $ 2,494,134 Common stock issued pursuant to antidilutive provisions — 4,691,022 Debt discount 5,569,978 — Cash paid during the period for: Interest $ 711,648 $ 90,630 The accompanying notes are an integral part of the unaudited consolidated financial statements. 7 SKYX Platforms Corp. Notes to Consolidated Financial Statements (Unaudited) NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS SKYX Platforms Corp., a corporation (the “Company”), was incorporated in Florida in May 2004. The Company maintains offices in Johns Creek, Georgia, Miami and Pompano Beach, Florida, New York City, and Guangdong Province, China. The Company has a series of advanced-safe smart platform technologies. The Company’s 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 the Company has expanded the capabilities of its 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, Bluetooth Low Energy and voice control. It allows scheduling, energy savings eco mode, dimming, back-up emergency light, night light, light color changing and much more. The Company’s 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. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 are unaudited. The results of operations for the interim periods are not necessarily indicative of the results of operations for the respective fiscal years. The consolidated statement of financial condition at December 31, 2022 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statement presentation. The accompanying consolidated financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for additional disclosures and accounting policies. Reclassifications For comparability, reclassifications of certain prior-year balances were made to conform with current-year presentations, such as certain expenses previously included in cost of revenues and reclassified as sales, general, and administrative expenses in 2022. 8 Cash, Cash Equivalents, and Restricted Cash The Company considers all highly liquid securities with original maturities of three months or less when acquired, to be cash equivalents. At March 31, 2023 and December 31, 2022, the Company’s cash composition was follows: SCHEDULE OF CASH EQUIVALENTS AND RESTRICTED CASH March 31, 2023 December 31, 2022 Cash and cash equivalents $ 14,521,818 $ 6,720,543 Restricted cash 1,000,000 2,741,054 Total cash, cash equivalents and restricted cash $ 15,521,818 $ 9,461,597 Restricted Assets The Company issued a letter of credit of $ 2.7 million in September 2022 to use as collateral for certain obligations to one of its lessors. The letter of credit was issued by a financial institution and was secured by debt securities of $ 3.7 million as of March 31, 2023 and cash of $ 2.7 million as of December 31, 2022. Additionally, pursuant to the Company’s acquisition of Belami, Inc., the Company placed $ 1 million in an escrow account. Inventory Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method. Cost principally consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes in future demand. SCHEDULE OF INVENTORY March 31, 2023 December 31, 2022 Inventory, component parts $ 2,102,320 $ 1,923,540 Loss Per Share Basic net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company uses the “treasury stock” method to determine whether there is a dilutive effect of outstanding convertible debt, option and warrant contracts. For the three months ended March 31, 2023 and 2022, the Company recognized net loss and a dilutive net loss, and the effect of considering any common stock equivalents would have been antidilutive for the period. Therefore, a separate computation of diluted earnings (loss) per share is not presented for the periods presented. The Company had the following anti-dilutive common stock equivalents at March 31, 2023 and 2022: SCHEDULE OF EARNING (LOSS) PER SHARE March 31, 2023 March 31, 2022 Stock Warrants 2,063,522 1,079,985 Stock Options 33,114,250 32,711,682 Convertible Notes 3,536,668 86,668 Preferred stock 880,400 3,280,400 Total 39,594,840 37,158,645 Recently Issued Accounting Pronouncements Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its consolidated financial statements. 9 NOTE 3 DEBT SECURITIES The components of investments as of March 31, 2023 were as follows: SCHEDULE OF COMPONENTS OF INVESTMENTS Fair value level Cost Unrealized loss Carrying value Corporate debt securities Level 1 $ 3,732,698 $ ( 1,752 ) $ 3,730,946 State and local government debt securities Level 1 908,354 ( 988 ) 907,366 State and local government debt securities Level 2 2,931,083 ( 1,913 ) 2,929,170 Total $ 7,572,135 $ ( 4,653 ) $ 7,567,482 NOTE 4 FURNITURE AND EQUIPMENT Furniture and equipment consisted of the following: SCHEDULE OF FURNITURE AND EQUIPMENT March 31, 2023 December 31, 2022 Machinery and equipment $ 67,419 $ 67,419 Computer equipment 6,846 6,846 Furniture and fixtures 36,059 36,059 Tooling and production 534,204 534,204 Leasehold improvements 30,553 30,553 Total 675,081 675,081 Less: accumulated depreciation ( 481,224 ) ( 459,083 ) Total, net $ 193,856 $ 215,998 Depreciation expense amounted to $ 22,141 and $ 9,505 for the three months ended March 31, 2023 and 2022, respectively. NOTE 5 INTANGIBLE ASSETS Intangible assets consisted of the following: SCHEDULE OF INTANGIBLE ASSETS March 31, 2023 December 31, 2022 Patents $ 857,931 $ 824,372 Trademark 45,450 45,450 Finite lived intangible assets, gross Less: accumulated amortization ( 221,327 ) ( 207,020 ) Total, net $ 682,054 $ 662,802 Amortization expense on intangible assets was $ 14,307 and $ 12,395 for the three months ended March 31, 2023 and 2022, respectively. The following table sets forth the estimated amortization expense for future periods: SCHEDULE OF INTANGIBLE ASSETS AMORTIZATION EXPENSE FOR FUTURE Remainder of 2023 39,925 2024 53,274 2025 53,274 2026 53,274 2027 54,573 NOTE 6 DEBT The following table presents the details of the principal outstanding: SCHEDULE OF DEBT TABLE March 31, 2023 December 31, 2022 APR at March 31, 2023 Maturity Collateral Notes payable (a) $ 5,157,792 $ 5,115,000 8.00 % September 2026 Substantially all Company assets Convertible Notes (b) 11,650,000 1,300,000 6.00 - 10.00 % September 2023-March 2026 Substantially all Company assets PPP Loans (c) 6,995 7,835 1.00 % April 2025 - Economic Impact Disaster loan 149,157 150,000 3.75 % November 2052 Substantially all Company assets Total $ 16,963,944 $ 6,572,935 Unamortized debt discount $ ( 5,426,719 ) $ - Debt, net of Unamortized debt Discount $ 11,537,225 $ 6,572,935 SCHEDULE OF INTEREST EXPENSE For the three-month period ended March 31, 2023 2022 Interest expense associated with debt 326,742 90,630 As of March 31, 2023, the expected future principal payments for the Company’s debt are due as follows: SCHEDULE OF FUTURE PRINCIPAL PAYMENTS Remainder of 2023 1,705,931 2024 1,736,146 2025 1,734,021 2026 11,650,495 2027 and thereafter 137,351 Total $ 16,963,944 (a) The unpaid principal bears annual interest at the Wall Street Journal prime rate plus 1.75 % per year. (b) Included in Convertible Notes are loans provided to the Company from two directors, an officer and two investors. The notes each have the following terms: three-year subordinated convertible promissory note of principal face amounts. Subject to other customary terms, the Convertible Notes mature between September 2023 and January 2024 and bear interest at an annual rate of 6 %, 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 per share. 10 All convertible notes are convertible at a price ranging between $ 3 and $ 15 per share. During the three-month period ended March 31, 2023, the Company issued convertible promissory notes for $ 10.4 million. As an inducement to enter into the transactions, the Company issued 1,391,667 warrants to the note holders at an initial exercise price of $ 3 per warrant. The Company recorded a debt discount aggregating $ 5.6 million which was recognized as debt discount and additional paid-in capital in the accompanying balance sheet. The Company recognized $ 143,257 as amortized debt discount during the three-month ended March 31, 2023 and it is reflected as interest expense in the accompanying unaudited consolidated statement of operations. (c) The Small Business Administration forgave approximately $ 178,000 of PPP loans during the three-month period ended March 31, 2022, which was recognized as other income. NOTE 7 OPERATING LEASE LIABILITIES In April 2022, the Company entered into a 58-month lease related to certain office and showroom space pursuant to a sublease that expires in February 2027. The Company recognized a right-of-use asset and a liability of $ 1,428,764 pursuant to this lease. In September 2022, the Company entered into a 124-month lease related to its future headquarters offices and showrooms space. The Company recognized a right-of-use asset and a liability of $ 22,192,503 pursuant to such lease. In connection with the execution of lease, the Company was required to provide the landlord with a letter of credit in the amount of $ 2.7 million, which is secured by $ 3.7 million of debt securities. The following table outlines the total lease cost for the Company’s operating leases as well as weighted average information for these leases as of March 31, 2023: SCHEDULE OF LEASE COST OPERATING LEASE March 31, 2023 Lease costs: Cash paid for operating lease liabilities $ 207,130 Right-of-use assets obtained in exchange for new operating lease obligations 22,584,674 Fixed rent payment $ 255,314 Lease – Depreciation expense $ 460,618 March 31, 2023 Other information: Weighted-average discount rate 6.41 % Weighted-average remaining lease term (in months) 111 SCHEDULE OF MINIMUM LEASE OBLIGATION Minimum Lease obligation Remainder of 2023 $ 1,130,624 2024 1,780,875 2025 1,993,646 2026 2,223,207 2027 and thereafter 16,760,768 Total $ 23,889,120 11 NOTE 8 GE ROYALTY OBLIGATIONS The Company has a license agreement with General Electric (“GE”) which provides, among other things, for rights to market certain of the Company’s products displaying the GE brand in consideration of royalty payments to GE. The Company cannot assign the agreement or sublicense the stated rights. The agreement imposes certain manufacturing and quality control conditions to continue to use the GE brand. The agreement expires in November 2023. In the event the Company receives significant funding rounds of at least $ 50 million, the Company is required to use a portion of such funding to pay certain amounts to GE. The Company must make certain fixed and variable royalty payments through the terms of the agreement. Variable 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: SCHEDULE OF ROYALTY OBLIGATIONS 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 March 31, 2023 and December 31, 2022, the outstanding balance of the aggregate Minimum Payment was $ 2,638,000 and it is payable by December 31, 2023. NOTE 9 ACCRUED EXPENSES Accrued expenses consisted of the following: SCHEDULE OF ACCRUED EXPENSES March 31, 2023 December 31, 2022 Accrued interest, convertible notes $ 219,972 $ 104,735 Trade payables 1,271,535 1,369,702 Accrued compensation 458,316 475,417 Total $ 1,949,823 $ 1,949,823 NOTE 10 RELATED PARTY TRANSACTIONS Convertible Notes Due to Related Parties Convertible notes due to related parties represent amounts provided to the Company from two directors and the Chief Executive Officer of the Company. The outstanding principal on the convertible promissory notes, associated with related parties was $ 950,000 as of March 31, 2023 and December 31, 2022 and accrued interest of $ 219,972 and $ 104,375 , respectively. 12 Initial Public Offering The Company issued 455,353 shares of its common stock to certain directors, officers and greater than 5% stockholders which generated gross proceeds of $ 6,374,942 during the three-month period ended March 31, 2022. The Company issued 95,386 shares of its common stock to affiliates of certain directors and greater than 5% stockholders pursuant to certain anti-dilutive provisions during the three-month period ended March 31, 2022. The issuance of such shares was triggered based on the Company’s effective price of its initial public offering in February 2022. NOTE 11 STOCKHOLDERS’ EQUITY (DEFICIT) Common Stock The Company issued the following common stock during the three months ended March 31, 2023 and 2022: SCHEDULE OF COMMON STOCK Transaction Type Shares Issued Valuation $ Range of Value Per Share 2023 Equity Transactions Common stock issued, pursuant to services provided 282,188 2,963,702 2.52 – 3.56 Transaction Type Shares Issued Valuation $ (Issued) Range of Value Per Share 2022 Equity Transactions Common stock issued per exercise of options and warrants 599,651 $ 862,301 $ 0.10 – 14.0 Common stock issued per exercise of warrants, cashless 593,700 — — Common stock issued, pursuant to services provided 1,057,293 8,235,880 2.0 – 14.0 Conversion of preferred stock 12,376,536 3,094,134 0.25 Issuance of common stock pursuant to offering, net 1,650,000 23,100,000 14.0 Issuance of common stock, pursuant to anti-dilutive provisions 335,073 4,691,022 14.0 The Company issued 335,073 shares of its common stock to certain stockholders during the three-month period ended March 31, 2022. The issuance of such shares was triggered based on the Company’s effective price of its initial public offering. The shares were recorded as an increase in common stock and additional paid-in capital and accumulated deficit during the period, using the fair value of the shares at the date of issuance. 13 Preferred Stock The following is a summary of the Company’s Preferred Stock activity during the three months ended March 31, 2023 and 2022 respectively: SCHEDULE OF PREFERRED STOCK ACTIVITY Transaction Type Quantity Valuation Value per Share Preferred Stock Balance at January 1, 2023 880,400 $ 220,099 $ 0.25 Preferred Stock redemptions - - - Preferred Stock Balance at March 31, 2023 880,400 $ 220,099 $ 0.25 Transaction Type Quantity Carrying Value Value per Share Preferred Stock Balance at January 1, 2022 13,256,936 $ 3,314,233 $ 0.25 Preferred Stock redemptions ( 9,976,536 ) ( 2,494,134 ) 0.25 Preferred Stock Balance at March 31, 2022 3,280,400 $ 820,099 $ 0.25 The Preferred Stock is convertible at the holder’s option. Shares of the Preferred Stock may be repurchased by the Company upon 30 days’ prior written notice, for USD $ 3.50 per share. Holders also have a put option, allowing them to sell their shares of Preferred Stock back to the Company at $ 0.25 per share, and therefore the stock is classified as Mezzanine equity rather than permanent equity. The Company paid dividends in the amount of $ 21,232 to the Preferred Stock shareholders during the three-month period ended March 31, 2022. Stock Options The following is a summary of the Company’s stock option activity during the three month periods ended March 31, 2023 and 2022: SCHEDULE OF STOCK OPTION ACTIVITY Options Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (In Years) Aggregate Intrinsic Value Outstanding, January 1, 2023 33,289,250 $ 7.7 - $ - Exercised - - - - Granted - - Awards Canceled 175,000 $ 3.0 - - Expired - - - Outstanding, March 31, 2023 33,114,250 $ 7.7 3.2 $ 10,534,567 Exercisable, March 31, 2023 12,731,250 $ 4.4 2.55 $ 10,534,567 Options Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (In Years) Aggregate Intrinsic Value Outstanding, January 1, 2022 21,852,182 $ 3.87 –– $ –– Exercised ( 200,000 ) 1.2 –– $ –– Granted 11,724,500 13.0 –– Forfeited ( 665,000 ) - Outstanding, March 31, 2022 32,711,682 $ 7.73 3.43 $ 345,090,982 Exercisable, March 31, 2022 8,982,557 $ 3.4 4.1 $ 203,781,741 14 Warrants Issued The following is a summary of the Company’s warrant activity during the three month periods ended March 31, 2023 and 2022: SCHEDULE OF WARRANT ACTIVITY Number of Warrants Weighted Average Exercise Price Balance, January 1, 2023 671,855 $ 11.5 Issued 1,391,667 3.0 Exercised — — Forfeited — — Balance, March 31, 2023 2,063,522 $ 5.76 Number of Warrants Weighted Average Exercise Price Balance, January 1, 2022 2,127,895 $ 5.4 Exercised ( 430,000 ) — Issued 132,000 18.2 Forfeited ( 750,000 ) Balance, March 31, 2022 1,079,895 $ 8.84 Assumptions- Fair Value of Warrants and Options The Company issued options in connection for services during the three-month period ended March 31, 2022 and none during the three-month period ended March 31, 2023. The Company issued warrants in connection with certain convertible promissory notes during the three-month period ended March 31, 2023, which are considered inducements to enter into debt transactions and are recognized as debt discount at fair value. The following table summarizes the range of the Black Scholes pricing model assumptions used by the Company to value certain warrants issued during the three-month period ended March 31, 2023 and options granted the three-month period ended March 31, 2022: SCHEDULE OF OPTIONS GRANTED UNDER BLACK SCHOLES PRICING MODEL ASSUMPTIONS March 31, 2023 March 31, 2022 Range Range Stock price $ 3.74 - 3.84 $ 3.0 – 3.0 Exercise price $ 3.0 $ 3.0 - 12 Expected life (in years) 5 yrs. 1.3 yrs. Volatility 42 % 34 % Risk-fee interest rate 5.02 % .09 % - 2.49 % Dividend yield — — The Company cannot use its historical volatility as expected volatility because there is not enough liquidity in trades of common stock during a term comparable to the expected term of stock option issued. The Company relies on the expected volatility of comparable publicly traded companies within its industry sector, which is deemed more relevant, to compute its expected volatility. Unamortized future option expense was $ 10.1 million (excluding certain market-based options which management cannot ascertain to have a probable outcome amounting to $ 61 million) at March 31, 2023 and it is expected to be recognized over a weighted-average period of 1.6 years. 15 NOTE 12 CONCENTRATIONS OF RISKS Major Customers The Company had no customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable. Major Vendors The Company had two major vendors that accounted for 100 % of cost of purchases for the three months ended March 31, 2023 and 2022. The Company expects to maintain its relationship with the vendors. Liquidity The Company’s cash and cash equivalents are held primarily with two financial institutions. The Company has deposits which exceed the amount insured by the FDIC. To reduce the risk associated with the failure of such counterparties, the Company periodically evaluates the credit quality of the financial institutions in which it holds deposits. Product and Geographic Markets The Company generates its income primarily from its proprietary-based technology and related products sold in the United States. NOTE 13 SUBSEQUENT EVENTS Management has evaluated subsequent events through May 9, 2023, which is the date the consolidated financial statements were available to be issued. There were no subsequent events that required adjustment to or disclosure in the consolidated financial statements with the exception of the following: The Company completed its acquisition of Belami, Inc. and subsidiaries in April 2023. The Company paid $ 7.0 million in cash (which excluded, among other things, $ 1.0 million released to the sellers from escrow) and 1,923,285 shares of its common stock. Prior to the closing, Belami, Inc. issued promissory notes in an aggregate amount of $ 1.5 million which are guaranteed by the Company. In April 2024, as deferred consideration, the Company will pay $ 3.2 million and issue approximately 1,879,816 shares, assuming the minimum price per share of $ 3.00 . The Company satisfied its obligations under a note payable amounting to $ 6.2 million as of March 31, 2023. The Company paid $ 2 million and issued 574,713 shares of its common stock to satisfy such obligations in April 2023. In May 2023, the Company entered into a $ 2 million secured revolving line of credit with First-Citizens Bank & Trust Company, which bears interest at a variable rate equal to The Wall Street Journal Prime Rate plus 0.250%, subject to a floor of 5.0% and ceiling of the lesser of 18.0% or the maximum rate allowed under applicable law, payable monthly, and matures in May 2024. The line of credit is subject to customary default and acceleration provisions . 16