SKYX Platforms Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS SKYX PLATFORMS CORP. Consolidated Balance Sheets (Unaudited) June 30, 2023 (Audited) December 31, 2022 Assets Current assets: Cash and cash equivalents $ 18,085,104 $ 6,720,543 Restricted cash 2,000,000 — Accounts receivable 2,481,208 — Investments, available-for-sale — 7,373,956 Inventory 4,823,708 1,923,540 Deferred cost of revenues 1,296,181 - Prepaid expenses and other assets 55,514 311,618 Total current assets 28,741,715 16,329,657 Other assets: Furniture and equipment, net 475,510 215,998 Restricted cash 3,611,054 2,741,054 Right of use assets, net 22,618,579 23,045,293 Intangible assets, definite life, net 9,024,550 662,802 Goodwill 15,483,678 — Other assets 425,282 182,306 Total other assets 51,638,653 26,847,453 Total Assets $ 80,380,368 $ 43,177,110 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and accrued expenses $ 11,547,344 $ 1,949,823 Notes payable, current 3,003,162 405,931 Operating lease liabilities, current 3,493,519 1,130,624 Royalty obligation 2,638,000 2,638,000 Consideration payable 8,836,591 950,000 Deferred revenues 1,662,815 — Convertible notes, current 1,300,000 350,000 Total current liabilities 32,481,431 7,424,378 Long term liabilities: Notes payable 151,511 4,867,004 Operating lease liabilities 21,562,019 22,758,496 Convertible notes, net 5,201,780 — Total long-term liabilities 26,915,310 27,625,500 Total liabilities 59,396,741 35,049,878 Commitments and Contingent Liabilities: - - Redeemable preferred stock - subject to redemption: $ 0 par value; 20,000,000 shares authorized; none and 880,400 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively — 220,099 Stockholders’ Equity: Common stock and additional paid-in-capital: $ 0 par value, 500,000,000 shares authorized; and 90,660,148 and 82,907,541 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively 147,282,469 114,039,638 Accumulated deficit ( 126,298,842 ) ( 106,070,358 ) Accumulated other comprehensive loss — ( 62,147 ) Total stockholders’ equity 20,983,627 7,907,133 Non-controlling interest — — Total equity 20,983,627 7,907,133 Total Liabilities and Stockholders’ Equity $ 80,380,368 $ 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 2023 2022 For the three months ended June 30, For the six months ended June 30, 2023 2022 2023 2022 Revenue $ 14,984,055 $ 7,389 14,994,080 14,360 Cost of revenues ( 10,288,643 ) ( 6,122 ) ( 10,290,111 ) ( 11,762 ) Gross income 4,695,412 1,267 4,703,969 2,598 Selling, general and administrative expenses 16,946,752 4,565,087 24,194,957 16,512,528 Loss from operations ( 12,251,340 ) ( 4,563,820 ) ( 19,490,988 ) ( 16,509,930 ) Other income / (expense) Interest expense, net ( 1,218,732 ) ( 81,918 ) ( 1,939,353 ) ( 172,421 ) Gain on extinguishment of debt 1,201,857 — 1,201,857 178,250 Total other income (expense), net ( 16,875 ) ( 81,918 ) ( 737,496 ) 5,829 Net loss ( 12,268,215 ) ( 4,645,738 ) ( 20,228,484 ) ( 16,504,101 ) Common stock issued pursuant to antidilutive provisions — — — 4,691,022 Preferred dividends — 6,644 — 27,876 Non-controlling interest — — — — Net loss attributed to common shareholders $ ( 12,268,215 ) $ ( 4,652,382 ) ( 20,228,484 ) ( 21,222,999 ) Other comprehensive loss: 4,653 — 62,147 — Net Comprehensive loss attributed to common stockholders $ ( 12,263,562 ) $ ( 4,652,382 ) ( 20,166,337 ) ( 21,222,999 ) Net loss per share - basic and diluted $ ( 0.14 ) $ ( 0.06 ) ( 0.24 ) ( 0.22 ) Net loss per share - basic $ ( 0.14 ) $ ( 0.06 ) ( 0.24 ) ( 0.22 ) Weighted average number of common shares outstanding during the period – basic and diluted 86,621,015 80,575,955 84,843,914 76,718,462 Weighted average number of common shares outstanding during the period – basic 86,621,015 80,575,955 84,843,914 76,718,462 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 2023 2022 For the three months ended June 30, For the six months ended June30, 2023 2022 2023 2022 Shares of Common stock Balance, beginning of period 83,189,729 79,217,056 82,907,541 66,295,288 Common stock issued pursuant to offerings 2,984,308 — 2,984,308 1,650,000 Common stock issued pursuant to services 1,407,713 94,540 1,689,901 542,949 Common stock issued pursuant to conversion of preferred stock 580,400 1,400,000 580,400 11,376,536 Common stock issued pursuant to exercise of options and warrants — 341,890 — 853,640 Common stock issued pursuant to acquisition 1,923,285 — 1,923,285 — Common stock issued pursuant to antidilutive provisions — — — 335,073 Common stock issued pursuant to extinguishment of debt 574,713 — 574,713 — Balance, June 30 90,660,148 81,053,486 90,660,148 81,053,486 Common stock and paid-in capital Balance, beginning of period $ 122,573,318 $ 107,595,436 $ 114,039,638 $ 70,880,386 Common stock issued pursuant to stock offering 7,446,274 — 7,446,274 20,552,000 Common stock issued pursuant to services 7,674,832 2,426,306 10,638,534 11,194,200 Common stock issued pursuant to conversion of preferred stock 220,099 350,000 220,099 2,844,134 Common stock issued pursuant to exercise of options and warrants — 72,625 — 282,625 Debt discount — — 5,569,978 — Common stock issued pursuant to acquisition 7,327,716 — 7,327,716 — Common stock issued pursuant to extinguishment of debt 2,040,231 — 2,040,231 — Common stock issued pursuant to antidilutive provisions — — — 4,691,022 Balance, June 30 $ 147,282,469 $ 110,444,367 $ 147,282,469 $ 110,444,367 Accumulated Deficit Balance, beginning of period $ ( 114,040,627 ) $ ( 90,875,958 ) $ ( 106,070,358 ) $ ( 74,269,898 ) Net loss ( 12,268,215 ) ( 4,645,738 ) ( 20,228,484 ) ( 16,504,101 ) Non-controlling interest — — — ( 35,442 ) Common stock issued pursuant to antidilutive provisions — — — ( 4,691,022 ) Preferred dividends — ( 6,644 ) — ( 27,876 ) Balance, end of period ( 126,298,842 ) ( 95,528,339 ( 126,298,842 ) ( 95,528,339 ) Accumulated other comprehensive loss Balance, beginning of period ( 4,653 ) — ( 62,147 ) — Other comprehensive income 4,653 — 62,147 — Balance, end of period — — — — Balance, beginning of period 20,983,627 7,907,133 7,907,133 7,907,133 Net loss ( 12,268,215 ) ( 4,645,738 ) ( 20,228,484 ) ( 16,504,101 ) Total stockholders’ equity $ 20,983,627 $ 14,916,028 $ 20,983,627 $ 14,916,028 Balance, ending of period 20,983,627 14,916,028 20,983,627 14,916,028 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 six months ended June 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 20,228,484 ) $ ( 16,504,101 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,031,732 46,988 Gain on forgiveness of debt ( 1,201,857 ) ( 178,250 ) Amortization of debt discount 520,349 — Share-based payments 10,638,534 11,194,200 Change in operating assets and liabilities: Inventory ( 1,114,063 ) ( 334,543 ) Accounts receivable 40,551 — Prepaid expenses and other assets 449,358 ( 979,607 ) Deferred charges 186,900 — Deferred revenues ( 266,218 ) — Operating lease liabilities ( 199,417 ) — Accretion operating lease liabilities 798,229 — Other assets — ( 117,234 ) Royalty obligation — ( 600,000 ) Accounts payable and accrued expenses 2,700,311 1,269,243 Net cash used in operating activities ( 6,644,075 ) ( 6,203,304 ) Cash flows from investing activities: Purchase of debt securities ( 136,033 ) — Proceeds from disposition of debt securities 7,572,136 — Acquisition, net of cash acquired ( 4,206,200 ) — Purchase of property and equipment — ( 262,748 ) Payment of patent costs and other intangibles — ( 82,608 ) Net cash provided by (used in) investing activities 3,229,903 ( 345,356 ) Cash flows from financing activities: Proceeds from issuance of common stock- offerings 7,826,045 23,100,000 Placement costs ( 379,772 ) ( 2,556,000 ) Proceeds from exercise of options and warrants — 290,625 Proceeds from line of credit 2,000,000 — Proceeds from issuance of convertible notes 10,350,000 — Dividends paid — ( 27,876 ) Principal repayments of notes payable ( 2,147,900 ) ( 1,664 ) Net cash provided by financing activities 17,648,373 20,805,085 Increase in cash, cash equivalents and restricted cash 14,234,201 14,256,425 Cash, cash equivalents, and restricted cash at beginning of period 9,461,957 10,426,249 Cash, cash equivalents and restricted cash at end of period $ 23,696,158 $ 24,682,674 Supplementary disclosure of non-cash financing activities: Preferred stock conversion to common $ 220,099 $ 2,844,134 Business acquisition: Assets acquired excluding identifiable intangible assets and goodwill and cash 7,090,094 — Liabilities assumed and consideration payable 19,439,856 — Identifiable intangible assets and goodwill, net of cash outlay 19,677,478 — Fair value of shares issued pursuant to acquisition 7,327,716 — Debt discount 5,569,978 — Fair value of shares issued pursuant to antidilutive provisions — 4,691,022 Fair value of shares issued pursuant to extinguishment of debt 2,040,231 — Cash paid during the period for: Interest $ 437,995 $ 281,141 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 to touch 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 June 30, 2023 and for the three months ended June 30, 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 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 Basis of Consolidation The unaudited consolidated financial statements include the results of the Company and one of its subsidiaries, SQL Lighting and Fans LLC from January 1, 2022 and the results from its remaining subsidiaries, Belami, Inc., BEC, CA 1, Inc., BEC CA 2, LLC, Luna BEC, Inc., and Confero Group LLC from April 28 to June 30, 2023. All intercompany balances and transactions have been eliminated in consolidation. Business Combination The Company accounts for its business acquisitions under the acquisition method of accounting. This method requires recording of acquired assets and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to the business combination are included prospectively beginning with the date of acquisition and transaction costs and transaction costs related to business combinations are recorded within selling, general, and administrative expenses. The Company acquired the outstanding units of Belami, Inc (“Belami”) and its subsidiaries on April 28, 2023. Belami is an online retailer and e-commerce provider specializing in home lighting, ceiling fans, and other home furnishings. The initial allocation of purchase price is subject to adjustment through April 2024. The Company is in initial discussion with the sellers to determine certain assets acquired and assumed liabilities which are the basis of adjustments to retained earnings and working capital. The initial allocation of the purchase price is as follows: SCHEDULE OF INITIAL ALLOCATION OF THE PURCHASE PRICE Assets acquired excluding identifiable intangible assets and goodwill $ 7,090,094 Customer relationships 4,500,000 E-commerce technology platforms 3,900,000 Goodwill 15,252,420 Assumed liabilities ( 10,462,590 ) Total Assets Acquired $ 20,271,916 Consideration: Cash outlay, net of cash acquired $ 4,206,200 Consideration payable 8,738,000 Shares of common stock issued at initial closing 7,327,716 Total purchase price $ 20,271,916 Consideration payable primarily consists of the fair value of cash and shares of the Company’s stock amounting to $ 3.2 million and $ 5.5 million payable in April 2024 and $ 750,000 cash, held in escrow, payable in July 2024. The consideration payable is discounted using an effective rate of 6 %. The goodwill recognized, none of which is deductible for income tax purposes, is attributable to the assembled workforce of Belami and to expected synergies and other benefits that the Company believes will result from combining its operations with Belami’s. The intangible assets recognized are primarily attributable to expected increased margins that the Company believes will result from Belami’s existing customer relationships and increased margins from the e-commerce technology platforms Belami has developed over the years. 9 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 June 30, 2023 and December 31, 2022, the Company’s cash composition was as follows: SCHEDULE OF CASH EQUIVALENTS AND RESTRICTED CASH June 30, 2023 December 31, 2022 Cash and cash equivalents $ 18,085,104 $ 6,720,543 Restricted cash 5,611,054 2,741,054 Total cash, cash equivalents and restricted cash $ 23,696,158 $ 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 cash of $ 2.7 million as of June 30, 2023 and December 31, 2022. Additionally, pursuant to the Company’s acquisition of Belami, Inc., the Company placed $ 750,000 in an escrow account. Furthermore, the Company secured a line of credit of $ 2.0 million with cash of the equivalent amount. Customer Contracts Balances Accounts receivable are recorded in the period when the right to receive payment or other consideration becomes unconditional. Accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts based upon an estimate of probable credit losses in existing accounts receivable. The majority of the Company’s accounts receivable are from third-party payers and are paid within a few days from the order date. The Company determines the allowance based upon individual accounts when information indicates the customers may have an inability to meet their financial obligations, historical experience, and currently available evidence. As of June 30, 2023, and December 31, 2022, the Company’s allowance for doubtful accounts was $ 37,088 and $ 0 , respectively. The Company determines an allowance for sales returns based upon historical experience. As of June 30, 2023 and December 31, 2022, the Company’s allowance for sales returns was $ 393,820 and $ 0 , respectively and is recorded as an accrued expenses in the accompanying consolidated financial statements. The Company defers the revenue related to undelivered customer orders for which it was paid or has a right to be paid at each measurement date. Such amounts are recognized as deferred revenues in the accompanying unaudited balance sheet. As of June 30, 2023, the deferred revenues amounted to $ 1,662,815 . There were no deferred revenues as of December 31, 2022. The costs associated with such deferred revenues are recognized as deferred charges in the accompanying unaudited balance sheet. Such charges include the carrying value of related inventory, freight, and sales charges. The deferred charges amounted to $ 1,296,181 as of June 30, 2023. There were no deferred charges as of December 31, 2022. 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 June 30, 2023 December 31, 2022 Inventory, component parts $ 2,269,355 $ 1,923,540 Inventory, finished goods 2,554,353 — Total inventory $ 4,823,708 $ 1,923,540 10 Intangible Assets Intangible assets were recorded in connection with the acquisition of Belami. Intangible assets with finite lives, which consist of customer relationships and e-commerce technology platforms, are being amortized over their estimated useful lives on a straight-line basis. Such intangible assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company assesses the recoverability of its intangible assets by determining whether the unamortized balance can be recovered over the assets’ remaining estimated useful life through undiscounted estimated future cash flows. If undiscounted estimated future cash flows indicate that the unamortized amounts will not be recovered, an adjustment will be made to reduce such amounts to fair value based on estimated future cash flows discounted at a rate commensurate with the risk associated with achieving such cash flows. Estimated future cash flows are based on trends of historical performance and the Company’s estimate of future performance, considering existing and anticipated competitive and economic conditions. Goodwill Goodwill, which was recorded in connection with the acquisition of Belami, is not subject to amortization and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill represents the excess of the purchase price of Belami over the fair value of its identifiable net assets acquired. Goodwill is tested for impairment at the reporting unit level. Fair value is typically based upon estimated future cash flows discounted at a rate commensurate with the risk involved or market-based comparables. If the carrying amount of the reporting unit’s net assets exceeds its fair value, then an analysis will be performed to compare the implied fair value of goodwill with the carrying amount of goodwill. An impairment loss will be recognized in an amount equal to the excess of the carrying amount over its implied fair value. After an impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Accounting guidance on the testing of goodwill for impairment allows entities testing goodwill for impairment the option of performing a qualitative assessment to determine the likelihood of goodwill impairment and whether it is necessary to perform such two-step impairment test. The initial carrying value of goodwill associated with the Belami acquisition may vary during the first year of initial purchase (through April 2024) if the carrying value of the assets acquired or assumed liabilities or the fair value of the shares issuable in April 2024 varies from the initial allocation of asset performed this quarter. Revenue Recognition The Company currently generates revenues substantially from home lighting and ceiling fans through its family of internet sites and marketplaces. A substantial portion of the Company’s customers’ orders are made and paid contemporaneously by credit card and shipped through third-party delivery providers. The Company recognizes revenues once it concludes that the control of the product is transferred to the customer, which is upon delivery. The Company records reductions to revenue for estimated customer sales returns and replacements, net of sales tax. The Company receives rebate and cooperative allowances based on a percentage of periodic purchases from certain vendors. These vendor considerations are reflected as a reduction of costs of revenues. The vendor considerations, the rights of returns and replacements are based upon estimates that are determined by historical experience, contractual terms, and current market conditions. The primary factors affecting the Company’s accrual for estimated customer rights of returns include estimated customer return rates as well as the number of units shipped that have a right of return that have not expired as of the measurement date. 11 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 June 30, 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 June 30, 2023 and 2022: SCHEDULE OF EARNING (LOSS) PER SHARE June 30, 2023 June 30, 2022 Stock warrants 2,063,522 939,895 Stock options 34,233,900 33,124,982 Convertible notes 3,536,668 86,668 Preferred stock - 1,880,400 Total 39,834,090 36,031,945 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. Change in Accounting Principles Historically, the Company recognized its revenues of products shipped by third-party providers upon shipment. During the second quarter of 2023, the Company believes that it is preferable to recognize the revenues of products shipped by such third-party providers upon delivery. This revenue recognition method is consistent with the method used by Belami. The change in accounting principle does not significantly impact on the revenues historically recorded by the Company. 12 NOTE 3 FURNITURE AND EQUIPMENT Furniture and equipment consisted of the following: SCHEDULE OF FURNITURE AND EQUIPMENT June 30, 2023 December 31, 2022 Machinery and equipment $ 67,419 $ 67,419 Computer equipment 6,846 6,846 Furniture and fixtures 324,977 36,059 Tooling and production 548,642 534,204 Leasehold improvements 30,553 30,553 Total 978,437 675,081 Less: accumulated depreciation ( 502,927 ) ( 459,083 ) Total, net $ 475,510 $ 215,998 Depreciation expense amounted to $ 64,494 and $ 9,505 for the six months ended June 30, 2023 and 2022, respectively. NOTE 4 INTANGIBLE ASSETS The Company’s definite-lived intangible assets were as follows: SCHEDULE OF INTANGIBLE ASSETS June 30, 2023 December 31, 2022 Useful life Carrying Value Accumulated Amortization Net carrying value Carrying Value Accumulated Amortization Net carrying value Customer relationships 7 $ 4,500,000 $ ( 107,143 ) $ 4,392,857 $ - $ - $ - E-commerce technology platforms 4 3,900,000 ( 162,500 ) 3,737,500 - - - Patents and other 20 1,115,120 ( 220,927 ) 894,193 869,822 ( 207,020 ) 662,802 $ 9,515,120 $ ( 490,570 ) $ 9,024,550 $ 869,822 $ ( 207,020 ) $ 662,802 The amortization expense of intangible assets was $ 283,550 and $ 12,395 for the six months ended June 30, 2023, and 2022, respectively. The following table sets forth the estimated amortization expense for the following five years: SCHEDULE OF INTANGIBLE ASSETS AMORTIZATION EXPENSE Twelve months ended June 30,2024 1,673,613 2025 1,673,613 2026 1,673,613 2027 1,511,113 2028 698,613 13 NOTE 5 DEBTS The following table presents the details of the principal outstanding: SCHEDULE OF DEBT TABLE June 30, 2023 December 31, 2022 APR June 30, 2023 % Maturity Collateral Notes payable $ - $ 5,115,000 N/A September 2026 Substantially all company assets Line of credit (a) 2,000,000 - 8.25 May 2024 Cash Note payable 1,000,000 - 4.86 July 2023 - Convertible Notes (b) 11,650,000 1,300,000 6.00 - 10.00 September 2023-March 2026 Substantially all company assets PPP Loans (c) 6,156 7,835 1.00 April 2025 Economic Impact Disaster loan 148,517 150,000 3.75 November 2022 Substantially all company assets Total $ 14,804,673 $ 6,572,935 Unamortized debt discount $ ( 5,148,220 ) $ - Debt, net of Unamortized debt Discount $ 9,656,453 $ 6,572,935 SCHEDULE OF INTEREST EXPENSE For the six-month period ended June 30, 2023 2022 Interest expense associated with debt 1,214,920 172,421 As of June 30, 2023, the expected future principal payments for the Company’s debt are due as follows: SCHEDULE OF FUTURE PRINCIPAL PAYMENTS Remainder of 2023 2,303,162 2024 2,006,040 2025 3,915 2026 10,352,915 2027 4,015 2028 and thereafter 134,626 Total $ 14,804,673 (a) The unpaid principal bears annual interest at the Wall Street Journal prime rate. (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. 14 All convertible notes are convertible at a price ranging between $ 3 and $ 15 per share. During the six-month period ended June 30, 2023, the Company issued convertible promissory notes for $ 10.4 million. As an inducement to enter the financing 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 $ 278,499 as amortized debt discount during the three-month ended June 30, 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 six-month period ended June 30, 2022, which was recognized as other income. NOTE 6 OPERATING LEASE LIABILITIES In April 2022, the Company entered 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 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 $ 22.2 million 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 with cash. 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 June 30, 2023: SCHEDULE OF LEASE COST OPERATING LEASE June 30, 2023 Lease costs: Cash paid for operating lease liabilities $ 207,130 Right-of-use assets obtained in exchange for new operating lease obligations 22,618,579 Fixed rent payment $ 286,401 Lease – Depreciation expense $ 426,714 June 30, 2023 Other information: Weighted-average discount rate 6.41 % Weighted-average remaining lease term (in months) 108 SCHEDULE OF MINIMUM LEASE OBLIGATION Minimum Lease obligation 2024 $ 3,493,519 2025 1,898,428 2026 2,119,073 2027 2,357,033 2028 and thereafter 15,187,485 Total $ 25,055,538 15 NOTE 7 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 June 30, 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 8 ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accrued expenses consisted of the following: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES June 30, 2023 December 31, 2022 Accrued interest, convertible notes $ 512,466 $ 104,735 Trade payables 10,576,562 1,369,701 Accrued compensation 458,316 475,417 Total $ 11,547,344 $ 1,949,823 NOTE 9 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 June 30, 2023 and December 31, 2022 and accrued interest of $ 219,972 and $ 104,375 , respectively. 16 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 six-month period ended June 30, 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 six-month period ended June 30, 2022. The issuance of such shares was triggered based on the Company’s effective price of its initial public offering in February 2022. NOTE 10 STOCKHOLDERS’ EQUITY Common Stock The Company issued the following common stock during the six months ended June 30, 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 1,689,901 10,638,534 $ 2.67 - 3.49 Common stock issued pursuant to stock at the market offering, gross 2,984,308 7,826,045 2.55 - 3.25 Common stock issued pursuant to conversion of preferred stock 580,400 220,099 0.25 Common stock issued pursuant to acquisition 1,923,285 7,327,716 3.81 Common stock issued pursuant to extinguishment of debt 574,713 2,040,231 3.55 Transaction Type Shares Issued Valuation $ (Issued) Range of Value Per Share 2022 Equity Transactions Common stock issued per exercise of options 435,890 $ 282,625 $ 0.10 – 14.0 Common stock issued per exercise of warrants, cashless 416,750 — — Common stock issued, pursuant to services provided 542,949 6,167,226 2.0 – 14.0 Conversion of preferred stock 11,376,536 2,844,134 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 six-month period ended June 30, 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. The Company satisfied its obligations under a note payable, initially maturing in September 2026, amounting to $ 6.2 million during April 2023. The Company paid $ 2 million and issued 574,713 shares of its common stock to satisfy such obligations, which generated a gain on extinguishment of debt of $ 1,201,857 . 17 Preferred Stock The Series A Preferred Stock was convertible at the holder’s option. The Company could repurchase shares of the Preferred Stock for $ 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 $ 27,876 to the Preferred Stock shareholders during the six-month period ended June 30, 2022. Holders of preferred stock converted 880,400 shares and 9,976,536 shares of preferred stock in the shares of common stock during the six-month ended June 30, 2023 and 2022, respectively. There were no shares of Series A Preferred Stock outstanding at June 30, 2023 and the Company terminated its designation of the Series A Preferred Stock. The Company has not designated any other preferred stock as of June 30, 2023. Restricted Stock A summary of the Company’s non-vested restricted stock units during the six-month ended June 30, 2023 and 2022 are as follows : SCHEDULE OF NON-VESTED RESTRICTED STOCK Shares Weighted Average Grant Due Fair Value Non-vested restricted stock units, January 1, 2023 $ 2,516,461 $ 8.39 Granted 2,955,900 3.08 Vested ( 1,689,901 ) 5.27 Forfeited ( 227,891 ) 10.71 Non-Vested restricted stock units, June 30, 2023 3,554,569 5.27 Non-vested restricted stock units, January 1, 2022 770,500 3.31 Granted 1,641,393 12.03 Vested ( 453,893 ) 8.44 Forfeited - - Non-vested restricted stock units on June 30, 2022 1,958,000 9.43 One RSU and RSA gives the right to one share of the Company’s common stock. RSU and RSAs that vest based on service and performance are measured based on the fair values of the underlying stock on the date of grant. The Company used a Lattice model to determine the fair value of the RSU with a market condition. Compensation with respect to RSU and RSA awards is expensed on a straight-line basis over the vesting period. Stock Options The following is a summary of the Company’s stock option activity during the six-month periods ended June 30, 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 - $ 6,472,400 Exercised ( 481,250 ) 1.34 –– $ –– Awards Granted in Period 1,370,150 3.3 - - Forfeited ( 1,693,750 ) - Awards expired ( 425,500 ) $ 4.0 - - - - - Outstanding, June 30, 2023 34,233,900 $ 7.6 3.15 $ 6,472,400 Exercisable, June 30, 2023 12,847,747 $ 4.4 2.47 $ 6,472,400 Options Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (In Years) Aggregate Intrinsic Value Outstanding, January 1, 2022 21,927,182 $ 3.36 4.07 $ 5,990,800 Exercised ( 481,250 ) 1.34 –– $ –– Granted 13,372,500 11.92 –– Forfeited ( 1,693,750 ) - Outstanding, June 30, 2022 33,124,982 $ 7.70 3.86 $ 2,802,488 Exercisable, June 30, 2022 23,313,995 $ 5.96 3.34 $ 2,952,013 18 Warrants Issued The following is a summary of the Company’s warrant activity during the three-month periods ended June 30, 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, June 30, 2023 2,063,522 $ 5.76 Number of Warrants Weighted Average Exercise Price Balance, January 1, 2022 2,127,895 $ 5.4 Exercised ( 535,000 ) — Issued 132,000 18.2 Forfeited ( 785,000 ) Balance, June 30, 2022 939,895 $ 9.66 Assumptions- Fair Value of Warrants and Options The Company issued options in connection for services during the six-month period ended June 30, 2023 and June 30, 2022. The Company issued warrants in connection with certain convertible promissory notes during the six-month period ended June 30, 2023, which are considered inducements to enter in 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 six-month period ended June 30, 2023 and options granted during the six-month period ended June 30, 2023 and 2022: SCHEDULE OF OPTIONS GRANTED UNDER BLACK SCHOLES PRICING MODEL ASSUMPTIONS June 30, 2023 June 30, 2022 Range Range Stock price $ 3.74 - 3.84 $ 2.0 - 14.0 Exercise price $ 3.74 - 3.84 $ 2.0 - 14.0 Expected life (in years) 3.5 - 5 yrs. 5 yrs. Volatility 48 - 54 % 40 - 54 % Risk-fee interest rate 3.51 - 5.02 % 1.37 - 1.96 % Dividend yield — — The Company cannot use its historical volatility as expected volatility because there is not enough liquidity in the 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 $ 39.1 million at June 30, 2023 and it is expected to be recognized over a weighted-average period of 3.6 years. Share-based payments amounted to $ 10,638,534 and $ 11,194,200 during the six-month periods ended June 30, 2023 and 2022, respectively. 19 NOTE 11 CONCENTRATIONS OF RISKS Major Customers The Company had no customers whose revenue individually represented 10% or more of the Company’s total revenue. The Company had one third-party payor accounts receivable balance representing 24 % of the Company’s total accounts receivable at June 30, 2023. 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 lighting and heating products sold primarily in the United States. NOTE 12 PROFORMA FINANCIAL STATEMENTS (unaudited) The following pro forma consolidated results of operations have been prepared as if the acquisition occurred on January 1, 2022: SCHEDULE OF PROFORMA CONSOLIDATED RESULTS OF OPERATION 2023 2022 2023 2022 Three-month period ended June 30, Six-month period ended June 30, 2023 2022 2023 2022 Revenues $ 20,416,569 $ 22,823,349 $ 39,031,541 $ 45,654,773 Net loss $ ( 10,362,183 ) $ ( 4,984,413 ) $ ( 18,802,429 ) $ ( 16,852,888 ) Basic and diluted loss per share $ ( 0.11 ) $ ( 0.06 ) $ ( 0.20 ) $ ( 0.20 ) Weighted average number of shares outstanding- basic and diluted 93,874,115 87,829,055 92,097,014 83,971,562 These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results to reflect, among other things, 1) additional amortization that would have been charged assuming the fair value adjustments to amortizable intangible assets had been applied, 2) the shares issued and issuable by the Company to acquire Belami, 3) fair value of the initial grant and options to Belami employees, and 4) the increase in interest expense related to the issuance of convertible notes payable, including amortization of debt discount. Furthermore, it excludes transaction costs related to the Belami acquisition. These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that would have resulted had the acquisition occurred on the date indicated or that may result in the future. NOTE 13 SUBSEQUENT EVENTS Management has evaluated subsequent events through August 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. 20