SKYX Platforms Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS SKYX PLATFORMS CORP. Consolidated Balance Sheets (Unaudited) March 31, 2024 (Audited) December 31, 2023 Assets Current assets: Cash and cash equivalents $ 14,146,785 $ 16,810,983 Restricted cash 2,750,000 2,750,000 Account receivable 3,932,008 3,384,976 Inventory 3,777,724 3,425,734 Deferred cost of revenues 245,734 224,445 Prepaid expenses and other assets 630,077 721,717 Total current assets 25,482,328 27,317,855 Long-term assets: Furniture and equipment, net 459,929 436,587 Restricted cash 2,892,878 2,869,270 Right of use assets 21,360,642 21,214,652 Intangibles, definite life 7,627,472 8,141,032 Goodwill 16,157,000 16,157,000 Other assets 204,807 204,807 Total long-term assets 48,702,728 49,023,348 Total Assets $ 74,185,056 $ 76,341,203 Liabilities and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable and accrued expenses $ 12,537,437 $ 12,388,475 Notes payable 5,865,829 5,724,129 Operating lease liabilities 2,160,938 1,898,428 Royalty obligation 800,000 800,000 Consideration payable 750,000 730,999 Deferred revenues 1,616,038 1,475,519 Convertible notes, related parties 600,000 825,000 Convertible notes — 350,000 Total current liabilities 24,330,242 24,192,550 Long term liabilities: Accounts payable and accrued expenses 950,358 744,953 Notes payable 764,333 1,016,924 Consideration payable — 3,038,430 Operating lease liabilities 22,161,824 22,267,558 Convertible notes 9,231,706 5,758,778 Convertible notes related parties 350,000 — Convertible notes 350,000 — Royalty obligations 2,900,000 3,100,000 Total long-term liabilities 36,358,221 35,926,643 Total liabilities 60,688,463 60,119,193 Stockholders’ Equity: Common stock and additional paid-in-capital: $ 0 par value, 500,000,000 shares authorized; and 97,096,897 and 93,473,433 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively 168,975,808 162,025,024 Accumulated deficit ( 155,479,215 ) ( 145,803,014 ) Accumulated other comprehensive loss — — Total stockholders’ equity 13,496,593 16,222,010 Total Liabilities and Stockholders’ Equity $ 74,185,056 $ 76,341,203 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) 2024 2023 For the three months ended March 31, 2024 2023 Revenue $ 18,977,821 $ 10,025 Cost of revenues 13,399,771 1,468 Gross profit (loss) 5,578,050 8,557 Selling and marketing expenses 6,526,816 1,299,859 General and administrative expenses 7,939,581 5,948,346 Total expenses, net 14,466,397 7,248,205 Loss from operations ( 8,888,347 ) ( 7,239,648 ) Other income / (expense) Interest expense, net ( 787,854 ) ( 730,621 ) Gain on extinguishment of debt — — Other income — — Total other expense, net ( 787,854 ) ( 730,621 ) Net loss ( 9,676,201 ) ( 7,970,269 ) Other comprehensive loss: Unrealized loss on debt securities — 57,494 Net comprehensive loss attributed to common stockholders $ ( 9,676,201 ) $ ( 7,912,775 ) Net loss per share - basic and diluted $ ( 0.10 ) $ ( 0.10 ) Weighted average number of common shares outstanding – basic and diluted 95,091,003 82,965,182 The accompanying notes are an integral part of the unaudited consolidated financial statements. 5 SKYX Platforms Corp. Consolidated Statements of Stockholders’ Equity (Unaudited) 2024 2023 For the three months ended March 31, 2024 2023 Shares of common stock Balance, beginning of period $ 162,025,024 $ 114,039,638 Balance, beginning of period 93,473,433 82,907,541 Common stock issued pursuant to offerings 2,733,361 — Common stock issued pursuant to services 890,103 282,188 Balance, end of period 168,975,808 122,573,318 Balance, end of period 97,096,897 83,189,729 Common stock and paid-in capital Balance, beginning of period $ 162,025,024 $ 114,039,638 Common stock issued pursuant to offerings 3,655,755 — Common stock issued pursuant to services 3,295,029 2,963,702 Debt discount — 5,569,978 Balance, end of period $ 168,975,808 $ 122,573,318 Accumulated Deficit Balance, beginning of period $ ( 145,803,014 ) $ ( 106,070,358 ) Net loss ( 9,676,201 ) ( 7,970,269 ) Balance, end of period $ ( 155,479,215 ) $ ( 114,040,627 ) Accumulated other comprehensive loss Balance, beginning of period $ — $ ( 62,147 ) Unrealized gain on debt securities — 57,494 Balance, end of period — ( 4,653 ) Balance $ 16,222,010 $ 7,907,133 Net loss ( 9,676,201 ) ( 7,970,269 ) Total stockholders’ equity $ 13,496,593 $ 8,528,038 Balance $ 13,496,593 $ 8,528,038 The accompanying notes are an integral part of the unaudited consolidated financial statements. 6 SKYX Platforms Corp. Consolidated Statements of Cash Flows (Unaudited) 2024 2023 For the three months ended March 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 9,676,201 ) $ ( 7,970,269 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,060,571 497,373 Amortization of debt discount 228,499 143,257 Non-cash equity-based compensation expense 3,295,029 2,963,702 Change in operating assets and liabilities: Inventory ( 351,990 ) ( 178,780 ) Accounts receivable ( 547,032 ) — Prepaid expenses and other assets 91,640 ( 45,501 ) Deferred charges ( 21,289 ) — Deferred revenues 140,519 — Operating lease liabilities ( 505,920 ) ( 171,963 ) Accretion operating lease liabilities — 245,009 Royalty obligation ( 200,000 ) — Accounts payable and accrued expenses 303,866 398,183 Net cash used in operating activities ( 6,182,308 ) ( 4,118,989 ) Cash flows from investing activities: Purchase of debt securities — ( 136,033 ) Purchase of property and equipment ( 53,647 ) ( 306 ) Payment of patent costs and other intangibles — ( 33,559 ) Net cash used in investing activities ( 53,647 ) ( 169,898 ) Cash flows from financing activities: Proceeds from issuance of common stock- offerings 3,655,755 — Proceeds from issuance of convertible notes — 10,350,000 ) Principal repayments of notes payable ( 60,390 ) ( 893 ) Net cash provided by financing activities 3,595,365 10,349,107 Change in cash, cash equivalents and restricted cash ( 2,640,590 ) 6,060,221 Cash, cash equivalents, and restricted cash at beginning of period 22,430,253 9,461,597 Cash, cash equivalents and restricted cash at end of period $ 19,789,663 $ 15,521,818 Supplementary disclosure of non-cash financing activities: Substitution of consideration payable to convertible notes $ 3,117,408 $ — Debt discount — $ 5,569,978 Right-of-use assets and operating lease liabilities 662,698 — Cash paid during the period for: Interest $ 641,647 $ 711,648 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 Sacramento, California, 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 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 the Company has expanded the capabilities of its power-plug product, to include its second generation 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 third-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. Since April 2023, the Company also markets home lighting, ceiling fans and other home furnishings from third parties. Going Concern The Company’s liquidity sources include $ 19.7 million in cash and cash equivalents, including restricted cash of $ 5.6 million, and $ 1.2 million of working capital as of March 31, 2024. However, the Company has a history of recurring operating losses and its net cash used in operating activities amounted to $ 6.2 million and $ 4.1 million during the three months ended March 31, 2024 and March 31, 2023, respectively. The Company has also generated net cash provided by financing activities of $ 3.6 million and $ 10.3 million during the three months ended March 31, 2024 and 2023, respectively. Accordingly, the Company’s management cannot ascertain that there is no substantial doubt that it will be able to meet its obligations as they become due within one year after the date that its financial statements are issued. Management intends to mitigate such conditions by supporting its continued growth, decreasing its cash used in operating activities through increased revenues and increased margins from products sold to large retailers and its internet portals, and to the extent necessary, generate cash provided by financing activities through its at the market (“ATM”) offering or other equity or debt financing means. 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, 2024 and for the three months ended March 31, 2024 and 2023 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, 2023 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, 2023 for additional disclosures and accounting policies. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future nonconforming events. Accordingly, actual results could differ significantly from estimates. Reclassifications For comparability, reclassifications of prior-year balances were made to conform with current-year presentations, such as sales and marketing expenses which were previously included in selling, general, and administrative expenses in the 2023 comparable period. Basis of Consolidation The consolidated financial statements include the results of the Company and one of its subsidiaries, SQL Lighting and Fans LLC from January 1, 2023 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 2023. All intercompany balances and transactions have been eliminated in consolidation. 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. The Company’s cash composition was as follows: SCHEDULE OF CASH EQUIVALENTS AND RESTRICTED CASH March 31, 2024 December 31, 2023 Cash and cash equivalents $ 14,146,785 $ 16,810,983 Restricted cash 5,642,878 5,619,270 Total cash, cash equivalents and restricted cash $ 19,789,663 $ 22,430,253 Restricted Cash The Company issued a letter of credit of $ 2.8 million in September 2023 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 $ 2.8 million as of March 31, 2024 and December 31, 2023. 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 receivables are recorded in the period when the right to receive payment or other consideration becomes unconditional. Accounts receivables 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 March 31, 2024, and December 31, 2023, the Company’s allowance for doubtful accounts was $ 54,987 and $ 54,987 , respectively. The Company determines an allowance for sales returns based upon historical experience. As of March 31, 2024, and December 31, 2023, the Company’s allowance for sales returns was $ 185,501 and $ 182,584 , respectively and is recorded as 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 balance sheet. Deferred revenues amounted to $ 1,616,038 and $ 1,475,519 as of March 31, 2024 and December 31, 2023, respectively. The costs associated with such deferred revenues are recognized as deferred charges in the accompanying balance sheet. Such charges include the carrying value of related inventory, freight, and sales charges. The deferred charges amounted to $ 245,734 and $ 224,445 as of March 31, 2024 and December 31, 2023, respectively. 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 Match 31, 2024 December 31, 2023 Inventory, component parts $ 2,944,213 $ 2,230,252 Inventory, finished goods 2,133,511 2,495,482 Allowance ( 1,300,000 ) ( 1,300,000 ) Inventory-total 3,777,724 3,425,734 The Company will maintain an allowance based on specific inventory items that have shown no activity over a reasonable period of time. The Company tracks inventory as it is repurposed, disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. The Company has recorded an allowance of $ 1.3 million as of March 31, 2024 and December 31, 2023. GE Agreements The Company has two U.S. and global agreements with General Electric (“GE”) related to the Company’s products. ● A U.S. and Global Licensing and Master Service Agreement dated December 4, 2023, which replaced a prior agreement under similar terms. The agreement expires on December 4, 2028 and includes automatic renewal provisions. Pursuant to such agreement, GE’s licensing team has the rights to exclusively license certain of the Company’s Standard and Smart plug-and-play products set forth in a statement of work in the U.S. and worldwide. Pursuant to the agreement, the Company expects 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, the Company 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. ● A letter agreement dated November 28, 2023. The agreement expires on December 15, 2027 and includes a repayment plan relating to certain amounts due under the U.S. and Global Trademark Agreement dated June 15, 2011 (as later amended), which expired November 30, 2023, between SQL Lighting & Fans, LLC and GE Trademark Licensing, Inc. Under this new payment arrangement, the Company was required to pay a revised royalty payment obligation of $ 2.7 million in the aggregate (the “Royalty Payment”), payable in quarterly installments beginning on December 15, 2023 and ending on December 15, 2026 and an additional obligation equal to either a $ 1 million convertible promissory note, subject to agreement on terms, or otherwise $ 1.4 million payable in 2027. As of March 31, 2024, the Company owed $ 3.7 million in royalty payment obligations. On April 11, 2024, the Company amended the payment arrangement and issued a convertible promissory note, (the “GE Note ” ) , for the additional obligation, thereby reducing the payment obligations by $ 400,000 . A detailed description of the GE Note is set forth in Note 7 below. 9 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 stocks, 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-month ended March 31, 2024, and 2023, 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 as of March 31, 2024, and March 31, 2023: SCHEDULE OF ANTI-DILUTIVE COMMON STOCK EQUIVALENTS March 31, 2024 March 31, 2023 Stock warrants 2,049,147 2,063,522 Stock options 36,156,476 33,114,250 Convertible notes 5,487,260 3,536,668 Preferred stock – 880,400 Total 43,692,883 39,594,840 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. NOTE 3 FURNITURE AND EQUIPMENT Furniture and equipment consisted of the following: SCHEDULE OF FURNITURE AND EQUIPMENT March 31, 2024 December 31, 2023 Machinery and equipment $ 391,895 $ 282,799 Computer equipment 6,846 6,846 Furniture and fixtures 36,059 36,059 Tooling and production 672,509 642,509 Software development costs 219,076 109,096 Leasehold improvements 30,553 30,553 Total 1,356,938 1,107,862 Less: accumulated depreciation ( 897,009 ) ( 671,275 ) Total, net $ 459,929 $ 436,587 Depreciation expense amounted to $ 30,305 and $ 22,141 during the three-month ended March 31, 2024 and 2023, respectively. NOTE 4 INTANGIBLE ASSETS AND GOODWILL Intangible assets consisted of the following: SCHEDULE OF INTANGIBLE ASSETS March 31, 2024 December 31, 2023 Patents and trademarks (useful life 15 years) $ 931,831 $ 1,040,927 Customer relationships (useful life 7 years) 4,500,000 4,500,000 E-commerce technology platforms (useful life 4 years) 3,900,000 3,900,000 Total 3,900,000 3,900,000 Less: accumulated amortization $ ( 1,704,359 ) ( 1,299,895 ) Total, net $ 7,627,472 $ 8,141,032 Amortization expense on intangible assets amounted to $ 513,559 and $ 14,307 during the three-month ended March 31, 2024 and 2023, respectively. The following table sets forth the estimated amortization expense for the next five years: SCHEDULE OF INTANGIBLE ASSETS AMORTIZATION EXPENSE FOR FUTURE Nine months ended December 31, 2024 $ 1,269,150 2025 1,673,613 2026 1,673,613 2027 1,511,113 2028 698,613 2029 698,613 10 NOTE 5 DEBTS The following table presents the details of the principal outstanding: SCHEDULE OF DEBT March 31, 2024 December 31, 2023 APR at March 31, 2024 Maturity Collateral Convertible Notes (b,c) 14,642,909 11,525,000 6.00 – 10.00 % September 2023-March 2026 Substantially all company assets Notes payable to financial institutions a) 6,233,624 6,348,104 7.93 - 8.5 August 2024-August 2026 Inventory, accounts receivable, cash Notes payable to Belami sellers 251,516 247,927 4.86 % April 2024 – SBA-related loans 145,022 145,022 3.75 % April 2025-November 2052 Substantially all Company assets Total $ 21,273,071 $ 18,266,053 Unamortized debt discount ( 4,410,702 ) ( 4,591,222 ) Debt, net of Unamortized debt Discount 16,862,369 13,674,831 SCHEDULE OF INTEREST EXPENSE For the three-month period ended March 31, 2024 March 31, 2023 Interest expense $ 787,854 $ 730,621 As of March 31, 2024, the expected future principal payments for the Company’s debt are due as follows: SCHEDULE OF FUTURE PRINCIPAL PAYMENTS Nine-months ended December 31, 2024 $ 6,334,514 2025 4,086,855 2026 10,582,955 2027 3,040 2028 and thereafter 134,392 Total $ 21,273,071 (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 and an officer. The notes each have the following terms: three-year subordinated convertible promissory note of principal face amounts. Subject to other customary terms, one of the convertible promissory note of $ 600,000 payable to a director matured in 2023, and the other remaining convertible promissory notes mature in May 2025, bear interest at an annual rate of 6 % through December 2023 and 10 % thereafter, 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 notes are convertible at the option of the holder into shares of common stock at a conversion price ranging from $ 3 to $ 15 per share. During 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 noteholders at an adjusted exercise price of $ 2.70 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 $ 228,499 as amortized debt discount during the three months ended March 31, 2024, and it is reflected as interest expense in the accompanying unaudited consolidated statement of operations. Only the convertible promissory notes issued during fiscal 2023 are secured by substantially all of the assets of the Company. (c) On March 29, 2024, the Company and the Belami sellers entered into a letter agreement modifying certain obligations under the stock purchase agreement. In connection with the letter agreement, the Company issued convertible promissory notes to each of the sellers (the “Seller Note(s)”) in substitution of an aggregate of $ 3,117,408 in cash due to the sellers on the first anniversary of the closing. Each seller received a Seller Note in an amount of $ 1,039,303 on the same date. In addition to other customary terms, the Seller Notes bear annual interest at 10 %, with interest and principal becoming due on May 16, 2025 , and can be converted by the sellers at any time at $ 3.00 per share of our common stock. 11 NOTE 6 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 in 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 the same amount of cash. In January 2024 the Belami, subsidiary of SKYX entered in a 35-month lease related to its Sacramento office. The Company recognized a right-of-use asset and a liability of $ 662,698 pursuant to such lease. 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, 2024: SCHEDULE OF LEASE COST OPERATING LEASE March 31, 2024 Lease costs: Cash paid for operating lease liabilities $ 505,920 Right-of-use assets obtained in exchange for new operating lease obligations $ 21,360,642 Fixed rent payment $ 300,933 Lease – Depreciation expense $ 516,707 years ended March 31, 2024 Other information: Weighted-average discount rate 6.41 % Weighted-average remaining lease term (in months) 107 SCHEDULE OF MINIMUM LEASE OBLIGATION Minimum Lease obligation Nine months ended December 31, 2024 $ 1,595,397 2025 2,346,540 2026 2,589,372 2027 2,288,363 2028 and thereafter 15,703,089 Total $ 24,522,761 NOTE 7 ROYALTY OBLIGATIONS The Company had a license agreement with General Electric (“GE”) which provided, 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 agreement expired in 2023. The Company owes $ 2.5 million to GE pursuant to the license agreement. The payments associated with this debt are payable in quarterly tranches aggregating $ 0.8 million during 2024 and 2025 and $ 0.9 million in 2026. Additionally, the Company owes an additional amount of $ 1.4 million pursuant to its agreements with GE which is payable in 2027. During April 2024, GE and the Company agreed to reduce the additional amount of $ 1.4 million by $ 400,000 in exchange for the issuance of a convertible promissory note of $ 1.0 million. The GE Note does not bear interest and the principal amount of the Note is convertible into shares of the Company’s common stock at any time at the option of the holder at $ 1.07 per share. The Company may prepay the entire then-outstanding principal amount of a Note at any time, plus a prepayment premium; if the Company exercises such right, the Note holder may instead elect to convert the Note into shares of common stock. The Note also provides for certain piggyback registration rights. 12 NOTE 8 ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following: SCHEDULE OF ACCRUED EXPENSES March 31, 2024 December 31, 2023 Accrued interest, convertible notes $ 950,358 $ 744,953 Trade payables 11,238,517 11,513,918 Accrued compensation 1,248,419 874,557 Total $ 13,437,294 $ 13,133,428 NOTE 9 RELATED PARTY TRANSACTIONS Convertible Notes Due to Related Parties Convertible notes due to related parties represent amounts provided to the Company from a director and the Company’s Co-Chief Executive Officers. The outstanding principal on the convertible promissory notes, associated with related parties was $ 950,000 as of March 31, 2024, and December 31, 2023 and accrued interest of $ 272,824 and $ 151,081 , respectively. NOTE 10 STOCKHOLDERS’ EQUITY (A) Common Stock The Company issued the following common stock during the three months ended March 31, 2024, and 2023: SCHEDULE OF COMMON STOCK Transaction Type Shares Issued Valuation $ Range of Value Per Share $ March 31, 2024 Equity Transactions Common stock issued, pursuant to services provided 890,103 3,295,029 1.27 - 1.68 Issuance of common stock pursuant to offering, net 2,733,361 3,655,755 1.25 - 1.64 Transaction Type Shares Issued Valuation ($) Range of Value Per Share ($) March 31, 2023 Equity Transactions Common stock issued, pursuant to services provided 282,188 2,963,702 2.52 – 3.56 As of March 31, 2024, the remaining amount to be used under the ATM offering program is $ 6.5 million. (B) Preferred Stock The following is a summary of the Company’s Preferred Stock activity during the three months ended March 31, 2023: SCHEDULE OF PREFERRED STOCK ACTIVITY Transaction Type Quantity Carrying Value Value per Share ($) Preferred Stock Balance at December 31, 2022 880,400 $ 220,099 $ 0.25 Preferred Stock redemptions — — — Preferred Stock Balance at March 31, 2023 880,400 $ 220,099 $ 0.25 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 had 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 was classified as mezzanine equity rather than permanent equity. 13 There were no shares of Series A Preferred Stock outstanding at March 31, 2024 and the Company terminated its designation of the Series A Preferred Stock in May 2023. The Company has not designated any other preferred stock as of March 31, 2024. (C) Stock Options The following is a summary of the Company’s stock option activity during the three month ended March 31, 2024 and 2023: SCHEDULE OF STOCK OPTION ACTIVITY Options Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (In Years) Aggregate Intrinsic Value Outstanding, January 1, 2024 35,805,976 $ 7.33 –– $ 2,037,200 Exercised – – – – –– –– Granted 540,000 1.63 –– — Forfeited ( 189,500 ) 2.89 — — Expired — Outstanding, March 31, 2024 36,156,476 $ 7.3 2.58 $ 2,037,200 Exercisable, March 31, 2024 13,892,937 $ 4.54 2.07 $ 2,034,525 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 — — Expired 175,000 3.0 — — 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 The following table summarizes the range of the Black Scholes pricing model assumptions used by the Company during three month ended March 31, 2024 and 2023: SCHEDULE OF BLACK SCHOLES PRICING MODEL March 31, 2024 March 31, 2023 Range Range Stock price $ 1.76 $ 3.74 - 3.84 Exercise price $ 0 - 14 $ 3.0 Expected life (in years) 2.87 yrs. 5 yrs. Volatility 37 % 42 % Risk-fee interest rate 4.10 % 5.02 % 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 $ 13.9 million (excluding certain market-based options which management cannot ascertain to have a probable outcome amounting to $ 63 million) at March 31, 2024 and it is expected to be recognized over a weighted-average period of 2 years. 14 (D) Warrants Issued The following is a summary of the Company’s warrant activity during three month ended March 31, 2024 and 2023: SCHEDULE OF WARRANT ACTIVITY Number of Warrants Weighted Average Exercise Price Balance, January 1, 2024 2,063,522 $ 5.76 Issued — — Exercised — — Forfeited ( 14,375 ) — Balance, March 31, 2024 2,049,147 $ 5.45 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 During the three months ended March 31, 2024, the Company did not issued any warrants. During the three months ended March 31, 2023 as an inducement to enter certain financing transactions, the Company issued 1,391,667 3 - year warrants to the noteholders at an adjusted exercise price of $ 2.70 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. (D) Restricted stock units A summary of the Company’s non-vested restricted stock units during the three months ended March 31, 2024 and 2023 are as follows: SCHEDULE OF NON-VESTED RESTRICTED STOCK Shares Weighted Average Grant Due Fair Value Non-vested restricted stock units, January 1, 2024 4,919,702 $ 4.21 Granted 600,000 1.76 Vested ( 770,888 ) 3.79 Forfeited ( 13,834 ) 1.52 Non-Vested restricted stock units, March 31, 2024 4,734,980 $ 3.98 Non-vested restricted stock units, January 1, 2023 2,516,461 $ 8.39 Granted 9,096 3.29 Vested ( 540,188 ) 10.73 Forfeited ( 5,400 ) 11.4 Non-vested restricted stock units on March 31, 2023 1,979,969 $ 7.87 The weighted-average remaining contractual life of the restricted units as of March 31, 2024 is 1.3 years. One RSU gives the right to receive one share of the Company’s common stock. RSUs 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. During the three months ended March 31, 2024, and 2023, the Company recognized compensation expense of $ 3,295,029 , and $ 2,963,702 , respectively, related to stock options, RSUs and RSAs. 15 NOTE 11 CONCENTRATIONS OF RISKS Major Customers and Accounts Receivable The Company had no customers whose revenue individually represented 10% or more of the Company’s total revenue during the three months ended March 31, 2024 and 2023. The Company had one third-party payor accounts receivable balance representing 24 % of the Company’s total accounts receivable at March 31, 2024 and none at March 31, 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 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, 2023: SCHEDULE OF PROFORMA CONSOLIDATED RESULTS OF OPERATION 2023 Three-month period ended March 31, 2023 Revenues $ 18,636,969 Net loss $ ( 10,349,191 ) Basic and diluted loss per share $ ( 0.11 ) Weighted average number of shares outstanding- basic and diluted 90,601,616 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 May 14, 2024, which is the date the consolidated financial statements were available to be issued. There were no significant subsequent events that required adjustment to or disclosure in the unaudited consolidated financial statements. 16