SKYX Platforms Corp. 10-K

ITEM 1. BUSINESS Overview We are a company engaged in the business of developing proprietary technology that enables a quick and safe installation of electronics, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes by the use of a weight-bearing power plug. Our patented technology consists of a fixable socket and a revolving plug for conducting electric power and supporting an electrical appliance attached to a wall or ceiling. The socket is comprised of a non-conductive body that houses conductive rings connectable to an electric power supply through terminals in its side exterior. The plug, also comprised of a non-conductive body that houses corresponding conductive rings, attaches to the socket via a male post and is capable of feeding electric power to an appliance. The plug also includes a second structural element allowing it to revolve with a releasable latching which, when engaged, provides a retention force between the socket and the plug to prevent disengagement. The socket and plug can be detached by releasing the latch, disengaging the electric power from the plug. The socket is designed to replace the support bar incorporated in electric junction boxes, and the plug can be installed in light fixtures, ceiling fans, wall sconce fixtures and other electrical devices. Once installed, the socket can remain affixed to the junction box, enabling any electronic fixture installed with the plug to be connected and/or removed in seconds. The combined socket and plug technology is referred to throughout this prospectus as “the SQL Technology”. Corporate History and Information SQL Technologies Corp. (f/k/a Safety Quick Lighting & Fans Corp.), a Florida corporation (the “Company”), was originally organized in May 2004 as a limited liability company under the name of Safety Quick Light, LLC. The Company was converted to corporation on November 6, 2012. Effective August 12, 2016, the Company changed its name from “Safety Quick Lighting & Fans Corp.” to “SQL Technologies Corp.” The Company holds several worldwide patents and has received a variety of final electrical code approvals, including Underwriters Laboratories (UL), United Laboratories of Canada (cUL) and C onformité E uropéene (CE), and 2017 inclusion in the National Electrical Code book issued by the National Fire Protection Association. The Company maintains offices at 4400 North Point Parkway, Suite 265, Alpharetta, Georgia, 30022 (our principal executive office); 2855 W. McNab Road, Pompano Beach, FL 33069; and Fochan, Peoples Republic of China. Our telephone number is (770) 754-4711. Our web address is http://www.skyplug.com. Product The Company currently sells ceiling fans and lighting fixtures manufactured under General Electric’s guidance and branded with the General Electric logo. We offer unique designs that are manufactured with and without the SQL Technology. The Company is currently in the process of transitioning its product portfolio to advanced technologies, along with a new sales methods and marketing strategy, which will include unique, innovative advanced technologies (the “Smart SQL”). The SQL Technology The SQL Technology is basically characterized as a mounting receptacle that is affixed to electrical junction boxes and an attachment fitting plug that is installed in wall and ceiling lighting fixtures and ceiling fans. The SQL Technology replaces the traditional mounting bar found in existing electrical junction boxes, converting the mounting system into a weight bearing plug with no exposed wires. Using the SQL Technology, lighting fixtures and ceiling fans can be installed in minutes, transforming the lighting fixture and ceiling fan devices into plug-and-play electronics. Professional electricians as well as “Do it Yourself” installers will benefit from our technology. The SQL Technology is Underwriters Laboratories (UL), cUL and CE approved and achieved National Electrical Code (NEC) (or NFPA 70) status in 2017. Our SQL Technology is comprised of two parts: a ‘female’ socket receptacle that is secured to existing electrical junction boxes, into which electrical and ground wires are simply inserted and secured into terminals on the device. The receptacle is easily attached to the junction box. The ‘male’ plug fitting is preinstalled on a lighting fixture or ceiling fan. Lighting fixtures or ceiling fans with the SQL Technology can be literally installed in seconds. Our manufacturing plan calls for the SQL Technology to be pre-installed in all types of lighting fixtures, including holiday themed lighting, and ceiling fans. In February 2015, we received an updated Underwriters Laboratories (UL) Listing for the SQL Technology, which expanded the type of products that we will be able to use with the SQL Technology. This listing expanded the voltage and amperage rating of our product and allows for additional fixtures, such as heating elements to be incorporated into our ceiling fans. 1 We have been working with several well-established factories producing ceiling fans and lights in Peoples Republic of China. Most, if not all, of these factories have been in business for over 20 years and follow strict human rights and sustainability protocols. Intellectual Property We rely on a combination of copyright, trademark and trade secret laws as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand. We enter into confidentiality and proprietary rights agreements with our employees, consultants and other third parties. We protect the SQL Technology through the use of an intellectual property protection strategy that is focused on patent protection. As of July 15, 2016, we have three issued U.S. patents relating to our quick connect device for electrical fixtures. We also have patents in China (two issued patents) and India (one issued patent and one pending patent application), which protects different aspects of the same SQL Technology as the three issued U.S. patents. The Company sought intellectual property protection of the SQL Technology in China due to its current manufacturing operations and prospective sales in China’s market and sought protection in India in anticipation of future growth into India’s developing market, both with respect to the sales of the SQL Technology and potential operations of the Company. We intend to diligently maintain this intellectual property protection for the SQL Technology. The issued patents are directed to various aspects of our plug and socket combination that comprise the quick connect device. The issued patents provide patent protection for our quick connect device, regardless of the electrical fixture or electric powered product used with the quick connect device. As further innovations are developed, we intend to seek additional patent protection to enhance our competitive advantage. Company Name Change The development of smart home applications into the SQL Technology inspired management to change the Company’s name to one that better denotes the diversification in its product line introduced by the inclusion of its Smart SQL. The Company’s Board of Directors (the “Board”), and on June 8, 2016, a majority of the shareholders of the Company, approved a name change from Safety Quick Lighting & Fans Corp. to SQL Technologies Corp. Henceforth, further reference to the Company will be “SQL Technologies Corp.” or the “Company”. 2 Our Business Model and Strategy Safety Quick Light LLC, a subsidiary of the Company, began marketing the SQL Technology in 2007 for installation in light fixtures and ceiling fans during manufacturing and as a kit for installing the SQL Technology in existing light fixtures and ceiling fans. The Company sold approximately 800,000 units of the SQL Technology to lighting manufacturers and retailers who installed the socket and plug technology into their lighting fixtures for sale at retail stores. The Company also sold 100,000 ceiling fans with the SQL Technology embedded into the product directly to retailers. With the achievement of the License Agreement with General Electric (as defined below), our management team determined that it could improve its gross margins if it were to market light fixtures and ceiling fans with the SQL Technology preinstalled, instead of marketing the SQL Technology solely as an add-on device. Our management team also determined that it might be necessary to offer light fixtures and ceiling fans under the License Agreement without the SQL Technology for initial orders from big box retailers, to achieve acceptance as a supplier and to provide retailers time to determine market demand for the GE labeled products (collectively, our “Business Model”). During the first quarter of 2010, the Company’s management took the first of several steps toward implementing our Business Model and discontinued marketing the SQL Technology solely as an add-on device. To further support the Company’s marketing efforts to its target market, it entered into a sales and marketing agreement with Design Solutions International, Inc. (“DSI”), a privately held, lighting industry design and marketing firm, which was acquired by NBG Home, a leading global designer, manufacturer and marketer of home décor products, in 2015. In the latter half of 2016, the Company took further steps to bolster its sales and marketing effort by hiring former General Electric electronic and lighting industry executives. The License Agreement The Company sought the endorsement of the SQL Technology from General Electric. During 2010 and 2011, GE tested the SQL Technology and in June 2011, GE and SQL Lighting & Fans, LLC, a subsidiary of the Company, entered into a trademark licensing agreement (the “License Agreement”) under which SQL Lighting & Fans, LLC was licensed to use the GE monogram logo on its devices and certain other trademarks on its ceiling fans and light fixtures. The License Agreement was amended in April 2013 to extend its term through December 31, 2017 and to revise the required minimum license fees, and in July 2014 to remove minimum license fees for 2014. The License Agreement was further amended in August 2014 to, among other things, extend the term through November 30, 2018 and set forth a new royalty calculation beginning December 1, 2013 and continuing through the term of the License Agreement. The current License Agreement provides that royalties due to GE will be tiered, based on a declining percentage as net sales increase in each Contract Year, paid quarterly, as follows: 3 Net Sales in Contract Year Royalty as a Percentage of Net Sales $0 - $50,000,000 7 % $50,000,001 - $100,000,000 6 % $100,000,001+ 5 % Net Sales Made Quarterly Payment Due Date December 1 through February 28/29 26-Mar March 1 through May 30 26-Jun June 1 through August 31 26-Sep September 1 through November 30 26-Dec The Company is obligated to pay to GE a royalty minimum of $12,000,000 in the aggregate during the term of the License Agreement. If, at the end of the term of the License Agreement, the total of all royalty payments paid pursuant to the License Agreement does not total $12,000,000, the Company must pay to GE the difference between $12,000,000 and the amount of royalties actually paid to GE through the end of the term of the License Agreement. Trade Distribution Channels In furtherance of our Business Model, the Company sought to establish trade distribution channels with key retailers. In July 2012, the Company entered into a sales and marketing agreement with Design Solutions International, Inc. (“DSI”), a privately held, lighting industry design and marketing firm. In 2015, DSI was acquired by NBG Home, a leading global designer, manufacturer and marketer of home décor products (the “DSI Agreement”). Under the terms of the DSI Agreement, which remains in effect, DSI serves as the Company’s exclusive sales representative for all its products and goods in the United States and Canada. For its services, DSI receives a commission based on net sales. In addition to DSI’s sales and marketing support, the Company’s products will also be sold through GE’s lighting sales group as a condition of the License Agreement. With the recent addition of lighting and electronic sales and marketing professionals to its management team, the Company is further strengthening its distribution efforts to key retailers and expanded its target market to include commercial entities such as home builders and hotels. Third Party Manufacturing The Company’s Business Model entails the use of third party manufactures to produce the SQL Technology and the ceiling fans and light fixtures in which SQL Technology is imbedded. The manufacturers currently used by the Company are located in Guangdong province of China and with respect to products that bear the GE logo, as required by the Licensing Agreement with GE, such manufacturers must be approved by GE to ensure quality standards are met. To further ensure that quality specifications are maintained, the Company maintains an office in the Guangdong province staffed with GE trained auditors who will regularly inspect its products produced by the third-party manufacturer. Line of Credit On April 13, 2016, the Company entered into a Line of Credit Promissory Note with a third party (the “Line of Credit”) in the principal sum of up to ten million U.S. Dollars (US $10,000,000) to support purchase orders, inventory and general working capital needs. On January 31, 2018, the Company entered into an agreement to extend the Line of Credit through January 10, 2019. The Company may draw and/or repay this Line of Credit from time to time until the maturity hereof. The note provides for monthly payments of interest at nine percent (9%) per annum on outstanding principal and matures on January 10, 2019, at which time the full principal amount and accrued but unpaid interest become due. 4 Management and Personnel Beginning in 2015 and throughout 2017, Rani Kohen, the Company’s founder and executive chairman, entrepreneur, and inventor of the SQL Technology, began building the Company’s sales and marketing team by hiring electronic and lighting industry executives, many of whom had previously worked at General Electric. John Campi, former executive vice president of Chrysler and senior vice president of procurement and vendor management for Home Depot and DuPont, as its chief executive officer; Patricia Barron, former president of LTG Services (a product compliance safety testing company), as chief operating officer; Michael Perrillo, former CEO of DSI, joined the Company as a full-time consultant to enhance and expand sales objectives, particularly toward construction/home builders, hotels and other sales channels that the Company is targeting. Mark Wells, former General Manager of Consumer Lighting for GE, joined the Company in August 2016 as our President. In addition, through 2017 we hired John Poole, former general manager of sales for GE Lighting, as Vice President of Retail Sales; Steve Briggs, former general manager of Global Product Lighting for GE, as Senior Vice President of Product Development. The Company also began building its accounting IT infrastructure and internal controls with the hiring of Julio Plutt, CPA, a former auditor with KPMG as Executive VP of Accounting & Finance During 2017, the Company continued to expand its staff and team of engineers to develop the SQL Technology and Smart SQL. Capital Fundraising, Previous Offerings and Stock Sales In 2013 and 2014, the Company obtained capital resources necessary to begin implementation of its Business Model pursuant to the Notes Offering (as defined below), and during 2016 and 2017, through additional stock offering and private sales, the Company obtained additional capital resources to further implement its Business Model. The Notes and Warrants Offering; Issuance of Series A Preferred Stock From November 2013 through June 2014, the Company raised capital resources pursuant to an offering (the “Notes Offering”) of its 12% and 15% Secured Convertible Promissory Notes, convertible into shares of Common Stock at $0.25 per share (each a “Convertible Note” and collectively, the “Convertible Notes”), and five (5) year Common Stock warrants to purchase shares of Common Stock at $0.375 per share (each a “Note Warrant” and collectively, the “Note Warrants”). On November 26, 2013, May 8, 2014 and June 25, 2014 we concluded closings of the Notes Offering with certain accredited investors (which in all cases herein, is as defined under Regulation D, Rule 501 of the Securities Act), in the aggregate principal amount of $4,270,100. Investors in the Notes Offering also received registration rights, whereby the Company agreed to prepare and file a registration statement registering the shares underlying the Convertible Notes and Note Warrants within sixty (60) days after the applicable closing, and to cause such registration statement declared effective by the SEC within ninety (90) days thereafter (the “Note RRAs”). Notes Offering Related Issuances Pursuant to a letter agreement, dated January 23, 2015, between the Company and most holders of the November 26, 2013 and May 8, 2014 Convertible Notes, the Company issued 2,343,191 shares of Common Stock upon conversion of the following amounts, as applicable, at a price of $0.25 per share: (i) penalties accrued under the Note RRAs, because the Company was unable to file a registration statement and to have it declared effective on time, pursuant to the terms of the Note RRAs dated as of November 26, 2013 or May 8, 2014; (ii) interest accrued pursuant to an Agreement and Waiver, dated December 11, 2014, between the Company and most holders of the November 26, 2013 Convertible Notes, which extended the due date for the first interest payment under such holders’ Convertible Notes for 90 days, in exchange for capitalization of such interest due at a rate of 12% per annum; and (iii) the first interest payment due under each such holder’s November 26, 2013 Convertible Note. 5 Forbearance Between November 2015 and July 2016, most holders of the Convertible Notes agreed to forbear making an election under their respective Convertible Notes until (ultimately) August 15, 2016, pursuant to one or more forbearance agreements, as applicable, during such time interest under their respective Convertible Notes continued to accrue. Interest amounts due through August 15, 2016 were paid in full by such date. The August 2016 Series A Preferred Stock Election In July 2016, the Company requested that each holder of Convertible Notes indicate its election to (i) redeem its Convertible Note, (ii) convert its Convertible Note into shares of Common Stock or (iii) convert its Convertible Note into shares of Series A Preferred Stock (the “Preferred Option”), in each case by August 15, 2016. For those holders electing the Preferred Option, each holder received shares of Series A Preferred Stock on a 1 to 1 ratio to the number of shares of Common Stock which were then convertible as unpaid principal under such holder’s respective Convertible Note. The Series A Preferred Stock is convertible into shares of Common Stock at the same conversion price as the Convertible Notes (i.e., USD $0.25 per share), and pays dividends quarterly at a rate of six percent (6%). The Series A Preferred Stock will be convertible upon the election of the holder thereof. Pursuant to elections received and effective as of August 15, 2016, the Company thereafter issued 13,456,936 shares of Series A Preferred Stock in exchange for $3,364,234 in outstanding Convertible Note balance. As of December 31, 2017, interest under all Convertible Notes was paid and all Convertible Notes had been redeemed or converted into shares of either Common Stock or Series A Preferred Stock. The 2017 Warrant Exercises and Issuance On August 30, 2017, the Company invited holders of shares of Series A Preferred Stock to (i) exercise their one or more Note Warrants in full, on a cashless basis based on an exercise price of $5.00 per share, and (ii) receive new warrants to purchase a number of shares of Common Stock which is equal to 10% of the number of shares of Series A Preferred Stock held by such holder (or the number of shares of Common Stock that were issuable upon conversion of the principal balance of a holder’s Convertible Note(s) prior to conversion), at an exercise price of $3.30 per share (the “2017 Exchange Warrants”). In exchange, the Company asked the holders to (a) lock-up their shares of Common Stock or derivatives thereof for one year and (b) waive their rights, if any, under the one or more Note RRAs. As of December 31, 2017, the Company received notices to exercise Note Offering Warrants from 22 different Note Warrant holders (constituting 28 Note Warrants), electing to exercise their Note Warrants, which equaled an aggregate of 4,367,100 shares of Common Stock, into 4,039,568 shares of Common Stock on a cashless basis. The Company thereafter issued all 4,039,568 shares of Common Stock and the 28 Note Warrants were terminated. In addition, pursuant to the foregoing, the Company issued 23 2017 Exchange Warrants exercisable into, in the aggregate, up to 838,040 shares of Common Stock at an exercise price of $3.30 per share. The Company inadvertently issued 92,500 shares of Common Stock in connection with the exercise of the Note Warrants and is in the process of cancelling such shares. The 2015 Stock Offerings Beginning in May 2015, we conducted an offering of up to $4,000,000 of restricted shares of Common Stock, no par value per share, at $0.60 per share to certain accredited and non-accredited investors (the “First 2015 Stock Offering”), and beginning in November 2015, we conducted an offering of up to $2,000,000 of restricted shares of Common Stock, no par value per share, at $1.00 per share to certain accredited and non-accredited investors (the “Second 2015 Stock Offering”). In both offerings, the Company entered into a registration rights agreement with each investor, whereby the Company agreed to, and did, file a registration statement to register the subscribed for shares of Common Stock within one hundred fifty (150) days after the date of such agreement. Between June 12, 2015 and November 6, 2015, the Company completed three closings of the First 2015 Stock Offering, representing aggregate gross proceeds to the Company of $2,269,600, and issued 3,782,666 shares of Common Stock. Between December 24, 2015 and February 19, 2016, the Company completed two closings of the Second 2015 Stock Offering, representing aggregate gross proceeds to the Company of $800,000, and issued 800,000 shares of Common Stock. 6 The 2016 Stock Sales On April 4, 2016, the Company entered into a securities subscription agreement with an accredited investor, pursuant to which the Company sold 2,000,000 shares of Common Stock at a purchase price of $2.50 per share, resulting in gross proceeds to the Company of $5,000,000 (the “First 2016 Stock Sale”). In addition, the Company issued to the investor a one-year warrant to purchase up to 1,666,667 shares of Common Stock at an exercise price of $3.00 per share. On March 24, 2017, such warrant was exercised in full, resulting in additional gross proceeds to the Company of $5,000,000, and the Company issued 1,666,667 shares of Common Stock. On May 10, 2016, the Company entered into a securities subscription agreement with an accredited investor, pursuant to which the Company sold (i) 675,000 shares of Common Stock at a purchase price of $2.60 per share; (ii) a three-year warrant to purchase up to 1,350,000 shares of Common Stock at an exercise price ranging between $3.00 and $3.50 per share (depending on the date of exercise); and (iii) a right to subsequently receive Volume Warrants to purchase up to 1,350,000 shares of Common Stock at $3.00 per share (the “Second 2016 Stock Sale”). On September 22, 2016, the Company entered into a securities subscription agreement with an accredited investor, pursuant to which the Company sold (i) 30,000 shares of Common Stock at a purchase price of $2.60 per share, (ii) an option to purchase an additional 30,000 shares of Common Stock at a purchase price of $2.60 per share within 90 days (which such investor has provided notice of an intent to exercise), (iii) a three-year warrant to purchase up to 60,000 shares of Common Stock (or 120,000 shares if the option in item (ii) is exercised) at an exercise price ranging between $3.00 and $3.50 per share (depending on the date of exercise), and (iii) a right to subsequently receive Volume Warrants to purchase up to 120,000 shares of Common Stock at $3.00 per share (the “Third 2016 Stock Sale”). “Volume Warrants” refer to unissued warrants that will only become issuable upon (i) the Company meeting specified thresholds based on the Company generating earnings before interest, taxes, depreciation and amortization (EBITDA) in a fiscal year during the warrant term, (ii) completion of a private placement of a minimum of $15,000,000 at specified pre-money valuation thresholds, or (iii) the sale of at least fifty percent (50%) of the Company’s assets at pre-money valuation thresholds ranging from $350,000,000 to $1,000,000,000. The Second 2016 Stock Sale resulted in aggregate gross proceeds to the Company of $1,755,000 and the Third 2016 Stock Sale resulted in aggregate gross proceeds to the Company of $78,000. In addition, the Company could receive up to an amount between $4,230,000 and $4,935,000 in gross proceeds upon exercise of warrants issued in both sales, depending on the timing of such exercise, and could receive additional proceeds of up to $4,410,000, if all the Volume Warrants are subsequently issued and fully exercised by the holder thereof. Also, on September 22, 2016, the Company issued 150,000 shares of Common Stock to an accredited investor, in exchange for $405,000 in cash, for a price of $2.70 per share. In connection with the sale, the Company granted warrants to purchase up to 750,000 shares of Common Stock exercisable at a price per share of $3.00 per share, which expire on January 1, 2022. The 2017 Stock Sales On February 21, 2017, the Company entered into a securities subscription agreement with an accredited investor, whereby such investor subscribed for and received 20,000 shares of Common Stock for $3.00 per share and a five-year option to purchase up to 100,000 shares of Common Stock at $3.00 per share. On February 23, 2017, the Company received gross proceeds of $60,000 from the subscriber, and on May 2, 2017, the Company issued 20,000 shares of Common Stock pursuant thereto. 7 On March 24, 2017, the Company entered into a securities subscription agreement with an accredited investor, whereby such investor subscribed for and received 33,000 shares of Common Stock for $3.00 per share and a five-year option to purchase up to 165,000 shares of Common Stock at $3.00 per share. On March 24, 2017, the Company received gross proceeds of $99,000 from the subscriber, and on May 2, 2017, the Company issued 33,000 shares of Common Stock pursuant thereto. On April 11, 2017, the Company entered into a securities subscription agreement with an accredited investor, whereby such investor subscribed for and received 16,666 shares of Common Stock for $3.00 per share and a five-year option to purchase up to 50,000 shares of Common Stock at $3.00 per share. On April 4, 2017, the Company received gross proceeds of $50,000 from the subscriber, and on May 2, 2017, the Company issued 16,666 shares of Common Stock pursuant thereto. The sales made in connection with securities subscription agreements dated February 21, 2017, March 24, 2017 and April 11, 2017 shall hereinafter be referred to as the “2017 Stock Sales”. The 2017 Stock Sales resulted in aggregate gross proceeds to the Company of $209,000. Industry Overview and Competition We currently face competition from traditional lighting technologies. There are numerous traditional light manufacturing companies, worldwide, many of which are significantly larger than us. Traditional lighting technologies have the advantage of a long history of market acceptance and developed relationships with retailers and distributors. We will actively seek to educate our target markets as to the advantages of our technology compared to traditional installation methods and believe the achievement of this objective is critical to our future. Although our technology is proprietary, and patent protected, there can be no assurance that a large conventional lighting company will not invent a competing technology that offers similar installation efficiencies and enter the market and utilize its resources to capture significant market share and adversely affect our operating results. We believe our products with the SQL Technology can effectively compete against traditional lighting in the areas of installation, maintenance and safety. The SQL Technology offers the advantage of ease of installation and replacement. This feature is superior to other lighting systems, which can require the service of professional electricians to install and remove. Once SQL’s socket is correctly installed in a ceiling or wall electrical junction box, there is no exposure to live electrical wires resulting in an additional advantage in safety. Furthermore, the installation of our socket, which weighs approximately four (4) ounces, requires significantly less work and exertion compared to traditional ceiling light or fan fixtures, which ordinarily weigh more than ten (10) pounds and can weigh hundreds of pounds. There can be no assurance, however, that the current competitors directly involved in this industry or a new competitor will not develop processes or technology which will allow them to decrease their costs, and consequently, erode our price advantage. There is significant competition in the ceiling lighting and fan market place; however, we believe we have a competitive advantage due to the strength of the SQL Technology. This competitive advantage extends to customers both in the residential as well as the commercial markets. The SQL Technology is patented or trademarked in the United States of America, Canada, Mexico, Hong Kong, China, and Australia. The Company faces competitive forces from traditional approaches towards ceiling lighting and fans installations. While it is unclear whether SQL’s unique technology will gain significant market penetration, the Company believes that its safety and installation efficiency features will gain market acceptance since it significantly reduces the time necessary to install such fixtures and, after a one-time installation of the socket component, eliminates further exposure to electrical wires when used in conjunction with fixtures in which the plug is installed. To further bolster the Company’s competitive position, the Company engaged the support of DSI, a lighting design and marketing firm whose existing customer base includes Walmart, Costco, The Home Depot, BJ’s Wholesale Club, Sam’s Club and other major retailers throughout North America. In 2015, DSI was acquired by NBG Home, a leading global designer, manufacturer and marketer of home décor products. Under the terms of the DSI Agreement, which remains in effect, DSI serves as the Company’s sales representative for all its products and goods in the United States and Canada. For its services, DSI receives a commission based on net sales. The Company’s products will also be sold through GE’s lighting sales group as a condition of it License Agreement. The Company’s recent addition of lighting and electronic sales and marketing professionals will further strengthen its distribution efforts to key retailers, in addition to launching a marketing program to commercial entities such as home builders and hotels. 8 Customers We market our product to retailers and other customers who purchase large quantities of ceiling fans and lighting fixtures. This includes OEM manufactures, electrical distributors, large “big box” retailers, builders, hotels, casinos and industrial and commercial lighting and fan manufactures. We believe that this market will benefit from the time saved in installing fixtures and the safety features achieved from the elimination of exposed electrical wires once the SQL Technology socket is installed in the junction box. Employees As of March 31, 2018, we had Thirteen full time employees in the United States of America and six full time employees in the Peoples Republic of China. We also employ independent contractors to support our operations. We have never had a work stoppage, and none of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. These salaried employees include the Company’s founder, Executive Chairman and Chairman of our Board, Rani Kohen, who serves as an executive of the Company on operational activities; John Campi, who serves as the Company’s Chief Executive Officer; Mark Wells, who serves as the Company’s President; Steve Briggs, who serves as the Company’s Senior Vice President of Product Development; Julio Plutt, who serves as the Company’s Executive VP of Accounting & Finance; Patricia Barron, who serves as the Company’s Chief Operations Officer, and John Poole, who serves as the Company’s Vice President of Retail Sales; Seasonality Retailers purchase ceiling fans for early spring and summer sales. As a result, the Company sells more of this product in the October through February time period. The Company has begun to market lighting fixtures that will reduce the impact of seasonal influences to its sales growth, as lighting products do not lend themselves to seasonal purchases. During periods of economic expansion or contraction our sales by quarter may vary significantly from this seasonal pattern. Furthermore, the Company’s entry into the commercial sector of home and hotel building is expected to reduce the Company’s exposure to seasonality of its revenue creation. Government and Environmental Regulation Our facilities and operations are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose strict, joint and several liabilities on certain persons for the cost of investigation or remediation of contaminated properties. These persons may include former, current or future owners or operators of properties and persons who arranged for the disposal of hazardous substances. Our leased real property may give rise to such investigation, remediation and monitoring liabilities under environmental laws. In addition, anyone disposing of certain products we distribute, such fluorescent lighting, must comply with environmental laws that regulate certain materials in these products. We believe that we are in compliance, in all material respects, with applicable environmental laws. As a result, we do not anticipate making significant capital expenditures for environmental control matters either in the current year or in the near future. 9 Emerging Growth Company We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies. Section 107(b) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues are $1 billion, as adjusted, or more, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period. ITEM 1A. RISK FACTORS As a “smaller reporting company”, we are not required to provide the information required by this Item. ITEM 1B. UNRESOLVED STAFF COMMENTS As a “smaller reporting company”, we are not required to provide the information required by this Item.