[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES ACT OF 1934

For the fiscal year ended December 31, 2016

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES ACT OF 1934

Commission File Number: 333-196735

SQL TECHNOLOGIES CORP.

(Exact name of registrant as specified in its charter)

Florida	46-3645414
(State or other jurisdiction of Incorporation or organization)	(IRS Employer Identification No.)
4400 North Point Parkway, Suite 154, Alpharetta, GA 30022 (Address, including zip code, of principal executive offices) (770) 754-4711 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [X] No [ ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration statement was required to submit and post such files). Yes [X]  No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]	Smaller reporting company	[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The aggregate value of the registrant’s common stock held by non-affiliates of the registrant was $121,038,692 on June 30, 2016, based on the value per share of common stock in the Company in its most recent private placement of securities on that date, which was $2.60 per share.

As of March 30, 2016, the registrant had 48,943,166 shares of common stock, no par value per share (“Common Stock”), issued and outstanding and 13,256,936 shares of Series A Convertible Preferred Stock, no par value per share (“Series A Preferred Stock”), issued and outstanding.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	7
Item 2.	Properties	8
Item 3.	Legal Proceedings	8
Item 4.	Mine Safety Disclosures	8
PART II
Item 5.	Market for the Registrant’s Common Stock and Related Stockholder Matters	9
Item 6.	Selected Financial Data	12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 8.	Financial Statements and Supplementary Data	21
Item 9.	Changes in and/or Disagreements with Accountants on Accounting and Financial Disclosure	21
Item 9A.	Controls and Procedures	21
Item 9B.	Other Information	22
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	23
Item 11.	Executive Compensation	27
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	32
Item 13.	Certain Relationships and Related Transactions and Director Independence	35
Item 14.	Principal Accountant Fees and Services	35
PART IV
Item 15.	Exhibits and Financial Statement Schedule	36
FINANCIAL STATEMENTS		F-1

 Unless we have indicated otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to the “Company”, “we”, “us”, and “our” or similar terms are to “SQL Technologies Corp.”

FORWARD-LOOKING STATEMENTS

Statements in this report may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this report, including the risks described under “Risk Factors” and any risks described in any other filings we make with the SEC. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this report.

Management’s discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to useful lives of real estate assets, cost reimbursement income, bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.

PART I 

ITEM 1. BUSINESS

Overview

We are a company engaged in the business of developing proprietary technology that enables a quick and safe installation by the use of a weight-bearing power plug for electrical fixtures, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes. 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. 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 a number of worldwide patents, and has received a variety of final electrical code approvals, including UL Listing and CSA approval (for the United States and Canadian Markets), and CE (for the European market). The Company maintains offices in Georgia, Florida and in Foshan, Peoples Republic of China.

Our principal executive offices are located at 4400 North Point Parkway, Suite 154, Alpharetta, Georgia, 30022 and our telephone number is (770) 754-4711. Our web address is http://www.safetyquicklight.com.

Products

We currently manufacture and sell ceiling fans and lighting fixtures branded with the General Electric logo and manufactured under General Electric’s guidance. Our ceiling fans and lighting fixtures offer unique designs, and are manufactured with and without the SQL Technology.

The SQL Technology

The SQL Technology is basically characterized as an attachment fitting plug and mounting receptacle used to install 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. Our technology could transform the lighting fixture and ceiling fan industry. Using the SQL Technology, anyone can safely install lighting fixtures and ceiling fans in minutes. Professional electricians as well as “Do it Yourself” installers will benefit from our technology. The SQL Technology is Underwriters Laboratories (UL) listed for USA and Canada, is licensed by GE and achieved National Electrical Code (NEC) (or NFPA 70) status in its 2017 edition.

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, and a ‘male’ plug fitting that is preinstalled on the lighting fixture or fan. The receptacle is easily attached to the junction box, and any lighting fixture or fan 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 that our product is rated for and will allow for additional fixtures, such as heating elements to be incorporated into our ceiling fans.

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. 

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Smart SQL

The Company is developing smart home technology applications for products using the SQL Technology called “Smart SQL”, which incorporate Bluetooth and Wi-Fi capabilities to enable remote control and automation of such products and appliances. The Company believes that the combination of its quick connect technology, the inclusion of Smart SQL and its growing product lines will uniquely position the Company in the marketplace.

Intellectual Property

We believe the SQL Technology and the forthcoming Smart SQL provides the Company with a competitive advantage in the lighting and ceiling fan fixture marketplace. 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 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 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”.

Our Business Model and Strategy

Safety Quick Light LLC 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 800,000 units of the SQL Technology OEM (“Original Equipment Manufacturer”) 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, directly to the retailers, 100,000 ceiling fans with the SQL Technology embedded into the product. With the achievement of the License Agreement (as defined below) with General Electric, 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 already installed on fixtures, instead of marketing the SQL Technology 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 as an add-on device. To support the Company’s marketing efforts to its target market, 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 electronic and lighting industry executives, all of whom had previously worked at General Electric.

The License Agreement

Company management then took the next step in furtherance of our Business Model and 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 through December 31, 2017. The License Agreement requires the Company to pay a percent of revenue generated on our products using the GE monogram logo as a license fee, including a minimum license fee payment during the term, and in exchange, the License Agreement enables the Company to market ceiling fans and light fixtures with and without the SQL Technology using the GE logo. The License Agreement imposes certain manufacturing and quality control conditions that we must maintain. In addition to marketing ceiling fans and light fixtures under the GE logo and trademarks, the Company has the right to offer private label ceiling fans and light fixtures with its technology installed to retailers that market private label products.

Table Of Contents 2

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 of net sales in each Contract Year, paid quarterly, as follows:

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. 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 is launching a distribution effort to commercial entities such as home builders and hotels. In addition, the Company expanded its target market to include commercial entities.

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, as required by the Licensing Agreement with GE, 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 (USD $10,000,000). The Line of Credit provides for monthly payments of interest at eight percent (8%) per annum on outstanding principal, and matures on December 31, 2017, at which time the full principal amount and accrued but unpaid interest become due. The Line of Credit is used to fund the production of our products with our third-party manufacturers and is repaid upon the sale or delivery of the product to our customers.

Management and Personnel

Beginning in 2015 and throughout 2016, we began building our sales and marketing team by hiring electronic and lighting industry executives, many of whom had previously worked at General Electric. Michael Perrillo, former CEO from DSI, joined the Company as a full-time consultant to enhance and expand sales objectives, particularly toward construction/builders, hotels and other sales channels that the Company is targeting. In June 2015, Mark Wells joined the Company as a consultant to provide product promotion and other sale consulting services, and in August 2016, Mark Wells was hired as our President. Also during 2016, we hired a Vice President of Retail Sales, Vice President of Commercial Sales and Senior Vice President or Product Development.

Table Of Contents 3

During 2016, 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 2015 and 2016, through additional stock offering and private sales, the Company obtained additional capital resources to further implement its Business Model.

The Notes 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.

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 Class 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 Class 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 Class 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 interest quarterly at a rate of six percent (6%). The Class A Preferred Stock will be convertible upon the election of the holder thereof.

Each holder electing the Preferred Option entered into an amendment to its Convertible Note, providing that the Convertible Note is convertible into shares of Series A Preferred Stock, rather than shares of Common Stock (the “Note Amendment”). In addition, each holder entered into a lock-up agreement, whereby such holder agreed not to offer, sell, contract to sell, pledge, give, donate, transfer or otherwise dispose of (i) the shares of Common Stock it then held, (ii) the shares of Series A Preferred Stock obtained upon conversion of its Convertible Note, and (iii) the shares of Common Stock underlying the Series A Preferred Stock (the “Note Lock-Up Agreement”). More than a majority of the holders of the then-outstanding Convertible Notes entered into the Note Amendment or otherwise consented to the Note Amendment, and the Note Amendments, conversion to Series A Preferred Stock and Note Lock-Up Agreement were entered into effective as of August 15, 2016.

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Prior to the August 2016 Election, several holders of the Convertible Notes had previously elected to receive payment in cash, or convert their Convertible Notes into shares of Common Stock, but most Convertible Notes remained outstanding. Pursuant to elections received and effective as of August 15, 2016, the Company thereafter redeemed or issued shares of Common Stock or Series A Preferred Stock, as applicable, in exchange for the principal balance of the Convertible Notes, as follows: (i) the payment of, in the aggregate, $200,000 in principal balance of two Convertible Notes; (ii) the issuance of 240,000 shares of Common Stock, representing $60,000 in outstanding Convertible Note principal balance; and (iii) the issuance of 13,256,936 shares of Series A Preferred Stock, representing $3,314,234 in outstanding Convertible Note principal balance.

As of March 30, 2017, one Convertible Note remains outstanding, which will be converted into 200,000 shares of Series A Preferred Stock, subject to receipt of complete paperwork from the respective Convertible Note holder. Interest under all other Convertible Notes has been paid and all such Convertible Notes have been terminated.

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 “May 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 “November 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 May 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 November 2015 Stock Offering, representing aggregate gross proceeds to the Company of $800,000, and issued 800,000 shares of Common Stock.

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 “April 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 “May 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 “September 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 May 2016 Stock Sale resulted in aggregate gross proceeds to the Company of $1,755,000 and the September 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.

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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 the area of 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 in excess of 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 has 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.

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.

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Employees

As of March 25, 2017, we had ten full time employees in the United States of America and six full time employees in the Peoples Republic of China. 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; and Patricia Barron, who serves as the Company’s Chief Operations Officer. In the second half of 201,6 the Company hired three former GE lighting executives: John Poole as Vice President of Retail Sales, David Martinsen as Vice President of Commercial Sales, and Steve Briggs as Senior Vice President of Product Development.

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.

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.

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.

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ITEM 2. PROPERTIES

Our corporate offices are located at 4400 North Point Parkway, Suite 154, Alpharetta, Georgia. The monthly rent related to our leased 1179 square foot facility is currently $1,854.96 per month, subject to increases in subsequent periods. The Company had previously rented office space located at One Buckhead Plaza, 3060 Peachtree Road, Suite 390, Atlanta, Georgia 30305. The Company’s subleasing agreement for this property expired November 30, 2016. The lease expires on this space March 31, 2017. In addition, we share offices with a supplier where the development of our products occurs and where our Executive Chairman works, located at 2855 W. McNab Road, Pompano Beach, FL, for which we pay no rent.

We do not own any property or land. We believe that our facilities are adequate for our current needs and that, if required, we will be able to locate suitable new office space and obtain a suitable replacement for our executive and administrative headquarters.

ITEM 3. LEGAL PROCEEDINGS

We are not party, nor is our property subject, to any material pending legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

On September 15, 2015, the Financial Industry Regulatory Authority (“FINRA”) cleared a request to establish a market in shares of our Common Stock. On October 8, 2015, OTC Markets Group announced that the Company was verified for trading on the OTCQB® Venture Market, and shares of our Common Stock are currently quoted under the symbol “SQFL”. Presently, shares of our Common Stock not subject to restriction are eligible for trading in the OTCQB® Venture Market. However, to the Company's knowledge, only a small percentage of our total issued and outstanding shares of Common Stock have been deposited with broker/dealers as of the date of this prospectus, and only a small number of shares of our Common Stock have been offered for sale. Therefore, while our shares of Common Stock are eligible for trading, a liquid public market has not yet developed. We cannot predict the future prices at which our shares will trade, or the liquidity of a public market for our shares of Common Stock, should one develop.

Holders

As of March 30, 2017, there were 107 holders of record of the Common Stock. This number does not include beneficial owners whose shares may be held in the names of various security brokers, dealers, and registered clearing agencies.

Dividend Policy

We have not paid any cash dividends on our Common Stock and have no present intention of paying any dividends on the shares of our Common Stock. Holders of our Series A Preferred Stock receive interest paid quarterly, at a rate of six percent (6%) per year, and rank senior with respect to interest on junior securities, dividends, distributions or liquidation preference. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our Board.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

On March 1, 2017, we issued 200,000 shares of Series A Preferred Stock to a holder of our Convertible Notes, in connection with such holder’s Note Amendment and election to convert the full principal balance of its outstanding Convertible Note, at a conversion price of $0.25 per share.

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Stock Incentive Plan Information

The following table sets forth equity compensation plan information as of December 31, 2016:

Plan category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights		(b) Weighted-average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans not approved by security holders:
2015 Stock Incentive Plan (1)		3,885,000	$	0.81		1,115,000
Equity compensation plans approved by security holders		—		—		—
Total		3,885,000	$	0.81		1,115,000

(1) Of the grants authorized by the Board on November 15, 2015, which are discussed in more detail below, options to purchase up to 150,000 shares of Common Stock were granted with an exercise price to be determined by the Company.   For the purposes of calculating the weighted-average exercise price, an exercise price of $1.00 per share was assumed, based on the sales price of the Company’s securities in a private placement on or about the time of the grant.

The 2015 Stock Incentive Plan

On April 27, 2015 and on June 8, 2016, our Board and the holders of a majority of our issued and outstanding shares of Common Stock, respectively, approved the Company’s 2015 Stock Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, the Board has the sole authority to implement, interpret, and/or administer the Incentive Plan unless the Board delegates (i) all or any portion of its authority to implement, interpret, and/or administer the Incentive Plan to a committee of the Board, or (ii) the authority to grant and administer awards under the Incentive Plan to an officer of the Company. The Incentive Plan relates to the issuance of up to 5,000,000 shares of Common Stock, subject to adjustment, and shall be effective for ten (10) years, unless earlier terminated. No single participant under the Incentive Plan may receive more than 25% of all options awarded in a single year. 

Any employee of the Company or an affiliate, a director, or a consultant to the Company or an affiliate may be an “Eligible Person” under the Incentive Plan. The Incentive Plan provides Eligible Persons the opportunity to participate in the enhancement of shareholder value by the award of options and Common Stock, granted as stock bonus awards, restricted stock awards, deferred share awards and performance-based awards, under the Incentive Plan. The Company may make payment of bonuses and/or consulting fees to certain Eligible Persons in options and Common Stock, or any combination thereof.

Certain options to be granted to employees under the Incentive Plan are intended to qualify as Incentive Stock Options (“ISOs”) pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), while other options granted under the Incentive Plan will be nonqualified options not intended to qualify as Incentive Stock Options ISOs (“Nonqualified Options”), either or both as provided in the agreements evidencing the options described.

The Incentive Plan further provides that awards granted under the Incentive Plan cannot be exercised until a majority of the Company’s shareholders have approved the Incentive Plan. As of March 25, 2016, a majority of the Company’s shareholders had not yet approved the Incentive Plan,

Stock Options

The Board, or the appointed committee, shall have sole and absolute discretionary authority (i) to determine, authorize, and designate those persons pursuant to the Incentive Plan who are to receive options under the Incentive Plan, (ii) to determine the number of shares of Common Stock to be covered by such options and the terms thereof, (iii) to determine the type of option granted (ISO or Nonqualified Option), and (iv) to determine other such details concerning the vesting, termination, exercise, transferability and payment of such options. The Committee shall thereupon grant options in accordance with such determinations as evidenced by a written option agreement. Subject to the express provisions of the Incentive Plan, the committee shall have discretionary authority to prescribe, amend and rescind rules and regulations relating to the Incentive Plan, to interpret the Incentive Plan, to prescribe and amend the terms of the option agreements and to make all other determinations deemed necessary or advisable for the administration of the Incentive Plan.

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The exercise price per share for Common Stock of options granted under the Incentive Plan shall be determined by the Committee, but in no case shall be less than one hundred percent (100%) of the fair market value of Common Stock (determined in accordance with the Incentive Plan at the time the option is granted), provided that, with respect to ISOs granted to a person who holds ten percent (10%) or more of the total combined voting power of all classes of stock of the Company, the exercise price per share for Common Stock shall not be less than 110% of the fair market value of the Common Stock. The fair market value of the Common Stock with respect to which ISOs may be exercisable for the first time by any Eligible Person during any calendar year under all such plans of the Company and its affiliates shall not exceed $100,000, or such other amount provided in Section 422 of the Code.

Bonus and Restricted Stock Awards

The Board, or the applicable committee, may, in its sole discretion, grant awards of Common Stock in the form of bonus awards and restricted stock awards. Each stock award agreement shall be in such form and shall contain such terms and conditions as the Board, or the committee, deems appropriate. The terms and conditions of each stock award agreement may change from time to time and need not be uniform with respect to Eligible Persons, and the terms and conditions of separate stock award agreements need not be identical.

Deferred Stock Awards

The Board, or the committee, may authorize grants of shares of Common Stock to be awarded at a future date upon such terms and conditions as the Board, or the committee, may determine. Such awards shall be conferred upon the Eligible Person as consideration for the performance of services and subject to the fulfillment of specified conditions during the deferral period. Each deferred stock award agreement shall be in such form and shall contain such terms and conditions as the Board, or the committee, deems appropriate. The terms and conditions of each deferred stock award agreement may change from time to time and need not be uniform with respect to Eligible Persons, and the terms and conditions of separate deferred stock award agreements need not be identical.

Performance Share Awards

The Board, or the committee, may authorize grants of shares of Common Stock to be awarded upon the achievement of specified performance objectives, upon such terms and conditions as the Board, or the committee, may determine. Such awards shall be conferred upon the Eligible Person upon the achievement of specified performance objectives during a specified performance period, such objectives being set forth in the grant and including a minimum acceptable level of achievement and, optionally, a formula for measuring and determining the number of performance shares to be issued. Each performance share award agreement shall be in such form and shall contain such terms and conditions as the Board, or the committee, deems appropriate. The terms and conditions of each performance share award may change from time to time and need not be uniform with respect to Eligible Persons, and the terms and conditions of separate performance share award agreements need not be identical.

Adjustments

If the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the Common Stock outstanding, without receiving consideration therefore in money, services or property, then (i) the number, class, and per share price of shares of Common Stock subject to outstanding options and other awards under the Incentive Plan and (ii) the number of and class of shares then reserved for issuance under the Incentive Plan and the maximum number of shares for which awards may be granted to an Eligible Person during a specified time period shall be appropriately and proportionately adjusted. The Board, or a committee, shall make such adjustments, and its determinations shall be final, binding and conclusive.

Change in Control

If the Company is merged or consolidated with another entity or sells or otherwise disposes of substantially all of its assets to another company while options or stock awards remain outstanding under the Incentive Plan, unless provisions are made in connection with such transaction for the continuance of the Incentive Plan and/or the assumption or substitution of such options or stock awards with new options or stock awards covering the stock of the successor company, or parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, then all outstanding options and stock awards which have not been continued, assumed or for which a substituted award has not been granted shall, whether or not vested or then exercisable, unless otherwise specified in the stock option or stock award agreement, will terminate immediately as of the effective date of any such merger, consolidation or sale.

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Federal Income Tax Consequences

Subject to other customary terms, the Company may, prior to certificating any Common Stock, deduct or withhold from any payment pursuant to a stock option or stock award agreement an amount that is necessary to satisfy any withholding requirement of the Company in which it believes, in good faith, is necessary in connection with U.S. federal, state, local or transfer taxes as a consequence of the issuance or lapse of restrictions on such Common Stock.

Outstanding Equity Awards

On November 15, 2015, the Board authorized the Company to grant certain securities under the Incentive Plan and Directors Compensation Plan, in the aggregate amount of up to 3,810,000 options to purchase shares of Common Stock at exercise prices ranging from $0.60 per share to $1.80 per share, vesting entirely in two years from the date of the grant, and up to 75,000 shares of Common Stock, which vested immediately.

As of March 30, 2017, the Company has entered into Option Award Agreements with thirteen grantees, pursuant to awards granted on November 15, 2015 under the Incentive Plan, consisting of up to 3,660,000 options to purchase shares of Common Stock, of which options to purchase up to 2,010,000 shares of Common Stock vested on November 15, 2015, options to purchase up to 950,000 shares of Common Stock vested on November 15, 2016, and options to purchase up to 850,000 shares of Common Stock will vest on November 15, 2017. In addition, the Company entered into Stock Award Agreements with two grantees to issue 75,000 shares of Common Stock, which vested immediately and were issued by the Company in 2016. As of March 30, 2017, the Company had not yet entered into Option Award Agreements with respect to grants of options to purchase up to 150,000 shares of Common Stock under the Incentive Plan.

ITEM 6. SELECTED FINANCIAL DATA

As a “smaller reporting company”, we are not required to provide the information required by this Item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated audited financial statements and notes thereto included in Part II, Item 8 of this Form 10-K. The following discussion contains forward-looking statements. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed under the explanatory note labeled “Forward-Looking Statements” found at the beginning of this report. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

US Dollars are denoted herein by “USD”, “$” and “dollars”.

Overview

We are a company engaged in the business of developing proprietary technology that enables a quick and safe installation by the use of a weight bearing power plug for electrical fixtures, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes. 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 and wall sconce fixtures.

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We currently manufacture and sell ceiling fans and lighting fixtures branded with the General Electric logo and manufactured under General Electric’s strict guidance, pursuant to the License Agreement between us and General Electric. Our ceiling fans and lighting fixtures are manufactured by several well established factories in the 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. Our ceiling fans and lighting fixtures offer unique designs, and are manufactured with and without the SQL Technology.

We currently manufacture and sell ceiling fans and lighting fixtures branded with the General Electric logo and manufactured under GE’s strict guidance, pursuant to a License Agreement between us and General Electric. Our ceiling fans and lighting fixtures offer unique designs, and are manufactured with and without the SQL Technology.

In December 2016, the SQL Technology was in included the 2017 National Electrical Code (NEC).

The Company is developing smart home technology applications for products using the SQL Technology called “Smart SQL”, which incorporate Bluetooth and Wi-Fi capabilities to enable remote control and automation of such products and appliances. The Company believes that the combination of its quick connect technology, the inclusion of Smart SQL and its growing product lines will uniquely position the Company in the marketplace.

Results of Operations

	For the years ended
	December 31, 2016			December 31, 2015			$ Change			% Change
Revenue	$	7,014,978		$	2,885,007		$	4,129,971			143.2	%
Cost of sales		(6,136,395	)		(2,477,252	)		(3,659,143	)		147.7	%
Gross Profit		878,583			407,755			470,828			115.5	%
General and administrative expenses		(6,866,355	)		(5,236,747	)		1,629,608			31.1	%
Loss from Operations		(5,987,772	)		(4,828,992	)		(1,158,780	)		24.0	%
Other Income / (Expense)		(92,460,085	)		(22,061,218	)		(70,398,867	)		319.1	%
Net Loss	$	(98,447,857	)	$	(26,890,210	)	$	(71,557,647	)		266.1	%
											.
Net loss per share - basic and diluted		(2.60	)		(0.76	)		(1.85	)		243.4	%

Revenue

We had recorded revenue of $7,014,978 for the year ended December 31, 2016, as compared to revenue of $2,885,007 for the year ended December 31, 2015. The 143.2% increase in revenue was associated with additional SKU’s offered and increased sales activity with existing customers. Sales increased through all sales channels, including internet sales for our customers.

Cost of Sales

We had a cost of sales of $6,136,395 for the year ended December 31, 2016, as compared to a cost of sales of $2,477,252 for the year ended December 31, 2015. The increase in cost of sales was associated with expanded offering and increase in sales noted above.

Gross Profit

We had gross profit of $878,583 for the year ended December 31, 2016, as compared to gross profit of $407,755 for the year ended December 31, 2015. The gross profit as a percent of sales was 12.5% in 2016, as compared with 14.1% in 2015. This change in gross profit as a percent of sales is primarily due to the introduction of new SKU’s into the market place. Gross Profit as a percent of sales materially improved as the year progressed.

General and Administrative Expenses

General and administrative expense increased $1,629,608 during the year ended December 31, 2016 to $6,866,355, from $5,236,747 for the year ended December 31, 2015.

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The increases in the general and administrative expenses were primarily due to additional business activity including:

· $857,100 Consulting expenses, $769,000 paid with equity, for business and web activities

· $261,300 Warehouse and product quality/production oversite

· $118,800 Commission expense associated with increased sales

· $98,400 Tooling and trade for manufacturing quality reviews

· $85,600 Payroll and related expenses

· $65,700 Insurance for liability, Directors and Officers and Health

· $56,000 Facility rent expense

· $49,800 Increased travel

· $40,900 Marketing expense

Offsetting the above expenses was a $35,200 decrease in Accounting and Legal fees

Loss from Operations

Loss from operations represents the change in general and administrative expenses offset by the gross profit on sales for the periods presented.

Other Income (Expense)

Total other expenses of $92,460,085 represent the following:

· ($41,129,336) non-cash loss on the conversion of convertible debt to preferred shares and common shares. The shares exchanged for the debt were valued at $3.40 per share, the closing price closest to the conversion option date.

· ($43,634,482) non-cash derivative expense on outstanding warrants, as a result of the share value increasing from $1.00 to $2.00, based on the Company’s recent OTC closing price of common stock and the impact on the Black Scholes calculation of the intrinsic value of the equity component.

· ($9,678,390) in non-cash derivative expense associated with the fair value of options granted and warrants issued during the 2016.

These non-cash charges to Other Income/(Expense) were partially offset by a decrease in interest payments of $1,874,652 due to the maturity of the convertible debt instruments, and by a $2,949,714 non-cash gain on debt extinguishment.

Net Loss and Net Loss per Share

The Company’s net loss and net loss per share for the year ended December 31, 2016 was ($98,447,857), or ($2.60) per share, as compared ($26,890,210), or ($0.76) per share for the year ended December 31, 2015. Given the reasons explained above, our loss increased by ($71,557,647) for the year ended December 31, 2016.

Liquidity and Capital Resources

To date, the Company has not generated sufficient revenue to cover its operating costs and continues to operate with negative cash flow. As a result, the Company has raised additional funds through the sale of its Common Stock. The Company has also entered into a Line of Credit with a third party which will supply it with $10,000,000 to support its purchase orders, inventory and other working capital needs. As of December 31, 2016, the Company had $6,887,264 available under the Line of Credit, which expires December 31, 2017. In order for the Company to achieve sufficient working capital to support its operations and sales growth, the Company may be required to find additional financing to replace the expiring facility or raise additional capital to fund its working capital needs. It currently has no such financing commitment in place.

For the year ended December 31, 2016, the Company used ($6,460,289) of cash for operations as compared with ($3,767,470) used for the same period in 2015. The increase in cash used for operations was due to the Company’s net loss of ($98,447,857), offset by non-cash expenses of $43,634,481 change in derivative liability, $9,678,390 loss in derivative expense and $41,129,336 loss in extinguishment of debt and by non-cash expenses for depreciation and amortization totaling $2,971,491. Net funds used for working capital was ($3,118,962) due to an increase in accounts receivable (562,515), ($2,142,565) increase in inventory, ($493,432) decrease in GE royalty payable, partially offset by an increase of $252,367 in accounts payable.

For the year ended December 31, 2016, cash flows used ($43,694) for investing activities as compared with ($59,478) used for the same period in 2015. The investments were for patents costs and fixed assets.

Cash flows provided from financing activities amounted to $9,855,160 in cash equivalents for the year ended December 31, 2016, as compared with $3,036,327 during the same period in 2015. The company received $7,460,000 from the proceeds of Common Stock, $3,572,545 from the conversion of notes and interest into Common Stock and preferred stock, $2,997,814 in proceeds from the line of credit, net of repayments, $200,000 in proceeds, net of repayments from a related party. These amounts were offset by ($4,314,233) in repayment of the convertible notes at maturity and ($30,966) in Preferred Stock dividend payments.

As a result of the above operating, investing and financing activities, the Company provided $3,675,020 in cash equivalents for the year ended December 31, 2016, as compared with ($790,621) used during the same period in 2015. The Company had $4,125,888 in cash and cash equivalents at December 31, 2016, as compared to $450,868 at December 31, 2015.

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The Company had a working capital deficit of $(21,419,526) as of December 31, 2016, as compared to $(28,174,512) as of December 31, 2015, which includes $24,083,314 in derivative liabilities.

A majority of the Company’s sales do not require the Company to take delivery of inventory. Production of the SQL Technology and fixtures will be originated upon receipt of FOB (free on board) purchase contracts from customers. Upon the completion of each purchase contract, the finished products will be transported from the manufacturer directly to the ports and loaded on vessels secured by the customer, upon which the products become the property of the customer.

Subsequent Events

On March 24, 2017, the holder of our one-year Common Stock Purchase Warrant, issued on April 4, 2016, to purchase up to 1,666,667 shares of our Common Stock at an exercise price of $3.00 per share, exercised such warrant in full upon tender of $5,000,000 in cash to the Company.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements

Critical Accounting Policies and Estimates

For a discussion of our accounting policies and related items, please see below and the Notes to the Financial Statements included in this report.

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 our 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 non-conforming events. Accordingly, actual results could differ significantly from estimates.

Recently Issued Accounting Pronouncements

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Topic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected by ASU 2015-03. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company has reclassified debt issuance costs from prepaid expenses and other current assets and other assets as a reduction to debt in the condensed consolidated balance sheets.

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), which applies guidance on the subsequent measurement of inventory. ASU 2015-11 states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The guidance excludes inventory measured using last-in, first-out or the retail inventory method. ASU 2015-11 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is not planning to early adopt ASU 2015-11 and is currently evaluating ASU 2015-11 to determine the potential impact to its condensed consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation, which is intended to simplify the accounting for share-based payment award transactions. The new standard will modify several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within that year, and will be adopted by the Company in the first quarter of fiscal 2017. The Company anticipates the new standard will result in an increase in the number of shares used in the calculation of diluted earnings per share and will add volatility to the Company’s effective tax rate and income tax expense. The magnitude of such impacts will depend in part on whether significant employee stock option exercises occur.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the Company’s financial position, results of operations or cash flows.

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Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts.

The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.

Inventory

Inventory consist of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out method.  The Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates the impact of any anticipated changes in future demand.  

Valuation of Long-Lived Assets and Identifiable Intangible Assets

The Company reviews for impairment of long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to its fair market value.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-7 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.

Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

Intangible Asset - Patent

The Company developed a patent for an installation device used in light fixtures and ceiling fans. Costs incurred for submitting the applications to the United States Patent and Trademark Office for these patents have been capitalized. Patent costs are being amortized using the straight-line method over the related 15 year lives. The Company begins amortizing patent costs once a filing receipt is received stating the patent serial number and filing date from the United States Patent and Trademark Office.

The Company incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or alternative future use is available to the Company. The Company also capitalizes legal costs incurred in the defense of the Company’s patents when it is believed that the future economic benefit of the patent will be maintained or increased and a successful defense is probable. Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s assessment of future economic benefit or a successful defense of its patents involves considerable management judgment, and an unfavorable outcome of litigation could result in a material impairment charge up to the carrying value of these assets.

Fair Value of Financial Instruments

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

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The following are the hierarchical levels of inputs to measure fair value:

· Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.

· Level 2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

· Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments.

The Company accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3.

Embedded Conversion Features

The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion features.

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

The Company has reserved for issuance 27,952,586 shares of Common stock associated with conversion features on Series A Preferred Stock, warrants and options. These shares have been reserved for issuance by the Company’s stock transfer agent, and accordingly, no derivative liability has been calculated on these shares.

Stock-Based Compensation - Employees

The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.

If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly

price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

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· Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

· Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

· Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

· Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.

The expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations.

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

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The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

· Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

· Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

· Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

· Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset.

This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.

Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

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Income Tax Provision

From the inception of the Company and through November 6, 2012, the Company was taxed as a pass-through entity (a limited liability company) under the Internal Revenue Code and was not subject to federal and state income taxes; accordingly, no provision had been made.

The financial statements reflect the Company’s transactions without adjustment, if any, required for income tax purposes for the period from November 7, 2012 to December 31, 2012. The net loss generated by the Company for the period January 1, 2012 to November 6, 2012 has been excluded from the computation of income taxes.

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment date.

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

The Company’s tax returns are subject to examination by the federal and state tax authorities for the years ended 2012 through 2016.

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting periods ended December 31, 2016 and 2015.

Related Parties

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to Section 850-10-20 the related parties include (i) affiliates of the Company; (ii) Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (iii) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (iv) principal owners of the Company; (v) management of the Company; (vi) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (vii) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

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The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (i) the nature of the relationship(s) involved; (ii) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (iii) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (iv) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company”, we are not required to provide the information required by this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required to be included in this report appear as indexed in the appendix to this report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer, who is also serving as our Principal Financial Officer and Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon this evaluation, our Principal Executive Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management including our Principal Executive Officer as appropriate to allow timely decisions regarding required disclosure.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Management’s Annual Report on Internal Controls over Financial Reporting

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of our annual financial statements, management has undertaken an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the framework in Internal Control—Integrated Framework (“1992 Framework”) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.

Based on this evaluation, under that framework, management has concluded that our internal control over financial reporting was not effective as of December 31, 2016. Our Principal Executive Officer, who is also serving as our Principal Financial Officer and Principal Accounting Officer, concluded that we have material weaknesses in our internal control over financial reporting because we do not have an adequate segregation of duties due to a limited number of employees among whom duties can be allocated. The lack of segregation of duties is due to the limited nature and resources of the Company.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

Changes In Internal Controls over Financial Reporting

No changes were made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following is a list of our directors and executive officers. All directors serve one-year terms or until each of their successors are duly qualified and elected. The officers are elected by our Board.

Name	Age	Position
Mr. John P. Campi	72	Chief Executive Officer
Mr. Rani Kohen	51	Director, Executive Chairman
Mr. Mark Wells	46	President
Ms. Patricia Barron	56	Chief Operations Officer
Mr. Phillips Peter	85	Director
Mr. Thomas Ridge	71	Director
Mr. Dov Shiff	69	Director
Mr. Leonard J. Sokolow	60	Director

John P. Campi has served as the Company’s Chief Executive Officer since November 2014. Mr. Campi founded Genesis Management, LLC in 2009, and retired in 2014 upon accepting the role of Chief Executive Officer. Mr. Campi has extensive experience in the field of cost management, is recognized as a Founder of the strategic cost-management discipline known as Activity-Based Cost Management, and is generally recognized as a national leader in the field of supply chain management. From December 2007 to December 2008, Mr. Campi served as the Chief Procurement Officer and an Executive Vice President for Chrysler LLC, where he was responsible for all worldwide purchasing and supplier quality activities. From September 2003 to January 2007, Mr. Campi served as the Senior Vice President of Sourcing and Vendor Management for The Home Depot, where he led the drive for standardization and optimization of The Home Depot Global Supply Chain. From April 2002 to September 2003, Mr. Campi served as the Chief Procurement Officer and Vice President for Du Pont Global Sourcing and Logistics. Prior to 2002, Mr. Campi led the Global Sourcing activities for GE Power Energy, and held a variety of positions with Federal Mogul, Parker Hannifin Corporation and Price Waterhouse Coopers. Mr. Campi also serves as a Trustee of Case Western Reserve University, has served as a Member of the Advisory Board of Directors for three startup companies, and has served as a Member of the Financial Executives Institute and the Institute of Management Accountants. Mr. Campi received his MBA from Case Western Reserve University. Our Board believes Mr. Campi’s qualifications to serve as our Chief Executive Officer include his extensive executive and advisory experience with established and startup companies, his expertise in cost-management, and his qualifications in the field of supply chain management.

Rani Kohen has served as a Chairman of the Board since November 2012 and as Executive Chairman since September 2016. Mr. Kohen founded the Company and began development of the Company’s power plug technology in 2004. Mr. Kohen served as the Company’s Chief Executive Officer until December 2012. Mr. Kohen has over twenty-five years in the retail lighting industry. He opened his first retail lighting showroom in 1988 in Israel, and built the business into the largest chain of retail lighting showrooms in the country. Our Board believes Mr. Kohen’s qualifications to serve as Chairman of our Board include his deep understanding of the Company’s business and products, his years of experience in the retail lighting industry, and his past experience as the Company’s Chief Executive Officer.

Mark J. Wells has served as the Company’s President since August 2016. Mr. Wells has held various senior leadership positions within the General Electric Company. From December 2007 to June 2011, Mr. Wells was the General Manager of Consumer Lighting. From October 2005 to January 2007, Mr. Wells was the President and Chief Executive Officer for GE Consumer & Industrial for Greater China. Following his MBA studies, from October 2002 to October 2005, Mr. Wells served as Regional Manager for GE Consumer & Industrial’s Southeast Region. Since 2011, Mr. Wells served as the Executive Vice President and General Manager of Independence Medical and Home Healthcare Solutions, now a part of Cardinal Health. In sum, Mr. Wells has over fourteen years of experience in finance, sales and general management with GE. Mr. Wells received his MBA from Case Western Reserve University. Our Board believes Mr. Wells’ qualifications to serve as our President include his extensive industry experience, executive and advisory experience and his expertise in strategic planning.

Patricia Barron has served as the Company’s Chief Operations Officer since June 2007. From April 1989 to June 2007, Ms. Barron was the President and owner of LTG Services, Inc., a company focused on safety consulting services, specializing in the review and compliance of electrical products requiring UL, CSA, and CE certifications. Prior to that, Ms. Barron worked as a consultant and engineer in the lighting, safety and approval industry and from June 1977 to August 1984, worked as an engineering assistant for Underwriters Laboratories in the ceiling fan category. Ms. Barron received her Master’s in Business Administration in International Business from Georgia State University in 1989. Our Board believes Ms. Barron’s qualifications to serve as our Chief Operation Officer include her extensive industry experience and qualifications, executive experience and her decade of demonstrated commitment and leadership with the Company.

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Governor Thomas J. Ridge has served as a director since June 2013. In 2013, Mr. Ridge co-founded Ridge Schmidt Cyber, an executive services firm addressing the increasing demands of cyber security. In April 2010, Mr. Ridge became a partner in Ridge Policy Group, a bipartisan, full-service government affairs and issue management group. Mr. Ridge has served as President and Chief Executive Officer of Ridge Global, LLC, a global strategic consulting company, since July 2006. From January 2003 to January 2005, Mr. Ridge served as the Secretary of the United States Department of Homeland Security, and from 2001 through January 2003, Mr. Ridge served as the Special Assistant to the President for Homeland Security. Mr. Ridge served two terms as Governor of the Commonwealth of Pennsylvania from 1995 to 2001, and served as a member of the U.S. House of Representatives from 1983 through 1995. Mr. Ridge currently serves as a member of the board of two public companies, The Hershey Company and Lifelock, and has previously served on the board of five other public companies. Mr. Ridge is Chairman of the Board of the National Organization on Disability, and serves as a board member on the Board of Public Finance Management, the Institute for Defense Analysis, the Center for the Study of the Presidency, and the Oak Ridge National Lab. Our Board believes Mr. Ridge’s qualifications to serve as a member of our Board include his vast experience in both government and industry, his service on other public and private company boards, and his expertise in retail, risk management, and cyber security.

Phillips Peter has served as a director since November 2012. Since December 2014, Mr. Peter has served as a Senior Vice President of Ridge Global. From 1994 to 2014, Mr. Peter practiced law at Reed Smith LLP where he focused his practice on legislative and regulatory matters before Congress, the executive branch of the federal government, and other administrative agencies. Prior to this, Mr. Peter was an officer at General Electric Company, where he held executive positions from 1973 to 1994. He is also a veteran of the U.S. Army. Our Board believes Mr. Peter’s qualifications to serve as a member of our Board include his role as a past advisor to the Company, his extensive experience in regulatory affairs, his past industry experience, and his demonstrated leadership ability.

Dov Shiff has served as a director since February 2014. Mr. Shiff is presently President and Chief Executive Officer of the Shiff Group of Companies. The Shiff Group owns and operates hotels and other real estate in Israel, including Hayozem Resorts & Hotels Ltd., Marina Hotel Tel Aviv Ltd. and Zvidan Investments Ltd. Our Board believes Mr. Shiff’s qualifications to serve as a member of our Board include his role as a past advisor to the Company and his history of success developing and operating new businesses.

Leonard J. Sokolow has served as a director since November 2015. Mr. Sokolow currently serves as CEO & President of Newbridge Financial, Inc. and Chairman of its broker dealer subsidiary, Newbridge Securities Corporation. Mr. Sokolow founded Finance, Inc. in 1997, which merged with National Holdings Corporation (NASDAQ CM: NHLD), where he served as President and Vice Chairman of its Board of Directors. Mr. Sokolow also founded and served as Chairman and CEO of Americas Growth Fund, Inc., a closed-end investment management company (NASDAQ: AGRO) until it was sold. Prior to this, Mr. Sokolow was an executive for Applica, Inc. (formerly Windmere Corporation (NYSE: APN)), where he served as Executive Vice President and General Counsel. Mr. Sokolow, is also a CPA and worked for Ernst Young and KPMG. Mr. Sokolow earned a Bachelor of Arts degree in Economics and a concentration in Accounting. Mr. Sokolow also earned a Juris Doctorate degree from the University of Florida School of Law and a Masters of Law degree in Taxation from the New York University School of Law. Mr. Sokolow is on the board of directors, Chairman of the Audit Committee and a member of the Nominations and Corporate Governance Committees for Consolidated Water Company Ltd. (NASDAQ GS: CWCO). In addition, Mr. Sokolow has served on the board of directors of, and Chairman of the Audit Committee for, Marquee Energy Ltd. (TSXV: MQX). Our Board believes Mr. Sokolow’s qualifications to serve as a member of our Board include his vast education and experience in the financial industry, his service on other public company boards and his history of executive leadership in developing and operating businesses.

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Corporate Governance

Board Structure

We have chosen to separate the Chief Executive Officer and Board Chairman positions.  We believe that this Board leadership structure is the most appropriate for the Company.  Our chairman, the founder of the Company, provides us with significant experience in research and development. Our Chief Executive Officer is responsible for day to day operations, and brings significant experience to the Company.

Committees of the Board of Directors

On January 5, 2016, we established a separately-designated standing audit committee (the “Audit Committee”), consisting of two members, Leonard J. Sokolow and Rani Kohen. Mr. Sokolow is the Chairman of the Audit Committee and is deemed to be independent and the Board has determined that he is an audit committee financial expert, as defined in Item 5(d)(5) of Regulation S-K.  The Audit Committee reviews, acts on and reports to the Board with respect to various auditing and accounting matters, including the recommendations and performance of independent auditors, the scope of the annual audits, fees to be paid to the independent auditors, and internal accounting and financial control policies and procedures.

On September 6, 2016, we established a Corporate Development Committee, consisting of two members, Rani Kohen and Leonard J. Sokolow. Mr. Kohen is the Chairman of the Corporate Development Committee. The purpose of the Corporate Development Committee is to oversee the implementation of the strategic plan and related initiatives, identify and evaluate corporate development opportunities, develop criteria for use in evaluating potential strategic investments, assist management to identify critical strategic issues facing the Company and assess potential merger and acquisition opportunities.

We presently do not have a nominating committee, compensation committee, or other committee or committees performing similar functions, as our management believes that until this point it has been premature at the early stage of our management and business development to form such committees. Moving forward, at such time as the Board believes that such committees are necessary or desirable, or that we are required to have such committees, we will take steps to form such committees and adopt charters as may be required to comply with all applicable rules and regulations.

Code of Conduct

The Company does not currently have a Code of Conduct and Ethics to apply to all of our directors, officers and employees. In the near future, our Board intends to adopt a code which intended to promote ethical conduct and compliance with laws and regulations, to provide guidance with respect to the handling of ethical issues, to implement mechanisms to report unethical conduct, to foster a culture of honesty and accountability, to deter wrongdoing and to ensure fair and accurate financial reporting. Upon approval by the Board, a copy of the Code of Conduct and Ethics will be available at our website www.safetyquicklight.com.

Board Diversity

While we do not have a formal policy on diversity, our Board considers diversity to include the skill set, background, reputation, type and length of business experience of our Board members as well as a particular nominee’s contributions to that mix. Our Board believes that diversity brings a variety of ideas, judgments and considerations that benefit Safety Quick Lighting and our shareholders. Although there are many other factors, the Board seeks individuals with experience in business, financial and scientific research and development.

Board Assessment of Risk

Our risk management function is overseen by our Board. Our management keeps our Board apprised of material risks and provides our directors access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect the Company, and how management addresses those risks. Mr. John Campi, as our Chief Executive Officer works closely together with the Board once material risks are identified on how to best address such risk. If the identified risk poses an actual or potential conflict with management, our independent directors may conduct the assessment.

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Shareholder Communications

Although we do not have a formal policy regarding communications with the Board, shareholders may communicate with the Board by writing to us at 4400 North Point Parkway, Suite 154, Alpharetta, Georgia, 30022, Attention: Shareholder Communication. Shareholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that the Company’s executive officers, directors and persons who own beneficially more than 10% percent of the Company’s outstanding Common Stock, file reports of ownership and changes in ownership and furnish the Company with copies of all Section 16(a) reports so filed. Based solely on a review of these reports filed with the SEC and certain written representations furnished to the Company, the Company believes that its executive officers and directors complied with all applicable Section 16(a) filing requirements during 2016, other than the following:

Mr. Sokolow filed a Form 3 with the SEC on January 1, 2016 in connection with his appointment to the Board on November 15, 2015. Mr. Shiff filed a Form 4 with the SEC on March 31, 2017, in connection with the conversion of his Convertible Note into shares of Series A Preferred Stock on August 15, 2016. Mr. Wells filed a Form 3 with the SEC on March 29, 2017, in connection with his appointment as President on November 7, 2016, and filed a Form 4 with the SEC on March 29, 2017, in connection with issued and unvested securities in the Wells Agreement dated August 17, 2016. Mr. Kohen filed a Form 4 with the SEC on March 31, 2017 in connection with unvested securities the Chairman’s Agreement dated September 1, 2016. Mr. Campi filed a Form 4 with the SEC on March 30, 2017, in connection with issued and unvested securities the Campi Agreement dated September 1, 2016.

Involvement in Legal Proceedings

We know of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to us, or our subsidiaries, or has a material interest adverse to us or our subsidiaries.

None of our executive officers or directors have (i) been involved in any bankruptcy proceedings within the last five years, (ii) been convicted in or has pending any criminal proceedings, (iii) been subject to any order, judgment or decree enjoining, barring, suspending or otherwise limiting involvement in any type of business, securities or banking activity or (iv) been found to have violated any federal, state or provincial securities or commodities law and such finding has not been reversed, suspended or vacated.

Family Relationships

There are no family relationships among the directors and executive officers.

Certain Relationships and Related Transactions

Unless otherwise stated in this Annual Report, none of the following parties has, in our fiscal years ended 2015 and 2016, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:

· any of our directors or officers;

· any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of Common Stock; or

· any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the above persons.

We are currently party to the Chairman’s Agreement (as defined below) with Mr. Rani Kohen, Executive Chairman and Chairman of the Company’s Board, pursuant to which we are required to pay cash compensation in the amount of $250,000 per year. During 2015 and through August 31, 2016, we were a party to the Kohen Consulting Agreement (as defined below) with Mr. Kohen, pursuant to which we paid cash compensation in the amount of $150,000 per year. Both agreements are more fully described in Item 11 of this report, in the subsection entitled “Narrative Disclosure to Summary Compensation and Option Tables”.

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ITEM 11. EXECUTIVE COMPENSATION

As a “smaller reporting company,” we have elected to follow scaled disclosure requirements for smaller reporting companies. Under the scaled disclosure obligations, we are not required to provide Compensation Discussion and Analysis and certain other tabular and narrative disclosures relating to executive compensation. Nor are we required to quantify payments due to the named executives upon termination of employment. Management believes that the scaled disclosure for the Company’s executive compensation policy and practices is appropriate because we will are a small publicly-traded company, have a limited number of employees and executives and have a relatively simple compensation policy and structure.

Named Executive Officers

Our “named executive officers” for the 2016 fiscal year consisted of the following individuals:

· Rani Kohen, Executive Chairman

· John P. Campi, our Chief Executive Officer

· Mark Wells, President

· Patricia Barron, Chief Operating Officer

Summary Compensation Table

The table below summarizes all compensation awarded to, earned by, or paid to our Chief Executive Officer and our two most highly compensated executive officers (the “named executive officers” listed above) at the end of our last fiscal year for all services rendered in all capacities to us during the years during which they served as executive officers. Where a named executive officer is also a director, all compensation related to such individuals position as an officer.

Name and Principal Position	Year		Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-equity Incentive Plan Compensation ($) (1)		All Other Compensation ($)		Total
Rani Kohen (2)(3) Executive Chairman, Director		2016		83,333		35,424		—		1,981,504 (4)		35,423		12,000	$	2,147,684
		2015		—		—		—		—		14,376		161,640	$	176,016
John P. Campi (5)(6) Chief Executive Officer		2016		127,500		—		—		—		31,585		—	$	159,085
		2015		102,000		—		187,500 (6)		—		13,376		—	$	290,064
Mark Wells (7) President		2016		83,333		—		260,000 (8)		—		3,839		—	$	347,172
		2015		—		—		—		—		—		—		—
Patricia Barron (9) Chief Operating Officer		2016		105,000		—		—		988,744 (10)		17,712		—	$	1,111,456
		2015		100,000		—		—		—		—		—	$	100,000

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(1) Non-equity Incentive Plan Compensation reflects incentive and bonus compensation or commission payable pursuant to each individual’s respective employment agreement, typically as a percent of the Company’s net revenue or sales earned, and in each case as described below.

(2) Mr. Kohen was named Executive Chairman on November 7, 2016, effective as of September 1, 2016. Pursuant to the terms of the Chairman’s Agreement (as defined below), Mr. Kohen received or will receive (i) an annual salary of $250,000; (ii) options to purchase up to 340,000 shares of Common Stock each year, will vest in its’ entirety January 1, 2019; (iii) annual incentive compensation of one half of one percent (0.50%) of the Company’s net revenue; (iv) a ‘sign-on bonus’ of 120,000 shares of Common Stock ,which will vest in its’ entirety on January 1, 2020; (v) a supplemental bonus consisting of an option to purchase up to 1,500,000 shares of Common Stock at $3.00 per share, accruing in increments of 500,000 shares, each upon the achievement of the Company’s market capitalization reaching milestones of $300 million, $500 million and $750 million; (vi) a supplemental bonus consisting of an option to purchase up to 1,500,000 shares of Common Stock at $4.00 per share, accruing in increments of 500,000 shares, each upon the achievement of the Company’s market capitalization reaching milestones of $1 billion, $1.5 billion and $2 billion; and (vii) a supplemental bonus consisting of an option to purchase up to 1,000,000 shares of Common Stock at $5.00 per share, accruing in increments of 500,000 shares, each upon the achievement of the Company’s market capitalization reaching milestones of $2.5 billion and $3 billion.

(3) For the first eight months of 2016, Mr. Kohen was compensated pursuant to a Consulting Agreement, whereby he was paid an annual fee of $150,000, a $1,000 per month automobile allowance, and annual incentive compensation equal to one half of one percent (0.50%) of the Company’s net revenue. All amounts included for 2015 represent the compensation as previously disclosed regarding his role solely as Chairman of the Board, including the amount of “All Other Compensation”, which reflects compensation paid pursuant to the Kohen Consulting Agreement. The amounts included for 2016 include compensation paid to Mr. Kohen in his capacity as Chairman as the Board through August 31, 2016, and as both Executive Chairman and Chairman of the Board thereafter.

(4) On November 15, 2015, the Board granted Mr. Kohen (i) options to purchase up to 400,000 shares of Common Stock at $0.60, which vested November 15, 2015; (ii) options to purchase up to 300,000 shares of Common Stock at $0.60, which vested November 15, 2016; and (iii) options to purchase up to 400,000 shares of Common Stock at $0.60, which will vest November 15, 2017. The value of the option award was calculated at $2.00 per share; for assumptions made in the valuation of the option awards, see Note 2 to our Audited Consolidated Financial Statements.

(5) Pursuant to the terms of the Campi Agreement (as defined below), Mr. Campi received or will receive (i) an annual salary of $150,000; (ii) options to purchase up to 120,000 shares of Common Stock as a “sign-on bonus”, which will vest in its’ entirety on December 31, 2017; (iii) an incentive bonus of one quarter of one percent (0.25%) of the Company’s net revenue; (iv) 3% of adjusted net income; and (v) options to purchase a number of shares of Common Stock equal to one half of one percent (0.5%) of the Company’s quarterly net income, at a strike price to be determined by the Board at the time of issuance.

(6) Pursuant to Mr. Campi’s previous employment agreement, Mr. Campi received (i) a gross annual salary of $102,000 per year; (ii) 750,000 shares of Common Stock, 250,000 shares of which vested on May 20, 2015, and 500,000 shares of which vested on December 31, 2015; and (iii) incentive compensation equal to one half of one percent (0.50%) of the Company’s net revenue. The value of the stock award was $0.25 per share, based on the value of shares sold in connection with the Company’s most recent sale of securities in a private placement as of the time of such agreement.

(7) Mr. Wells was named President of the Company on November 7, 2016, effective as of August 17, 2016. Pursuant to the terms of the Wells Agreement (as defined below), Mr. Wells received or will receive (i) an annual salary of $250,000; (ii) 1,025,000 shares of Common Stock which will vest in its’ entirety on January 1, 2019; (iii) incentive compensation equal to one quarter of one percent (0.25%) of the Company’s net revenue; and (iv) a “sign-on” bonus of 120,000 shares of Common Stock, which will vest in its’ entirety on January 1, 2018.

(8) Mr. Well’s received 100,000 shares of Common Stock pursuant to a consulting agreement dated June 1, 2015, which vested on June 1, 2016; the value of the stock award was $2.60 per share, based on the value of shares sold in connection with the Company’s most recent sale of securities in a private placement as of the time of such vesting.

(9) Pursuant to the terms of the Barron Agreement (as defined below), Ms. Barron will received or will receive an annual salary of $120,000, and incentive compensation equal to one quarter of one percent (0.25%) of the Company’s net revenue.

(10) Ms. Barron received (i) options to purchase up to 200,000 shares of Common Stock at $0.60 per share, which vested November 15, 2015; (ii) options to purchase up to 150,000 shares of Common Stock at $1.20 per share, which vested November 15, 2016; and (iii) options to purchase up to 150,000 shares of Common Stock at $1.80 per share, which will vest November 15, 2017. The value of the option award was calculated at $2.00 per share; for assumptions made in the valuation of the option awards, see Note 2 to our Audited Consolidated Financial Statements.

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Outstanding Equity Awards at December 31, 2016 Fiscal Year End

As of December 31, 2016, the following named executive officers had the following unexercised options, stock that has not vested, and equity incentive plan awards

	Option Awards					Stock Awards
Name	Number of Securities underlying unexercised options exercisable	Number of Securities underlying unexercised options not exercisable	Option exercise or base price per share	Option Expiration Date	Number of Shares or Units of Stock Not Vested		Market Value of Shares or Units Not Vested	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights Not Vested	Value of Unearned Shares, Units or Other Rights Not Vested
John P. Campi Chief Executive Officer	—	—	—	—	120,000		$        240,000	—	$        240,000
Rani Kohen Executive Chairman	700,000	300,000	$0.60	11/15/2025	1,140,000		$     2,280,000	—	$     2,876,286
Mark J. Wells President	—	—	—	—	1,145,000		$     2,290,000	—	$     2,290,000
Patricia Barron Chief Operating Officer	200,000	—	$0.60	11/15/2025	—		—	—	$        395,193
	150,000	—	$1.20	11/15/2025	—		—	—	$        296,246
	—	150,000	$1.80	11/15/2025	—		—	—	$        297,306

Narrative Disclosure to Summary Compensation and Option Tables

John P. Campi

In connection with Mr. Wells’ appointment as President of the Company, Mr. Campi withdrew from his position as the Company’s President effective upon Mr. Well’s appointment, and has continued in his position as the Company’s Chief Executive Officer.

Effective September 1, 2016, the Company entered into a new Executive Employment Agreement with Mr. Campi (the “Campi Agreement”), to serve as the Company’s Chief Executive Officer, which superseded and replaced the executive employment agreement between the Company and Mr. Campi dated November 21, 2014. The Campi Agreement provides that Mr. Campi will serve for an initial term of one year, which may be renewed by the mutual agreement of Mr. Campi and the Company. Subject to other customary terms and conditions of such agreements, the Campi Agreement provides that Mr. Campi will receive (i) a base salary of $150,000 per year; (ii) a sign-on bonus of 120,000 shares of Common Stock, which shall vest in its entirety on December 31, 2017; (iii) incentive compensation equal to (a) one quarter of one percent (0.25%) of the Company’s gross revenue and (b) three percent (3%) of the Company’s annual net income paid in cash on an annual basis; and (iv) five-year options to purchase shares of Common Stock in an amount equal to one half of one percent (0.50%) of the Company’s quarterly net income, the exercise price of which will be determined at the time such options are granted.

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Pursuant to the Campi Agreement, if terminated without cause during the initial term, the Company shall pay to Mr. Campi (i) an amount calculated by multiplying the monthly salary, at the time of such termination, times the number of months remaining in the initial term, and (ii) all unpaid incentive compensation then in effect on a pro rata basis. In addition, the sign-on shares of Common Stock shall immediately vest. For any other termination during the initial term, Mr. Campi shall receive an amount calculated by multiplying fifty percent of the monthly salary, in effect at the time of such termination, times the number of months remaining in the initial, and shall not be entitled to incentive compensation payments then in effect, prorated or otherwise.

Mark J. Wells

Effective August 17, 2016, the Company entered into an Executive Employment Agreement with Mr. Wells (the “Wells Agreement”), to serve as the Company’s President. The Wells Agreement provides that Mr. Wells will serve for an initial term of three years, which may be renewed by the mutual agreement of Mr. Wells and the Company. Subject to other customary terms and conditions of such agreements, the Wells Agreement provides that Mr. Wells will receive (i) a base salary of $250,000 per year, which may be adjusted each year at the discretion of the Board; (ii) 1,025,000 shares of Common Stock, which shall vest on January 1, 2019 (the “Wells Compensation Shares”); (iii) a sign-on bonus of 120,000 shares of Common Stock, with shall vest in its entirety to Mr. Wells on January 1, 2018; and (iv) incentive compensation equal to one quarter of one percent (0.25%) of the Company’s net revenue, paid in cash on an annual basis.

Pursuant to the Wells Agreement, if terminated without cause during the initial term, the Company shall pay to Mr. Wells (i) an amount calculated by multiplying the monthly salary, at the time of such termination, times the number of months remaining in the Initial Term, and (ii) all unpaid incentive compensation then in effect. In addition, the sign-on bonus shares of Common Stock shall immediately vest, and the Wells Compensation Shares shall vest on a pro rata basis based on the number of days served under the Wells Agreement and the number of days in the vesting period. For any other termination during the initial term, Mr. Wells shall receive payment of salary, at the then current rate, and all due but unpaid incentive compensation through the date termination is effective.

Rani Kohen

On November 25, 2013, we entered into a Consulting Agreement with our founder and the Chairman or our Board, Rani Kohen (the “Kohen Consulting Agreement”). The term of the Consulting Agreement was for three (3) years, beginning on December 1, 2013. Subject to the customary terms and conditions of such agreements, the Consulting Agreement provided that Mr. Kohen would receive an annual consulting fee of $150,000, incentive compensation in the form cash, stock and/or options (i) equal to one-half a one percent (0.50%) of our annual gross revenue; and (ii) to be determined by our Board on a project-by-project basis.

Effective September 1, 2016, the Company entered into a Chairman Agreement with Mr. Kohen (the “Chairman’s Agreement”), to serve as the Company’s Executive Chairman and Chairman of the Board, which supersedes and replaced the Consulting Agreement.

The Chairman’s Agreement provides that Mr. Kohen will serve for an initial term of three years, which may be renewed by the mutual agreement of Mr. Kohen and the Company. Subject to other customary terms and conditions of such agreements, the Chairman’s Agreement provides that Mr. Kohen will receive (i) a base salary of $250,000 per year, which may be adjusted each year at the discretion of the Board; (ii) stock compensation equal to 340,000 shares of Common Stock per year, which shall vest on January 1 of the following year (the “Chairman Compensation Shares”); (iii) a sign-on bonus of 120,000 shares of Common Stock, with shall vest in its entirety on January 1, 2020; (iv) supplemental bonus compensation of stock options to purchase up to 4,000,000 shares of Common Stock at an exercise price ranging between $3.00 and $5.00 per share, determined based on the achievement of specified market capitalizations of the Company; and (v) incentive compensation equal to one half of one percent (0.50%) of the Company’s gross revenue paid in cash, stock or options on an annual basis.

Pursuant to the Chairman’s Agreement, if terminated without cause during the initial term, the Company shall pay to Mr. Kohen (i) an amount calculated by multiplying the monthly salary, at the time of such termination, times the number of months remaining in the initial term, and (ii) all unpaid incentive compensation then in effect. In addition, the sign-on shares of Common Stock shall immediately vest, and the Chairman Compensation Shares shall vest on a pro rata basis based on the number of days served under the Chairman’s Agreement and the number of days from the beginning of the initial term through August 31, 2019. For any other termination during the initial term, Mr. Kohen shall receive payment, at the then current rate, through the date termination is effective.

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Patricia Barron

Ms. Barron entered into a three-year Executive Employment Agreement, effective as of September 1, 2016 (the “Barron Agreement”). Under the terms of the Barron Agreement, Ms. Barron will receive (i) an annual salary of $120,000, and (ii) incentive compensation equal to one-quarter of one percent (0.25%) of net revenue. In addition, The Board granted Ms. Barron (a) options to purchase up to 200,000 shares of Common Stock at $0.60 per share, which vested on November 15, 2015; (b) options to purchase up to 150,000 shares of Common Stock at $1.20, which vested on November 15, 2016; and (c) options to purchase up to 150,000 shares of Common Stock at $1.80, which will vest on November 15, 2017.

Director Compensation

We do not pay cash compensation to our directors for service on our Board.  Directors are reimbursed for reasonable expenses incurred in attending meetings and carrying out duties as board members, and in accordance with our Director Compensation Policy.  

Director Compensation Table

The following table shows for the fiscal year ended December 31, 2016, certain information with respect to the compensation of all non-employee directors of the Company:

Name	Fees Earned or Paid in Cash		Stock Awards		Option Awards		Total
Rani Kohen (1)	$	—	$	—	$	—	$	—
Phillips Peter (2)	$	—	$	—	$	—	$	—
Thomas Ridge (2)	$	—	$	—	$	—	$	—
Dov Shiff (2)	$	—	$	—	$	—	$	—
Leonard Sokolow (2)(3)	$	—	$	12,000	$	—	$	12,000

(1) Mr. Kohen has served as a Chairman of the Board since November 2012. Fees earned in 2016 in connection with his role as Executive Chairman and as Chairman of the Board have been reported as Executive Compensation.

(2) Messrs. Ridge, Peter, Shiff and Sokolow have each served as a member of our Board since June 2013, November 2012, February 2014, and November 2015, respectively.

(3) The Company issued 12,000 shares of Common Stock pursuant to the Director Compensation Policy in connection with Mr. Sokolow’s appointment as the Chairman of our Audit Committee on January 5, 2016. The value of the shares was based on the value of shares sold in connection with the Company’s recent sale of securities in a private placement as of the time of issuance, which was $1.00 per share.

Director Compensation Policy

On November 15, 2015, our Board approved the Company’s Director Compensation Policy (the “Director Compensation Policy”) applicable to members of the Board who are not employees of the Company (each, an “Eligible Director”). Under the Director Compensation, upon election to the Board, a new Eligible Director shall be entitled to a grant of 50,000 shares of Common Stock and an option to purchase up to 150,000 shares of Common Stock, vested monthly and fully vested after one year, at a price per share determined as of the date of grant, based on (i) the prior days’ closing price if there is a public market for Common Stock, or (ii) if there is no public market for Common Stock, the price per share in our most recently completed private placement of Common Stock or convertible securities (“Director Options”). The amount of shares and Director Options shall be prorated based on the date of a new Eligible Director’s appointment relative to the term remaining, if applicable.

Eligible Directors will also receive Director Options to purchase either (i) 10,000 shares of Common Stock for each Board meeting in which such Eligible Director attends in person, or (ii) 5,000 shares of Common Stock for each Board meeting in which such Eligible Director attends telephonically. Eligible Directors will also receive Director Options to purchase 25,000 shares of Common Stock following each year in which he or she has served on the Board. Director Options will vest monthly over the course of the year following the date such Director Options are granted, and must be exercised within five years of the grant date.

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In addition, the Director Compensation Policy provides that (i) the chairperson of the Board will receive Director Options to purchase 100,000 shares of Common Stock as an annual retainer, payable quarterly, unless otherwise provided by an independent compensation agreement; (ii) the chairperson of the Corporate Governance and Nominating Committee of the Board, if applicable, will receive Director Options to purchase 25,000 shares of Common Stock as an annual retainer, payable quarterly; (iii) the chairperson of the Audit Committee of the Board, if applicable, will receive a number of shares of Common Stock equal to $12,000, based on the same price per share method applied to Director Options, and Director Options to purchase 50,000 shares of Common Stock, both as an annual retainer, payable quarterly; (iv) the chairperson of the Compensation Committee of the Board, if applicable, will receive Director Options to purchase 30,000 shares of Common Stock as an annual retainer, payable quarterly; (v) other members of the Audit Committee of the Board, if applicable, will receive Director Options to purchase 15,000 shares of Common Stock as an annual retainer, payable quarterly; and (vi) other members of the Corporate Governance Committee and Nominating and Compensation Committee of the Board, if applicable, will receive Director Options to purchase 10,000 shares of Common Stock as an annual retainer, payable quarterly.

Narrative Disclosure to Summary Compensation and Option Tables

As of March 30, 2017, the Company has issued shares of Common Stock and Director Options under the Director Compensation Policy only to Mr. Sokolow. On January 25, 2016, the Company issued to Mr. Sokolow 50,000 shares of Common Stock in connection with his appointment to the Board on November 15, 2016 and Director Options to purchase up to 150,000 shares of Common Stock at $0.60 per share in connection with his appointment to the Board on November 15, 2016. All such amounts were reported as paid in 2015.

In connection with Mr. Sokolow’s appointment as the Chairman of our Audit Committee on January 5, 2016, we issued 12,000 shares of Common Stock pursuant to the Director Compensation Policy, the value of which was based on the value of shares sold in connection with the Company’s recent sale of securities in a private placement as of the time of issuance, which was $1.00 per share.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information with respect to the beneficial ownership of Common Stock by: (i) each director, (ii) each of the executive officers of the Company, (iii) all current directors and executive officers as a group, and (iv) each stockholder known to the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock.

Unless otherwise indicated in the footnotes to the table, all information set forth in the table is as of March 15, 2015. The addresses for the greater than 5% stockholders are set forth in the footnotes to this table.

Unless otherwise indicated in the footnotes to the table, all information set forth in the table is as of March 30, 2017, and the address for each director and executive officer of the Company is: c/o 4400 North Point Parkway, Suite 154, Alpharetta, GA 30022. The addresses for the greater than 5% stockholders are set forth in the footnotes to this table.

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Directors and Named Executive Officers

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership (1)	Percent of Class (1)
KRNB Holdings LLC (2)	8,703,969	17.43%
Mr. Phillips Peter (3)	500,000	1.02%
Mr. Thomas Ridge (4)	1,225,000	2.57%
Mr. Dov Shiff (5)	14,964,618	28.11%
Mr. Leonard Sokolow (6)	262,000	0.55%
Mr. John P. Campi (7)	1,050,000	2.15%
Mr. Mark J. Wells (8)	1,000,000	2.01%
Ms. Patricia Barron (9)	450,000	*
All Directors and Officers as a Group (8 persons)	28,155,587	50.43%

 Stockholders with 5% Beneficial Ownership

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership (1)	Percent of Class (1)
Motek 7 SQL LLC (10) 19101 Mystic Pointe Drive Apt. 2808 Aventura, FL 33180	7,771,566	15.88%
David S. Nagelberg 2003 Revocable Trust DTD 7/2/03 (11) 99 Coast Boulevard, Unit 21 DE LaJolla, CA 92037	3,615,865	6.92%
Pitch Energy Corporation (12) P.O. Box 400 Ruidoso, NM 88355	3,666,667	7.49%
Mr. Steven Siegelaub (13) 2801 N. University Dr. Suite 301 Coral Springs, FL 33065	4,677,875	9.02%

* Less than 1%

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(1) Applicable percentages are based on 48,943,166 shares outstanding, adjusted as required by rules of the SEC. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Unless otherwise indicated in the footnotes to this table, the Company believes that each of the shareholders named in the table has sole voting and investment power with respect to the shares of Common Stock indicated as beneficially owned by them. Shares of Series A Preferred Stock are convertible, at any time at the holder’s election, into an equal number of shares of Common Stock.

(2) Mr. Rani Kohen beneficially owns these 8,703,969 shares of Common Stock as Manager of KRNB Holdings LLC, which includes (i) 8,003,969 shares of Common Stock held by KRNB Holdings LLC and (ii) 700,000 shares of Common Stock issuable upon exercise of options issued under the Incentive Plan and held by KRNB Holdings LLC.

(3) Mr. Phillips Peter beneficially owns 500,000 shares of Common Stock, including (i) 200,000 shares of Common Stock, and (ii) 300,000 shares of Common Stock issuable upon exercise of options held by Mr. Peter.

(4) Mr. Thomas Ridge beneficially owns 1,225,000 shares of Common Stock, including (i) 875,000 shares of Common Stock, (ii) 100,000 shares of Common Stock issuable upon exercise of options held by Mr. Thomas Ridge, (iii) 50,000 shares of Common Stock issuable upon exercise of warrants issued pursuant to the Notes Offering and (iv) 200,000 shares of Common Stock issuable upon conversion of the convertible notes issued pursuant to the Notes Offering.

(5) Mr. Dov Shiff beneficially owns 14,964,618 shares of Common Stock, including (i) 10,674,618 shares of Common Stock, (ii) 1,690,000 shares of Common Stock issuable upon exercise of warrants issued pursuant to the Notes Offering, and (iii) 2,600,000 shares of Common Stock issuable upon conversion of Series A Preferred Stock.

(6) Mr. Leonard J. Sokolow beneficially owns 262,000 shares of Common Stock, including (i) 62,000 shares of Common Stock, (ii) 50,000 shares of Common Stock obtained pursuant to the November 2015 Stock Offering, and (iii) 150,000 shares of Common Stock issuable upon the exercise of Director Options.

(7) Mr. John P. Campi beneficially owns 1,050,000 shares of Common Stock, including (i) 750,000 shares of Common Stock, (ii) 250,000 shares of Common Stock obtained pursuant to the May 2015 Stock Offering, and (iii) 50,000 shares of Common Stock obtained pursuant to the November 2015 Stock Offering.

(8) Mr. Mark J. Wells beneficially owns 1,000,000 shares of Common Stock, including (i) 100,000 shares of Common Stock obtained pursuant to that certain consultant agreement between Mr. Wells and the Company, dated June 1, 2015, (ii) 150,000 shares of Common Stock purchased by Mr. Wells pursuant to the Wells Agreement, and (iii) 750,000 shares of Common Stock issuable upon exercise of warrants issued pursuant to the Wells Agreement.

(9) Ms. Patricia Barron beneficially owns 450,000 shares of Common Stock, including (i) 100,000 shares of Common Stock, (ii) 350,000 shares of Common Stock issuable upon the exercise of options issued under the Incentive Plan.

(10) Mr. Hillel Bronstein beneficially owns these shares of Common Stock as Manager of Motek 7 SQL LLC.

(11) The David S. Nagelberg 2003 Revocable Trust DTD 7/2/03 beneficially owns 3,615,865 shares of Common Stock, including (i) 315,865 shares of Common Stock, (ii) 1,300,000 shares of Common Stock issuable upon exercise of warrants issued pursuant to the Notes Offering, and (iii) 2,000,000 shares of Common Stock issuable upon conversion of Series A Preferred Stock.

(12) Mr. Johnny Gray and Mr. T L Chandler, as Trustees of the J C Gray Trust and T L Chandler Trust, respectively, have joint voting and dispositive control over these shares of Common Stock, as such trusts are equal 50% shareholders of Pitch Energy Corporation.

(13) Mr. Steven Siegelaub, in his personal capacity and as the Managing Member of 301 Office Ventures, LLC, Enterprise 2013, LLC, Investment 2013, LLC, and Safety Investors 2014, LLC beneficially owns 4,577,875 shares of Common Stock, including (i) 83,333 shares of Common Stock held by him and his wife personally; (ii) 875,000 shares of Common Stock owned by 301 Office Ventures, LLC; (iii) 762,254 shares of Common Stock beneficially owned by Enterprise 2013, LLC, consisting of (a) 577,046 shares of Common Stock and (b) 185,208 shares of Common Stock issuable upon exercise of warrants owned by Enterprise 2013, LLC; (iv) 1,189,972 shares of Common Stock beneficially owned by Investment 2013, LLC, consisting of (a) 219,303 shares of Common Stock, (b) 194,134 shares of Common Stock issuable upon exercise of warrants issued pursuant to the Notes Offering, and (c) 776,535 shares of Common Stock issuable upon conversion of Series A Preferred Stock; (v) 1,667,316 shares of Common Stock beneficially owned by Safety Investors 2014, LLC, consisting of (a) 17,316 shares of Common Stock, (b) 650,000 shares of Common Stock issuable upon exercise of Warrants issued pursuant to the Notes Offering, and (c) 1,000,000 shares of Common Stock issuable upon conversion of Series A Preferred Stock; and (vi) 100,000 shares of Common Stock issuable upon the exercise of options issued under the Incentive Plan and held by Mr. Siegelaub.

Table Of Contents 34

Changes in Control

We are unaware of any contract, or other arrangement or provision, the operation of which may at any subsequent date result in a change in control of our Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Except as described herein, none of the following parties (each a “Related Party”) has, in our fiscal years ended December 31, 2015 and December 31, 2016, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us, any of our directors or officers, any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of Common Stock or any member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the above persons.

We are currently party to the Chairman’s Agreement with Mr. Rani Kohen, Executive Chairman and Chairman of the Company’s Board, pursuant to which we are required to pay cash compensation in the amount of $250,000 per year. During 2015 and through August 31, 2016, we were a party to the Kohen Consulting Agreement with Mr. Kohen, pursuant to which we paid cash compensation in the amount of $150,000 per year. Both agreements are more fully described in Item 11 of this report, in the subsection entitled “Narrative Disclosure to Summary Compensation and Option Tables”.

In February 2016, Mr. Dov Shiff, a member of our Board, loaned $500,000 to the Company pursuant to an unsecured promissory note. Subject to other customary terms, the note is payable on demand and accrues interest at a rate or 12% per annum. As of December 31, 2016, the outstanding balance under the note was $200,000.

Director Independence

We are not currently subject to any listing standards of any national exchange. However, were we to apply the standards of the New York Stock Exchange, Messrs. Kohen and Shiff would not be considered “independent” under such standards.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth the aggregate fees billed to us for the years ended December 31, 2015 and December 31, 2016 by our independent auditors, L&L CPAS, PA, f/k/a Bongiovanni & Associates, PA:

	2016		2015
Audit Fees	$	35,000	$	25,000
Audit-Related Fees		16,500		16,000
Tax Fees
Other Fees
Totals	$	51,500	$	41,000

Audit fees represent amounts billed for professional services rendered for the audit of our annual financial statements. Audit-Related Fees include amounts billed for professional services rendered in connection with our SEC filings and discussions with the SEC that occurred during fiscal 2014 for us to remain a fully reporting public company. Our Board is of the opinion that the Audit-Related Fees charged by L&L CPAS, PA were consistent with companies of our size maintaining its independence from us.

The audit committee of the Company approves all auditing services and the terms thereof and non-audit services (other than non-audit services published under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or the Pubic Company Accounting Oversight Board) to be provided to us by the independent auditor; provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit services for us if the “de minimis” provisions of Section 10A(i)(1)(B) of the Exchange Act are satisfied.

Table Of Contents 35

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

Report of Independent Registered Public Accounting Firm

Audited Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014

Audited Consolidated Statements of Operations for the Year Ended December 31, 2015 and 2014

Audited Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2015, and 2014

Audited Consolidated Statements of Cash Flows for the Year Ended December 31, 2015 and 2014

Notes to Audited Financial Statements

Table Of Contents 36

(b) Exhibit Index

Exhibit No.		Description of Exhibit	Footnote
	3.1	Articles of Incorporation of Registrant, as amended.		(9)
	3.2	Bylaws of Registrant.		(2)
	4.1	Form of Common Stock Certificate.		(2)
	10.1	GE Trademark License Agreement, dated as of June 15, 2011, by and between GE Trademark Licensing, Inc. and SQL Lighting & Fans, LLC, as amended.		(2)
	10.2	Form of 2013 Director Stock Option Agreement.		(2)
	10.3	Forms of Security Purchase Agreement, Registration Rights Agreement, Note Subscription Agreement, Common Stock Purchase Warrant and Secured Convertible Promissory Note for the Notes Offering closed November 26, 2013, May 8, 2014 and June 25, 2014.		(2)
	10.4	Forms of Agreement and Waiver, dated December 10, 2014, between the Registrant and 2012 Investors, Letter Agreement to Convert, dated January 23, 2014, between the Registrant and holders of Notes dated November 26, 2013 and May 8, 2014.		(4)
	10.5	Form of November 2015 Election Letter and Forbearance Agreement.		(5)
	10.6	Form of February 2016 Forbearance Agreement.		(6)
	10.7	Form of May 2016 Forbearance Agreement.		(8)
	10.8	Forms of Subscription Agreements for U.S. Persons and Non-US Persons ad Registration Rights Agreement utilized in the May 2015 Stock Offering.		(5)
	10.9	Forms of Subscription Agreements and Registration Rights Agreement utilized in the November 2015 Stock Offering		(6)
	10.10	Form of Securities Subscription Agreement and Common Stock Purchase Warrant used in the April 2016 Stock Sale.		(11)
	10.11	Form of Securities Subscription Agreement, including the terms to issue Volume Warrants, and form of Common Stock Purchase Warrant used in the May 2016 Stock Sale.		(7)
	10.12	Form of Securities Subscription Agreement, including the terms to issue Volume Warrants, and form of Common Stock Purchase Warrant used in the August 2016 Stock Sale.		(9)
	10.13	Form of Amendment No. 1 to Secured Convertible Promissory Note		(8)
	10.14	Form of Lock-Up Agreement		(8)
		Office Lease dated October 24, 2014 between the Company and Highwoods DLF 98/29, LLC.		(4)
	10.15	Executive Employment Agreement, dated August 17, 2016 between the Company and Mark J. Wells. *		(10)
	10.16	Executive Employment Agreement, dated September 1, 2016 between the Company and John P. Campi. *		(10)
	10.17	Chairman’s Agreement, dated September 1, 2016 between the Company and Rani Kohen. *		(10)
	10.18	Executive Employment Agreement, dated July 1, 2016 between the Company and Patty Barron. *		(9)
	10.19	Director Compensation Policy. *		(5)
	10.22	The 2015 Stock Incentive Plan. *		(6)
	21.1	List of Subsidiaries.		(6)
	31.1	Certification of Principal Executive Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		(1)
	31.2	Certification of Principal Accounting Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		(1)
	32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		(1)
	32.2	Certification of Principal Accounting Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		(1)
	101	The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 are formatted in XBRL (eXtensible Business Reporting Language):  (i) the Audited Balance Sheets, (ii) the Audited Statements of Operations, (iii) the Audited Statements of Stockholders’ Equity (Deficit), (iv) the Audited Statements of Cash Flows,  and (iv) the Notes to the Audited Financial Statements.		(1)

*       Indicates management contract or compensatory plan or arrangement.

Table Of Contents 37

(1) Filed herewith.

(2) Incorporated by reference from the Company’s registration statement on Form S-1 filed with the SEC on August 1, 2014 and, declared effective on October 22, 2014.

(3) Incorporated by reference from the Company’s current report on Form 8-K filed with the SEC on November 26, 2014.

(4) Incorporated by reference from the Company’s annual report on Form 10-K filed with the SEC on March 31, 2015.

(5) Incorporated by reference from the Company’s registration statement on Form S-1 filed with the SEC on January 11, 2016, and declared effective on January 20, 2016.

(6) Incorporated by reference from the Company’s annual report on Form 10-K filed with the SEC on March 30, 2016.

(7) Incorporated by reference from the Company’s quarterly report on Form 10-Q filed with the SEC on May 16, 2016.

(8) Incorporated by reference from the Company’s quarterly report on Form 10-Q filed with the SEC on August 15, 2016.

(9) Incorporated by reference from the Company’s quarterly report on Form 10-Q filed with the SEC on November 14, 2016.

(10) Incorporated by reference from the Company’s current report on Form 8-K filed with the SEC on November 8, 2016.

(11)       Incorporated by reference to the Company’s current report on Form 8-K filed with the SEC on April 7, 2016.

Table Of Contents 38

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SQL TECHNOLOGIES CORP.

By: /s/ John P. Campi

John P. Campi

Chief Executive Officer

(Principal Executive Officer)

(Principal Accounting Officer)

Signatures	Title	Date
/s/ John P. Campi	Chief Executive Officer	March 31, 2017
John P. Campi
/s/ Rani Kohen	Executive Chairman, Director	March 31, 2017
Rani Kohen
/s/ Phillips Peter	Director	March 31, 2017
Phillips Peter
/s/ Tom Ridge	Director	March 31, 2017
Tom Ridge
/s/ Dov Shiff	Director	March 31, 2017
Dov Shiff
/s/ Leonard Sokolow	Director	March 31, 2017
Leonard Sokolow

Table Of Contents 39

FINANCIAL STATEMENTS

 SAFETY QUICK LIGHTING & FANS CORP AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Index to Consolidated Financial Statements

	Pages
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets – December 31, 2016 and 2015	F-2
Consolidated Statements of Operations – December 31, 2016 and 2016	F-4
Consolidated Statement of Stockholders’ Deficit – December 31, 2016 and 2015	F-5
Consolidated Statements of Cash Flows – December 31, 2016 and 2015	F-7
Notes to Consolidated Financial Statements	F-9

Table Of Contents 40

                  NC Office 19720 Jetton Road, 3rd Floor Cornelius, NC 28031 Tel: 704-897-8336 Fax: 704-919-5089

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Safety Quick Lighting & Fans Corp. and Subsidiary

We have audited the accompanying consolidated balance sheets of SQL Technologies Corp. and Subsidiary (“the Company”) as of December 31, 2016 and 2015 and the related consolidated statements of operations, stockholders’ deficit, and consolidated cash flows for the years ended December 31, 2016 and 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and 2015, and the results of its operations, changes in stockholders’ deficit and cash flows for the years ended December 31, 2016 and 2015 in conformity with accounting principles generally accepted in the United States of America.

/s/ L&L CPAS, PA

L&L CPAS, PA

F.K.A. Bongiovanni & Associates, PA

Certified Public Accountants

Cornelius, North Carolina

The United States of America

March 31, 2016

F-1

SQL Technologies Corp. and Subsidiary

Consolidated Balance Sheets

(Audited)

	December 31, 2016		December 31, 2015
Assets
Current assets:
Cash	$	4,125,888	$	450,868
Accounts receivable		796,824		234,309
Inventory		2,401,048		263,871
Prepaid expenses		41,229		35,769
Other current assets		—		210
Total current assets		7,364,989		985,028
Furniture and Equipment - net		113,605		127,521
Other assets:
Patent - net		106,342		83,174
Debt issue costs - net		—		14,605
GE trademark license - net		4,675,585		7,123,746
Other assets		202,346		65,714
Total other assets		4,984,273		7,287,239
Total assets	$	12,462,867	$	8,399,788
Liabilities and Stockholders (Deficit)
Current liabilities:
Accounts payable & accrued expenses	$	1,060,163	$	807,798
Convertible debt - net of debt discount  $-0- and $474,283 at		150,000		3,989,950
December 31, 2016 and December 31, 2015 respectively
Convertible debt - related parties - net of debt discount  $-0- and		50,000		50,000
$-0- at December 31, 2016 and December 31, 2015 respectively
Notes payable - current portion		3,225,961		107,944
Notes payable - related party		200,000		—
Derivative liabilities		24,083,314		24,157,838
Other current liabilities		15,077		46,010
Total current liabilities		28,784,515		29,159,540
Long term liabilities:
Convertible debt		—		—
Convertible debt - related parties - net		—		—
Notes payable		73,598		193,800
GE royalty obligation		11,302,423		11,795,855
Total long term liabilities		11,376,021		11,989,655
Total liabilities		40,160,536		41,149,195

F-2

Commitments and contingent liabilities:
Redeemable preferred stock - subject to redemption: $0 par value;
20,000,000 shares authorized; 13,056,932 and -0- shares issued
and outstanding at December 31, 2016 and December 31, 2015
respectively		44,393,569			—
Stockholders' deficit:
Common stock: $0 par value, 500,000,000 shares authorized;
47,276,499 and 41,501,251 shares issued and outstanding
at December 31, 2016 and December 31, 2015 respectively		12,294,391			2,892,078
Common stock to be issued		—			625,000
Additional paid-in capital		56,910,107			6,472,427
Subscription receivable		(78,000	)		—
Accumulated deficit		(141,182,294	)		(42,703,470	)
Total Stockholders' deficit		(72,055,796	)		(32,713,965	)
Noncontrolling interest		(35,442	)		(35,442	)
Total Deficit		(72,091,238	)		(32,749,407	)
Total liabilities, redeemable preferred stock, and stockholders' deficit	$	12,462,867		$	8,399,788

        The accompanying notes are an integral part of these condensed consolidated financial statements.                

F-3

SQL Technologies Corp. and Subsidiary

Consolidated Statements of Operations

Years Ended December 31,

(Audited)

(Unaudited)

	2016			2015
Sales	$	7,014,978		$	2,885,007
Cost of sales		(6,136,395	)		(2,477,252	)
Gross profit		878,583			407,755
General and administrative expenses		6,866,355			5,236,747
Loss from operations		(5,987,772	)		(4,828,992	)
Other income (expense)
Interest expense		(980,867	)		(2,855,519	)
Derivative expenses		(9,678,390	)		—
Change in fair value of embedded derivative liabilities		(43,634,482	)		(19,416,295	)
Loss on debt extinguishment		(41,129,336	)		—
Other income		13,275			992
Gain on Debt Extinguishment		2,949,714			209,604
Total other income (expense) - net		(92,460,086	)		(22,061,218	)
Net loss including noncontrolling interest		(98,447,858	)		(26,890,210	)
Less: net loss attributable to noncontrolling interest		—			—
Net loss attributable to Safety Quick Lighting & Fans Corp.	$	(98,447,858	)	$	(26,890,210	)
Net loss per share - basic and diluted	$	(2.60	)	$	(0.76	)
Weighted average number of common shares outstanding during the year -
basic and diluted		37,916,952			35,409,521

        The accompanying notes are an integral part of these condensed consolidated financial statements.                

F-4

SQL Technologies Corp. and Subsidiary

Consolidated Statement of Stockholders' Deficit

Years Ended December 31, 2016 and December 31, 2015

 (Audited)

	Common Stock, $0 Par Value						Subscription		Paid-In		Accumulated			Noncontrolling			Stockholders'
	Shares		To Be Issued		Amount		Receivable		Capital		Deficit			Interest			Deficit
Balance, December 31, 2014		35,750,000		13,812		$189,900		—		$6,282,814		$(15,813,260	)		$(35,442	)		$(9,362,177	)
Common stock issued in exchange for interest due ($0.25/share)		1,718,585				429,646		—		—		—			—			429,646
Common stock issued per mutual release and waiver		250,000		111,188		62,500		—		—		—			—			173,688
Reclassification of derivative liability related to penalty and Interest										189,613								189,613
Common stock issued ($0.60/share), net of issuance cost		3,782,666				2,210,032		—		—		—			—			2,210,032
Common stock issued ($1.00/share), net of issuance cost		—		500,000		—		—		—		—			—			500,000
Net loss		—				—		—		—		(26,890,210	)		—			(26,890,210	)

F-5

Balance, December 31, 2015	41,501,251	625,000		$2,892,078	$		—		$		6,472,427	$(42,703,470	)	$(35,442	)	$(32,749,407	)
Common stock issued in exchange for interest due	1,000,000	(625,000	)	625,000			—				—	—		—		—
Common stock issued, net of issuance cost	3,155,000	—		7,538,000			(78,000	)			—	—		—		7,460,000
Common stock issued for services rendered	265,000	—		769,000			—				—	—		—		769,000
Common stock issued pursuant to stock award	25,000	—		65,000			—				—	—		—		65,000
Pursuant Director Compensation Policy, appointment to Board and Chair of Audit Committee	62,000	—		62,000			—				—	—		—		62,000
Common stock issued in exchange for principal and interest due	790,092	—		197,524			—				—	—		—		197,524
Conversion of convertible notes to common stock	443,156	—		110,789			—				—	—		—		110,789
Reclassification of derivative liability related to convertible notes	—	—		—			—				45,161,472	—		—		45,161,472
Reclassification of derivative liability related to interest payable	—	—		—			—				4,798,750	—		—		4,798,750
Reclassification of derivative liability related to options	—	—		—			—				477,458	—		—		477,458
Dividends Paid	—	—		—			—				—	(30,966	)	—		(30,966	)
Net loss	—	—		—			—				—	(98,447,858	)	—		(98,447,858	)
Balance, December 31, 2016	47,276,499	—		$12,294,391		$	(78,000	)		$	56,910,107	$(147,182,294	)	$(35,442	)	$(72,091,238	)

The accompanying notes are an integral part of these condensed consolidated financial statements.      

F-6

SQL Technologies Corp. and Subsidiary

Consolidated Statements of Cash Flows

Years Ended December 31,

(Audited)

	2016			2015
Cash flows from operating activities:
Net loss attributable to Safety Quick Lighting & Fans Corp.	$	(98,447,858	)	$	(26,890,210	)
Net loss attributable to noncontrolling interest		—			—
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		26,483			22,464
Amortization of debt issue costs		14,605			147,341
Amortization of debt discount		474,283			2,100,957
Amortization of patent		7,958			5,347
Amortization of GE trademark license		2,448,162			2,441,471
Change in fair value of derivative liabilities		43,634,481			19,416,295
Derivative expense		9,678,390			—
Loss on debt extinguishment		41,129,336			—
Loss (Gain) on debt forgiveness		(2,949,714	)		(209,604	)
Stock options issued for services - related parties		931,000			173,688
Change in operating assets and liabilities:
Accounts receivable		(562,515	)		(234,309	)
Prepaid expenses		(5,460	)		(6,126	)
Inventory		(2,137,177	)		(263,871	)
Deferred royalty		—			—
Royalty payable		(493,432	)		(204,147	)
Other		(167,356	)		(32,822	)
Deferred rent		—			—
Accounts payable & accrued expenses		252,367			(233,944	)
Net cash used in operating activities		(6,166,446	)		(3,767,470	)
Cash flows from investing activities:
Purchase of property & equipment		(12,567	)		(17,376	)
Payment of patent costs		(31,127	)		(42,102	)
Net cash used in investing activities		(43,694	)		(59,478	)

F-7

Cash flows from financing activities:
Repayments of convertible notes		(4,314,233	)		—
Reduction of Notes converted to Preferred Stock		3,264,233			—
Proceeds from note payable		5,293,016			—
Proceeds from note payable - related party		500,000			—
Stock issued in exchange for interest		158,312			429,646
Stock issued in exchange for principal		150,000			—
Dividends paid		(30,966	)		—
Repayments of note payable		(2,295,202	)		(103,351	)
Repayments of note payable - related party		(300,000	)		—
Proceeds from issuance of stock		7,460,000			2,710,032
Net cash provided by financing activities		9,885,160			3,036,327
(Decrease) cash and cash equivalents		3,675,020			(790,621	)
Cash and cash equivalents at beginning of period		450,868			1,241,489
Cash and cash equivalents at end of period	$	4,125,888		$	450,868
Supplementary disclosure of non-cash financing activities:
Reclassification of derivative liability to additional paid-in-capital	$	50,437,681		$	189,613
Gain on debt extinguishment	$	2,949,714		$	209,604
Supplementary disclosure of cash flow information
Cash paid during the period for:
Interest	$	315,631		$	563,637

                   The accompanying notes are an integral part of these condensed consolidated financial statements.                

F-8

SQL Technologies Corp. and Subsidiary

Notes to Condensed Financial Statements

Note 1 Organization and Nature of Operations

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 a number of worldwide patents, and has received a variety of final electrical code approvals, including UL Listing and CSA approval (for the United States and Canadian Markets), and CE (for the European market). The Company maintains offices in Georgia, Florida and in Foshan, Peoples Republic of China.

The Company is engaged in the business of developing proprietary technology that enables a quick and safe installation of electrical fixtures, such as light fixtures and ceiling fans, by the use of a power plug installed in ceiling and wall electrical junction boxes. The Company’s main technology consists of a weight bearing, 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 nonconductive body that houses conductive rings connectable to an electric power supply through terminals in its side exterior.

The plug is also comprised of a nonconductive 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 includes a second structural element allowing it to revolve and 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, thereby 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 and wall sconce fixtures.

The Company markets consumer friendly, energy saving “plugin” ceiling fans and light fixtures under the General Electric Company (“GE” or “General Electric”) brand as well as “conventional” ceiling lights and fans carrying the GE brand. The Company also owns 98.8% of SQL Lighting & Fans LLC (the “Subsidiary”). The Subsidiary was formed in Florida on April 27, 2011, and is in the business of manufacturing the patented device that the Company owns. The Subsidiary had no activity during the periods presented.

The Company’s fiscal year end is December 31.

Note 2 Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting.

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.

F-9

Risks and Uncertainties

The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure.

The Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at large national retail chains where product is expected to be sold (iii) general economic conditions and (iv) the related volatility of prices pertaining to the cost of sales.

Principles of Consolidation

The consolidated financial statements include the accounts of SQL Technologies Corp. (f/k/a Safety Quick Lighting and Fans Corp.) and the Subsidiary, SQL Lighting & Fans LLC. All intercompany accounts and transactions have been eliminated in consolidation.

Non-controlling Interest

In May 2012, in connection with the sale of the Company’s membership units in the Subsidiary, the Company’s ownership percentage in the Subsidiary decreased from 98.8% to 94.35%. The Company then reacquired these membership units in September 2013, increasing the ownership percentage from 94.35% back to 98.8%. During 2016 and 2015, there was no activity in the Subsidiary.

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions, and all highly liquid investments with an original maturity of three months or less. The Company had $4,125,888 and $450,868 in money market as of December 31, 2016, and December 31, 2015, respectively. The Company has deposits in financial institutions which exceeds the amount insured by the FDIC. The amount of uninsured deposits was $3,366,685.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts.

The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future bad debts, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.

The Company’s net balance of accounts receivable for years ended December 31, 2016 and 2015:

	December 31, 2016		December 31, 2015
Accounts Receivable	$	796,824	$	234,309
Allowance for Doubtful Accounts		—		—
Net Accounts Receivable	$	796,824	$	234,309

All amounts are deemed collectible at December 31, 2016 and December 31, 2015 and accordingly, the Company has not incurred any bad debt expense at December 31, 2016 and December 31, 2015.

F-10

Inventory

Inventory consists of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out (FIFO) method. The Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates the impact of any anticipated changes in future demand.

At December 31, 2016 and December 31, 2015, the Company had $2,401,048 and $263,871 in inventory, respectively. The Company will maintain an allowance based on specific inventory items that have shown no activity over a 24-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of December 31, 2016, and December 31, 2015, the Company has determined that no allowance is required.

Valuation of Long-lived Assets and Identifiable Intangible Assets

The Company reviews for impairment of long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to its fair market value. The Company determined no impairment adjustment was necessary for the periods presented.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation, and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5 to 7 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.

Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

Intangible Asset Patent

The Company developed a patent for an installation device used in light fixtures and ceiling fans. Costs incurred for submitting the applications to the United States Patent and Trademark Office for these patents have been capitalized. Patent costs are being amortized using the straight-line method over the related 15 year lives. The Company begins amortizing patent costs once a filing receipt is received stating the patent serial number and filing date from the Patent Office.

The Company incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or alternative future use is available to the Company. The Company also capitalizes legal costs incurred in the defense of the Company’s patents when it is believed that the future economic benefit of the patent will be maintained or increased and a successful defense is probable. Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s assessment of future economic benefit or a successful defense of its patents involves considerable management judgment, and an unfavorable outcome of litigation could result in a material impairment charge up to the carrying value of these assets.

GE Trademark Licensing Agreement

The Company entered into a Trademark License Agreement with General Electric on September, 2011 (the “License Agreement”) allowing the Company to utilize the “GE trademark” on products which meet the stringent manufacturing and quality requirements of General Electric (the “GE Trademark License”). As described further in Note 5 to these financial statements, the Company and General Electric amended the License Agreement in August 2014. As a result of that amendment, the Company is required to pay a minimum trademark licensing fee (the “Royalty Obligation”) to General Electric of $12,000,000. The repayment schedule is based on a percent of sales, with any unpaid balance due in November 2018. Under SFAS 142 “Accounting for Certain Intangible Assets” the Company has recorded the value of the Licensing Agreement and will amortize it over the life of the License Agreement, which is 60 months.

F-11

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

The following are the hierarchical levels of inputs to measure fair value:

• Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.

• Level 2 Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

• Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments.

The Company accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3. See Note 9.

Embedded Conversion Features

The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion features.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported as charges or credits to income.

For option based simple derivative financial instruments, the Company uses the Black Scholes option pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period.

Beneficial Conversion Feature

For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.

When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.

F-12

Debt Issue Costs and Debt Discount

The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Original Issue Discount

For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.

Extinguishments of Liabilities

The Company accounts for extinguishments of liabilities in accordance with ASC 86010 (formerly SFAS 140) “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized and the gain or loss on the sale is recognized.

Stock Based Compensation – Employees

The Company accounts for its stock based compensation in which the Company obtains employee services in share based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.

If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of share options and similar instruments is estimated on the date of grant using a Black Scholes option pricing valuation model. The ranges of assumptions for inputs are as follows:

• Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees expected exercise and post vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

F-13

• Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f) (2)(ii) a thinly traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market

• Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk free rates used. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

Generally, all forms of share based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.

The expense resulting from share based payments is recorded in general and administrative expense in the statements of operations.

Stock Based Compensation – Non-Employees

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Subtopic 505-50 of the FASB Accounting Standards Codification (“Subtopic 505-50”).

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum, or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option pricing valuation model. The ranges of assumptions for inputs are as follows:

• Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

F-14

• Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f) (2)(ii) a thinly traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

• Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

• Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

Pursuant to ASC paragraph 505-50-257, if fully vested, no forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra equity by the grantor of the equity instruments.

The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.

Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

F-15

Revenue Recognition

The Company derives revenues from the sale of GE branded fans and lighting fixtures to large retailers through retail and online sales.

Revenue is recorded when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) asset is transferred to the customer without further obligation, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured.

Cost of Sales

Cost of sales represents costs directly related to the production and third party manufacturing of the Company’s products.

Product sold is typically shipped directly to the customer from the third-party manufacturer; cost associated with shipping and handling is shown as a component of cost of sales.

Earnings (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 years ended December 31, 2016 and 2015, the Company reflected net loss and a dilutive net loss, and the effect of considering any common stock equivalents would have been antidilutive for the period. Therefore, separate computation of diluted earnings (loss) per share is not presented for the periods presented.

The Company has the following common stock equivalents at December 31, 2016 and December 31, 2015:

	December 31, 2016	December 31, 2015
Convertible Debt  (Exercise price - $0.25/share)	800,000		18,056,935
Stock Warrants (Exercise price - $0.001 - $3.00/share)	13,555,651		9,728,984
Stock Options (Exercise price $0.35 - $3.50/share)	1,350,000		200,000
Total	15,705,651		27,985,919

Income Tax Provision

The financial statements reflect the Company’s transactions without adjustment, if any, required for income tax purposes. The net loss generated by the Company for the period January 1, 2012 to November 6, 2012 has been excluded from the computation of income taxes due to the company’s tax designation as an LLC during that period.

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment date.

F-16

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (Section 740-10-25). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carrybacks and carryforwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

The Company’s tax returns are subject to examination by the federal and state tax authorities.

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting periods ended December 31, 2016 and 2015 

Related Parties

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to Section 850-10-20 the related parties include (a) Affiliates of the Company; (b) Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) Trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; (d) Principal owners of the Company; (e) Management of the Company; (f) Other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a). the nature of the relationship(s) involved; (b). a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c). the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d). amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

F-17

Contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows.

Subsequent Events

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued.

Pursuant to ASU 201009 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

Recently Issued Accounting Pronouncements

In March 2016, the FASB issued ASU 2016-09, Stock Compensation, which is intended to simplify the accounting for share-based payment award transactions. The new standard will modify several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within that year, and will be adopted by the Company in the first quarter of fiscal 2017. The Company anticipates the new standard will result in an increase in the number of shares used in the calculation of diluted earnings per share and will add volatility to the Company’s effective tax rate and income tax expense. The magnitude of such impacts will depend in part on whether significant employee stock option exercises occur.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Topic 83530): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected by ASU 2015-03. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company has reclassified debt issuance costs from prepaid expenses and other current assets and other assets as a reduction to debt in the condensed consolidated balance sheets.

F-18

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), which applies guidance on the subsequent measurement of inventory. ASU 2015-11 states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The guidance excludes inventory measured using last-in, first-out or the retail inventory method. ASU 2015-11 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is not planning to early adopt ASU 2015-11 and is currently evaluating ASU 2015-11 to determine the potential impact to its condensed consolidated financial statements and related disclosures.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the Company’s financial position, results of operations or cash flows.

Note 3 Furniture and Equipment

Property and equipment consisted of the following at December 31, 2016 and December 31, 2015:

	December 31, 2016			December 31, 2015
Office Equipment	$	9,327		$	8,096
Furniture and Fixtures		33,578			30,561
Tooling and Production		136,835			128,515
Total		179,740			167,172
Less: Accumulated Depreciation		(66,135	)		(39,651	)
Property and Equipment - net	$	113,605		$	127,521

Depreciation expense amounted to $26,483 and $22,430 for the twelve months ended December 31, 2016 and 2015, respectively.

Note 4 Intangible Assets

Intangible assets (patents) consisted of the following at December 31, 2016 and December 31, 2015:

	December 31, 2016			December 31, 2015
Patents	$	134,919		$	103,792
Less: Impairment Charges		—			—
Less: Accumulated Amortization		(28,575	)		(20,618	)
Patents - net	$	106,344		$	83,174

Amortization expense associated with patents amounted to $7,958 and $5,347 for the twelve months ended December 31, 2016 and 2015, respectively.

At December 31, 2016, future amortization of intangible assets:

Year Ending December 31
2017	$	8,995
2018		8,995
2019		8,995
2020		8,995
2021		8,995
2022 and Thereafter		61,369
	$	106,344

F-19

Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments and other factors.

Note 5 GE Trademark License Agreement

The Company entered into an amended License Agreement with General Electric regarding the GE Trademark License. The License Agreement is amortized through its expiration in November 2018.

	December 31, 2016			December 31, 2015
GE Trademark License	$	12,000,000		$	12,000,000
Less: Impairment Charges		—			—
Less: Accumulated Amortization		(7,324,415	)		(4,876,254	)
Patents – net	$	4,675,585		$	7,123,746

Amortization expense associated with the GE Trademark License amounted to $2,448,161 and $2,441,472 for the twelve months ended December 31, 2016 and 2015, respectively

At December 31, 2016, future amortization of intangible assets is as follows for the remaining:

Year Ending December 31
	2017		2,441,472
	2018		2,234,113
		$	4,675,585

Note 6 Notes Payable

At December 31, 2016 and December 31, 2015, the Company had a note payable to a bank in the amount of $186,823 and $301,744, respectively. The note, dated May 2007, is due in monthly payments of $10,000 and carries interest at 4.75%. The note is secured by certain assets of the Company compensating balances, and is due August 2018.

On April 13, 2016, the company entered in to an agreement with a third party for a $10,000,000 line of credit. The primary purpose of this line of credit is to fund manufacturing and product related obligations. The note carries interest of 8%, due monthly with principal and unpaid interest due December 31, 2017. The note is secured by the assets of the company. The outstanding balance on this note was $3,112,737 at December 31, 2016.

The Company received a $500,000 loan from a related party in January 2016. The note is on demand and carries interest of 12%. As of December 31, 2016, the outstanding balance is $200,000.

Principal payments due under the terms of the notes described above are as follows:

Principal Due in Next 12 months
2017	$	3,425,961
2018		73,598
	$	3,422,294

F-20

Note 7 Convertible Debt Net

The Company has recorded derivative liabilities associated with convertible debt instruments, as more fully discussed at Note 8.

	Third Party		Related Party		Totals
Balance December 31, 2014	$	1,911,995	$	26,999	$	1,938,994
Add: Amortization of Debt Discount		2,077,955		23,001		2,100,956
Balance December 31, 2015		3,989,950		50,000		4,039,950
Add: Amortization of Debt Discount		474,283		—		474,283
Less Repayments/Conversions		(4,314,233)		—		(4,314,233)
Balance December 31, 2016		150,000		50,000		200,000
Less Current portion		(150,000)		(50,000)		(200,000)
Long-Term Convertible Debt	$	—	$	—	$	—

On November 26, 2013, May 8, 2014 and September 25, 2014 the Company completed closings in connection with its offering (the “Notes Offering”) of its 12% Secured Convertible Promissory Notes (the “12% Notes”) in the aggregate principal amount of $4,240,100 and/or its 15% Secured Convertible Promissory Notes in the aggregate principal amount of $30,000 (the “15% Notes”, and together with the 12% Notes, each a “Note” and collectively, the “Notes”), as applicable, with certain “accredited investors” (the “Investors”), as defined under Regulation D, Rule 501 of the Securities Act. The entire aggregate principal amount of the Notes of $3,574,234 outstanding as of December 31, 2016 and $4,270,100 was outstanding as of December 31, 2015, such amount being exclusive of securities converted into the Notes separate from the Notes Offering. Pursuant to the Notes Offering, the Company received $1,752,803, $1,400,000 and $800,500 in net proceeds on November 26, 2013, May 8, 2014 and September 25, 2014, respectively.

In addition to the terms customarily included in such instruments, the Notes began accruing interest on the date that each Investor submitted the principal balance of such Investor’s Note, with the interest thereon becoming due and payable on the one year anniversary, and quarterly thereafter. Upon a default of the Notes, the interest rate will increase by 2% for each 30 day period until cured. The principal balance of each Note and all unpaid interest became payable twenty-four (24) months after the date of issuance. The principal and outstanding interest under the Notes are convertible into shares of the Company’s common stock at $0.25 per share and are secured by a first priority lien (subject only to an existing note with Signature Bank of Georgia on the Company’s intellectual property and all substitutes, replacements and proceeds of such intellectual property) pursuant to the terms of a Security Purchase Agreement, dated as of November 26, 2013, May 8, 2014 and September 25, 2014, as applicable, by and between the Company and each Investor.

Pursuant to the Notes Offering, each Investor also received five (5) year common stock warrants to purchase the Company’s common stock at $0.375 per share (each a “Warrant” and collectively, the “Warrants”). Investors of the 12% Notes received Warrants with 25% coverage based on a predetermined valuation of the Company. Investors of the 15% Notes received Warrants with 15% coverage based on the predetermined valuation of the Company. Investors with a principal investment amount equal to or greater than $250,000 received Warrants with a bonus 40% coverage (“Bonus Coverage”); however, if an Investor previously invested $250,000 or more in the Notes Offering, such Investor received Bonus Coverage if such Investor subsequently invested $100,000 or more in the Notes Offering. In addition to the terms customarily included in such instruments, the Warrants may be exercised by the Investors by providing to the Company a notice of exercise, payment and surrender of the Warrant.

The Notes and Warrants were treated as derivative liabilities.

In connection with the Notes Offering, the Company entered into Registration Rights Agreements, each dated as of November 26, 2013, May 8, 2014 and September 25, 2014, and each by and between the Company and each of the Investors (collectively, the “Registration Rights Agreements”), whereby the Company agreed to prepare and file a registration statement with the SEC within sixty (60) days after execution of the applicable Registration Rights Agreement and to have the registration statement declared effective by the SEC within ninety (90) days thereafter.

Because the Company was unable to file a registration statement pursuant to the terms of each Registration Rights Agreements dated as of November 26, 2013 or May 8, 2014, the Company was in default under such Registration Rights Agreements (the “Filing Default Damages”), and because the Company was unable to have a registration statement declared effective pursuant to the terms of the Registration Rights Agreements dated as of November 26, 2013, the Company was in default under such Registration Rights agreements (the “Effectiveness Default Damages”). The Filing Default Damages stopped accruing on the date such registration statement was filed, and the Effectiveness Default Damages stopped accruing on the date it was declared effective.

F-21

The Company invited the Investors holding Notes dated November 26, 2013 to extend the first interest payment that was scheduled to be paid pursuant to the Notes dated November 26, 2013 (the “Interest Due”) to February 24, 2015 and in exchange offered to capitalize the Interest Due at a rate of 12% through payment (the “Additional Interest”), all of which was convertible into the Company’s common stock at a price of $0.25 per share. Through December 31, 2016, the Company has issued in total 2,343,191 shares of its common stock representing $585,798 in Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages. As of December 31, 2016, all Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages was repaid by the Company.

During 2015, five Investors requested that the Company withhold payments of interest due under their Notes at no cost to the Company, to allow the Company to address working capital needs. Such interest due has been or will be paid to the five Investors, and none of such amounts have been or will be paid in shares of the Company’s capital stock.

In November 2015, the Company invited the holders of Notes dated November 26, 2013, with respect to outstanding principal and interest due under their respective Notes, to (i) receive payment in cash, (ii) convert their Notes into shares of the Company’s common stock, or (iii) forbear an election for three (3) months, or until February 26, 2016, pursuant to a forbearance agreement, during such time interest under their respective Notes would continue to accrue. In February 2016, the Company invited the same holders to extend their forbearance period to make an election to convert or redeem their Notes for an additional three months, or until May 26, 2016, under the same terms as the first forbearance agreements. In May 2016, the Company invited the holders of all Notes, where such holders had not already made an election to redeem or convert their Notes, to forbear or extend their forbearance period to make an election to convert or redeem their Notes until July 31, 2016, which the Company thereafter extended to August 15, 2016 (the “August 2016 Election”). This also provided a third option to all noteholders, whereby such holders could convert their respective Note(s) into shares of Series A Convertible Preferred Stock (“Preferred Stock”).

In May 2016, the Company invited the holders of all Notes, where such holders had not already made an election to redeem or convert their Notes, to forbear or extend their forbearance period to make an election to convert or redeem their Notes until July 31, 2016, which the Company thereafter extended to August 15, 2016 (the “August 2016 Election”). This also provided a third option to all noteholders, whereby such holders could convert their respective Note(s) into shares of Series A Convertible Preferred Stock (“Preferred Stock”).

Through December 31, 2016, the Company received elections, in connection with the August 2016 Election, to (i) convert three (3) Notes into 240,000 shares of common stock of the Company representing an aggregate principal balance of $60,000, and (ii) convert 31 Notes into 13,056,936 shares of Preferred Stock representing an aggregate principal balance of $3,264,234. Also through December 31, 2016, the Company received no elections in connection with the August 2016 Election to redeem Notes and four (4) Investors holding Notes representing an aggregate principal balance of $200,000 had not responded to the August 2016 Election. Other than the three (3) aforementioned Investors, all Investors had elected to redeem or convert their Notes into shares of common stock or Preferred Stock. (See Note 7(c))

During 2016 six (6) notes with an aggregate principal balance of $900,000 were repaid in accordance the agreement, in each case prior to the August 2016 Election.

All issuances of capital stock in the August 2016 Election have been or will be made only for principal balances due under the Notes, and all interest has been or will be paid directly to the Investors.

(A) Terms of Debt

The debt carries interest between 12% and 15%, and was due in November 2015, May 2016 and September 2016, as extended to July 31, 2016 pursuant to certain forbearance agreements.

All Notes and Warrants issued in connection with the Notes Offering are convertible at $0.25 and $0.375/share, respectively, subject to the existence of a “ratchet feature”, which allows for a lower offering price if the Company offers shares to the public at a lower price.

(B) Future Commitments

F-22

At December 31, 2016, the Company has outstanding convertible debt of $150,000 and $50,000 from a related party which will be repaid when the appropriate documentation is received from the Noteholder, within the next twelve months.

(C) Offer to Convert Debt to Preferred Shares

By letter to each holder of the Notes, dated July 22, 2016, the Company requested that each holder indicate its election to (i) redeem its Note, (ii) convert its Note into the Company’s common stock or (iii) elect to convert its Note into shares of Preferred Stock (the “Preferred Option”), in each case by August 15, 2016.

For those holders electing the Preferred Option, each holder has received or will receive shares of the Preferred Stock on a 1 to 1 ratio to the number of shares of the Company’s common stock which are then convertible under such holder’s respective Note. With respect to interest on junior securities, dividends, distributions or liquidation preference, shares of Preferred Stock will rank senior to shares of the Company’s common stock or other junior securities. Along with other terms customary for a class of convertible preferred stock, the Preferred Stock will be convertible into shares of the Company’s common stock at the same conversion price as the Notes (i.e., USD $0.25 per share), and will pay interest quarterly at a rate of six percent (6%). The Preferred Stock will be convertible upon the election of the holder thereof. Shares of the Preferred Stock may be repurchased by the Company upon 30 days’ prior written notice, in whole or in part, for USD $3.50 per share, provided that during such notice period the holder will continue to have the option and right to convert its shares of Preferred Stock into shares of the Company’s common stock. Holders will also have a put option, allowing them to sell their shares of Preferred Stock back to the Company at USD $0.25 per share, the Note conversion price.

Each holder electing the Preferred Option was required to enter into an amendment to its Note, providing that the Note will be convertible into the Preferred Stock rather than the Company’s common stock, and to thereafter elect to convert their Note, as amended, into Preferred Stock. In addition, each holder will be required to enter into a lockup agreement, whereby the holder will agree not to offer, sell, contract to sell, pledge, give, donate, transfer or otherwise dispose of (i) the shares of the Company’s common stock it then holds, (ii) the shares of Preferred Stock obtained upon conversion of its Note, and (iii) the shares of the Company’s common stock underlying the Preferred Stock. The Note amendments, conversion to Preferred Stock and lockup agreement have been entered into on August 15, 2016. The Note amendments were approved by a majority of the holders of the then outstanding Notes. See above for more details related to the results of that offering

Note 8 Derivative Liabilities

The Company identified conversion features embedded within convertible debt and warrants issued in 2013 and 2014 and warrants attached to stock purchases in 2016. The Company has determined that the features associated with the embedded conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. Additionally, the Company has issued options that have vested to purchase stock through our Incentive Plan. Shares have not been reserved with our transfer agent, therefore, they are considered “tainted” and should be accounted for at fair value, as a derivative liability,

As a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is summarized as follow:

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as:

	December 31, 2016			December 31, 2015
Balance Beginning of period	$	24,157,838		$	5,140,758
Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a  derivative liability		—			(189,613	)
Extinguishment of Derivative Liability - Conversion of Interest to Shares		—			(209,604	)
Fair value mark to market adjustment - stock options		(268,098	)		134,162
Fair value at the commitment date for options granted		4,625,002			—
Fair value mark to market adjustment - convertible debt		34,088,543			18,835,664
Fair value mark to market adjustment – warrants		6,264,132			446,471
Fair value at commitment date for warrants issued		5,053,387			—
Debt settlement on the derivative liability associated with interest		3,549,904			—
Reclassification of derivative liability to Additional Paid in Capital due to share reservation		(50,437,681	)		—
Gain on debt settlement		(2,949,714	)		—
Balance at end of period	$	24,083,313		$	24,157,838

F-23

	Commitment Date		Recommitment  Date
Expected dividends	0	%	0	%
Expected volatility	150	%	150	%
Expected term	2-5 years		0.00 – 2.48 years
Risk Free Interest Rate	.29%-2.61%		1.20%-.1.47%

 Note 9 Debt Discount

The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note.

Accumulated amortization of derivative discount amounted to $4,402,773 as of December 31, 2016 and $4,153,611 for the year ended December 31, 2015.

The Company recorded a change in the value of embedded derivative liabilities income/(expense) of ($43,634,482) and ($19,416,295) for the twelve months ended December 31, 2016 and 2015, respectively.

The Company recorded derivative expense of ($2,268,021) and $0 for the three months ended and ($9,678,390) and $0 for the twelve months ended December 31, 2016 and 2015, respectively.

The Company recorded loss on disposition of debt as a result of conversion to Common Stock and Preferred Stock of ($47,879,109). The loss was a result of the conversion value of the shares received exceeded the face value of the note.

Note 10 Debt Issue Costs

	December 31, 2016			December 31, 2015
Debt Issuance Costs	$	316,797		$	316,797
Total		316,797			316,797
Less: Accumulated Amortization		(316,797	)		(302,192	)
Debt Issuance Costs	$	—		$	14,605

The Company recorded amortization expense of $14,605 and $117,098 for the twelve months ended December 31, 2016 and 2015, respectively.

Note 11 GE Royalty Obligation

In 2011, the Company executed a Trademark Licensing Agreement with General Electric, which allows the Company the right to market certain ceiling light and fan fixtures displaying the GE brand. The License Agreement imposes certain manufacturing and quality control conditions that the Company must maintain in order to continue to use the GE brand.

The License Agreement is nontransferable and cannot be sublicensed. Various termination clauses are applicable; however, none were applicable as of December 31, 2016, and December 31, 2015.

In August 2014, the Company entered into a second amendment to the License Agreement pertaining to its royalty obligations. Under the terms of the amendment, the Company agreed to pay a total of $12,000,000 by November 2018 for the rights assigned in the original contract. In case the Company does not pay GE a total of at least $12,000,000 in cumulative royalties over the term of the License Agreement, the difference between $12,000,000 and the amount of royalties actually paid to GE is owed in December 2018.

Payments are due quarterly based upon the prior quarters’ sales. The Company made payments of $489,108 and $196,800 for the twelve months ended December 31, 2016 and 2015, respectively.

The License Agreement obligation will be paid from sales of GE branded product subject to the following repayment schedule:

Net Sales in Contract Year	Percentage of Contract Year Net Sales owed to GE
$0 $50,000,000		7%
$50,000,001 $100,000,000		6%
$100,000,000+		5%

F-24

The Company has limited operating history and does not have the ability to estimate the sales of GE branded product, the liability is classified as long-term. As sales are recognized, the Company will estimate the portion it expects to pay in the current year and classify as current.

Note 12 Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Deferred taxes relate to differences between the basis of assets and liabilities for financial and income tax reporting which will be either taxable or deductible when the assets or liabilities are recovered or settled.

At December 31, 2016, the Company has a net operating loss carryforward of approximately $15,465,000 available to offset future taxable income expiring through 2036. Utilization of future net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2016, and 2015.

The effects of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2016 and December 31, 2015 are approximately as follows:

	December 31, 2016			December 31, 2015
Net operating loss carryforward	$	(15,512,000	)	$	(9,248,000	)
Gross Deferred Tax Assets		6,64,000			3,745,000
Less Valuation Allowance		(6,264,000	)		(3,745,000	)
Total Deferred Tax Assets – Net	$	—		$	—

There was no income tax expense for the years ended December 31, 2015 and 2014 due to the Company’s net losses

The Company’s tax expense differs from the “expected” tax expense for the years ended December 31, 2015 and December 31, 2014 (computed by applying the Federal Corporate tax rate of 35% to loss before taxes and 5.5% for Florida State Corporate Taxes, are approximately as follows:

	December 31, 2016			December 31, 2015
Computed "expected" tax expense (benefit) – Federal	$	(34,457,000	)	$	(9,411,000	)
Computed "expected" tax expense (benefit) - State		(5,415,000	)		(1,479,000	)
Derivative expense		3,920,000			7,871,000
Change in Fair Value of Embedded Derivative		17,672,000			—
Loss/(Gain) on Debt Extinguishment		16,657,000			(85,000	)
Change in valuation allowance		1,623,000			3,104,000
	$	—		$	—

F-25

Note 13 Stockholders Deficit

(A) Common Stock

For the twelve months ended December 31, 2016 and year ended December, 31 2015, the Company issued the following common stock:

Transaction Type		Quantity		Valuation		Range of Value per Share
2015 Equity Transactions
Common stock issued per Waiver and Conversion Agreement	(1)		1,718,585	$	429,646		$	0.25
Common stock issued per Employment Agreement of CEO	(2)		750,000		173,688			0.25
Common stock issued per Stock Rights Offering	(3)		3,782,666		2,210,032			0.60
Common stock issued per Stock Rights Offering- to be issued	(4)		500,000		500,000			1.00
December 31 2015			6,751,251	$	3,313,366		$	0.25-1.00
Common Stock issued Board of Directors Compensation	(5)		62,000		62,000			1.00
Common stock issued per Waiver and Conversion Agreement	(6)		1,790,092		822,524			0.25-0.625
Common Stock offering	(7)		3,155,000		7,538,000			1.00-2.70
Common Stock Award	(8)		25,000		65,000			2.60
Common Stock Issued for Services	(9)		300,000		804,000			1.00-3.40
Common Stock Issued for Conversion of Debt	(10)		443,156		110,789			0.25
December 31, 2016			5,575,248	$	9,370,563		$	0.25-2.70

The following is a more detailed description of the Company’s stock issuance from the table above:

(1) Agreement and Waiver and Agreement to Convert

The Company issued 1,718,585 shares at $0.25 per share, representing $429,646 in penalties and interest, in connection with the Agreement and Waiver and the Agreement to Convert. For a complete description of the Agreement and Waiver and the Agreement to Convert, see Note 7 above.

F-26

(2) Shares Issued to Chief Executive Officer

In November 2014, the Company entered into an Employment Agreement with its current Chief Executive Officer, which provided for stock based compensation equal to 750,000 of restricted shares, of which 250,000 shares vested in May 2015 and 500,000 shares vested in December 2015. These shares were issued at $0.25 per share and were issued subsequent to December 31, 2015.

(3) Shares Issued in Connection with Stock Offering

In May 2015, the Company offered to existing shareholders a maximum of 6,666,667 shares of common stock at an issuance cost of $0.60 per share for a total of $4,000,000 (the “May Stock Offering”). The May Stock Offering concluded on November 15, 2015 the Company will issue 3,782,666 shares in connection with three closings.

(4) Shares Issued in Connection with Stock Offering

In November 2015, the Company offered to new and existing shareholders a maximum of 2,000,000 shares of common stock at an issuance cost of $1.00 per share for a total of $2,000,000 (the “November Stock Offering”). On December 24, 2015, the Company closed subscriptions for 500,000 shares of common stock pursuant to the November Stock Offering, and on January 4, 2016, the stock certificates representing those shares were issued. Shares Issued in Board of Directors Compensation.

(5) Shares issued to Board of Directors

The Company added a new Director in November 2015. The Company issued the Director 50,000 shares of Common Stock at $0.60 per share as compensation in February 2016. In addition, this Director agreed to serve as the Company’s Audit Committee Chair, and received 12,000 shares of Common Stock at $1.00 per share as compensation for these additional responsibilities.

(6) Shares Issued in Connection with the Notes or Agreements to Convert

In connection with the Agreement and Waiver and Agreement to Convert, as of the twelve months ended December 31, 2016, the Company issued an additional 2,343,191 shares of its common stock as payment for Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages, representing payment to Investors of $1,210,798. Of this amount, $625,000 is prior year stock awards/grants not issued until 2016.

(7) Shares Issued in Connection with Offering

On February 19, 2016, the Company completed a second closing of the November Stock Offering representing aggregate gross proceeds to the Company of $300,000, and thereafter issued 300,000 shares of its common stock.

In April 2016, the Company completed an offering of 2,000,000 shares at an offering price of $2.50 and 1,666,667 in warrants with a conversion price of $3.00 per share.

In May 2016, the Company completed an offering of 675,000 shares at an offering price of $2.60 and 1,350,000 of warrants with a conversion price between $3.00 and $3.50 over the next three anniversary dates.

In July 2016, the Company completed an offering for 30,000 shares at $2.60 and an additional 150,000 shares at $2.70 in two separate offerings.

(8) Shares Issued Pursuant to Stock Awards.

In September 2016, the Company issued 25,000 shares in stock awards at $0.60 per share.

(9) Shares Issued for Services

In September 2016, the Company issued 300,000 shares issued representing $136,250 in services received. The share conversions were in a range of $0.25 to $1.00 per share.

(10) Shares Issued in Conjunction with Retirement of Debt

In accordance with the Notes, 443,156 shares were issued for the retirement of debt during the period.

F-27

(B) Preferred Stock

The following is a summary of the Company’s Preferred Stock Activity

Transaction Type	Quantity		Valuation		Range of Value per Share
2015 Preferred Stock Transactions
		—	$	—		$	—
December 31 2015		—	$	—		$	—
Common stock issued per Waiver and Conversion Agreement		13,056,932		44,393,469			$3.40
December 31, 2016		5,575,248	$	44,393,469		$	$3.40

In accordance with the Company’s Convertible Notes Payable Preferred Option offering (Note 7 (C) ) 13,056,932 shares of 6% Preferred Stock. The Preferred Stock will be convertible upon the election of the holder thereof. Shares of the Preferred Stock may be repurchased by the Company upon 30 days’ prior written notice, in whole or in part, for USD $3.50 per share, provided that during such notice period the holder will continue to have the option and right to convert its shares of Preferred Stock into shares of the Company’s common stock. Holders will also have a put option, allowing them to sell their shares of Preferred Stock back to the Company at USD $0.25 per share, the Note conversion price, and therefore the stock is classified as Mezzanine equity rather than permanent equity The stock was valued based upon the value of Common Shares publicly traded nearest the conversion date. During the year ended December 31, 2016, the Company distributed $30,966 to the Preferred Stock shareholders.

(C) Stock Options

The following is a summary of the Company’s stock option activity:

					Weighted Average		Aggregate
			Weighted Average		Remaining Contractual Life		Intrinsic
	Options		Exercise Price		(In Years)		Value
Balance- December 31, 2014		200,000		0.375		2.18	$	324,829
Exercised		—		—		—		—
Granted		—		—		—		—
Forfeited/Cancelled		—		—		—		—
Balance- December 31, 2015		200,000		0.375		2.18	$	324,829
Exercised		—		—		—		—
Granted (1)		1,150,000		0.835		1.38	$	1,700,000
Forfeited/Cancelled		—		—		—		—
Balance- December 31, 2016		1,350,000		0.835		1.38	$	1,700,000

(1) The Company has issued options that have vested to purchase stock through our Incentive Plan. Shares have not been reserved with our transfer agent, therefore, they are considered “tainted”. The Company has determined that they should be accounted for at fair value, as a derivative liability, see Note 8 for further details.

(D) Warrants Issued

The following is a summary of the Company’s stock option activity:

	Number of Warrants		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in Years)
Balance, December 31, 2014	9,728,984		0.375	2.2
Exercised	—		—	—
Cancelled/Forfeited	—		—	—
Balance, December 31, 2015	9,728,984	$	0.375	2.2
Issued	3,826,667	$	3.28	2.0
Exercised	—		—	—
Cancelled/Forfeited	—		—	—
Balance, December 31, 2016 (1)	13,555,651	$	1.20	2.5

(1) The Company identified conversion features embedded within warrants attached to stock purchases in 2016. The Company has determined that the features associated with the embedded conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. See Footnote 8 for further details.

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During 2016, the Company issued warrants to four (4) different groups totaling 3,826,667. These warrants had lives ranging from one to five years at strike prices between $3.0 and $3.50 per share.

(E) 2015 Stock Incentive Plan

On April 27, 2015, the Board approved the Company’s 2015 Stock Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, the Board has the sole authority to implement, interpret, and/or administer the Incentive Plan unless the Board delegates all or any portion of its authority to implement, interpret, and/or administer the Incentive Plan to a committee of the Board, or (ii) the authority to grant and administer awards under the Incentive Plan to an officer of the Company. The Incentive Plan relates to the issuance of up to 5,000,000 shares of the Company’s common stock, subject to adjustment, and shall be effective for ten (10) years, unless earlier terminated. Certain options to be granted to employees under the Incentive Plan are intended to qualify as Incentive Stock Options (“ISOs”) pursuant to Section 422 of the Internal Revenue Code of 1986, as amended, while other options granted under the Incentive Plan will be nonqualified options not intended to qualify as Incentive Stock Options ISOs (“Nonqualified Options”), either or both as provided in the agreements evidencing the options described.

The Incentive Plan further provides that awards granted under the Incentive Plan cannot be exercised until a majority of the Company’s shareholders have approved the Incentive Plan. The Incentive Plan which became effective July 31, 2016.

Note 14 Commitments

(A) Operating Lease

In January 2014, the Company executed a 39 month lease for a corporate headquarters. The Company paid a security deposit of $27,020. The lease expires April, 2017

In October, 2014, the Company executed a 53 month lease for a new corporate headquarters with a base rent of $97,266 escalating annually through 2019. The Company paid a security deposit of $1,914.

In September, 2015 the Company amended the current lease for a smaller space at the same terms.

In October, 2014, the Company entered into a sublease agreement to sublease its previous office space through November 2016. In connection with the sublease, the Company collected $34,981 as a security deposit.

The minimum rent obligations are approximately as follows:

		Minimum		Sublease		Net
Year		Obligation		Rentals		Obligation
2017		44,463		-		44,463
2018		22,989		-		22,989
2019		7,872		-		7,872
Total	$	75,324	$	-	$	75,324

(B) Employment Agreement – Chief Executive Officer

In November 2014, the Company entered into an employment agreement with its new Chief Executive Officer. In addition to salary, the agreement provided for the issuance of 750,000 restricted shares of the Company’s common stock to him, which vested and were issued as follows: 250,000 shares after the first 6 months of employment and 500,000 additional shares at December 31, 2015. Under terms of the agreement the executive would receive additional compensation in the form of stock options to purchase shares of Company stock equal to one half of one percent (0.5%) of quarterly net income. The strike price of the options will be established at the time of the grant. The options will vest in twelve months and expire after sixty months. In addition to the stock options compensation, the executive will receive cash compensation equal to one half of one percent (0.5%) of annual sales up to $20 million and one quarter of one percent (0.25%) for annual sales $20 million and 3% of annual net income. These 750,000 shares were issued in 2016 and valued at $0.625 per share.

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On September 1, 2016, the Company entered into a new employment agreement with Mr. Campi. The agreement provides for a base salary of $150,000; 120,000 shares of The Company’s common stock in a “Sign on Bonus” which will vest December 31, 2017; 0.25% of annual gross sales and 3% of annual adjusted gross income in cash compensation and 0.50% of quarterly net income in options, the strike price to be determined at the time of grant. Such options will expire 5 years after issuance.

For the twelve months ended December 31, 2016 and 2015, Mr. Campi earned approximately $31,600 and $14,400 respectively, under this agreement. No stock or options have been issued.

(C) Chairman Agreement

The Company has a 3-year consulting agreement with a director which expires in November 2016, and carries an annual payment of $150,000 cash, stock or 5 year options equal to one half of one percent (0.5%) of the Company’s annual net sales. For the twelve months ended December 31, 2016 and 2015, Mr. Kohen earned approximately $35,400 and $14,400, respectively, under this agreement. No stock or options have been issued.

On September 1, 2016, the Company modified the above agreement. The compensation was changed to $250,000 per annum, an annual grant of the Company’s common stock of 340,000 shares which vest in its entirety January 1, 2019; Stock options equal to 0.50% of the Company’s gross revenue with 5-year vesting. In addition, the Chairman was granted a “Sign on Bonus” of 120,000 shares of the Company’s common stock which will vest January 1, 2020 and a supplemental bonus of options which is tied to the stock performance of the Company.

(D) Employee Agreement - President

On August 17, 2016, the Company entered into an Employment Agreement with Mark Wells, its new President. Mr Wells receives a salary of $250,000; 1,025,000 shares in the Company’s common stock which will vest in its entirety January 1, 2019; 0.25% of the Company’s net revenue and a “Sign on Bonus” of 120,000 shares of the Company’s common stock which vests January 1, 2017. For the twelve months ended December 31, 2016, Mr. Wells earned $3,800 under his employment agreement and $10,000 in commissions pursuant to the terms of a Consulting Agreement, dated June 1, 2015, between the Company and Mr. Wells, whereby Mr. Wells provided independent sales consultant services.

(D) Employment Agreement – Chief Operating Officer

Effective July 1, 2016, the Company entered into an Executive Employment Agreement with Patricia Barron, its Chief Operations Officer. Ms. Barron receives a base salary of $120,000 per year and incentive compensation equal to 0.25% of the Company’s net revenue paid in cash. For the twelve months ended December 31, 2016, Ms. Barron earned approximately $17,700 under this agreement.

Note 15 Subsequent Events

On March 24, 2017, the holder of our one-year Common Stock Purchase Warrant, issued on April 4, 2016, to purchase up to 1,666,667 shares of our Common Stock at an exercise price of $3.00 per share, exercised such warrant in full upon tender of $5,000,000 in cash to the Company.

From January 1, 2017 through March 31, 2017, in response to the August 2016 Election, (i) holders of two (2) outstanding Notes totaling a principal balance of $100,000 elected to redeem their Notes, and the Company repaid the principal balance of such Notes in full, and (ii) a holder of one (1) outstanding Note totaling a principal balance of $50,000 elected to convert the full principal balance of its outstanding Note into Preferred Stock, and the Company thereafter issued 200,000 shares of Series A Preferred Stock to such holder.

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