0001721868-18-000425.txt : 20180515 0001721868-18-000425.hdr.sgml : 20180515 20180515171540 ACCESSION NUMBER: 0001721868-18-000425 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 65 CONFORMED PERIOD OF REPORT: 20180331 FILED AS OF DATE: 20180515 DATE AS OF CHANGE: 20180515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SQL Technologies Corp. CENTRAL INDEX KEY: 0001598981 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 463645414 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55416 FILM NUMBER: 18837775 BUSINESS ADDRESS: STREET 1: 4400 NORTH POINT PARKWAY STREET 2: SUITE 154 CITY: ALPHARETTA STATE: GA ZIP: 30022 BUSINESS PHONE: 770-754-4711 MAIL ADDRESS: STREET 1: 4400 NORTH POINT PARKWAY STREET 2: SUITE 154 CITY: ALPHARETTA STATE: GA ZIP: 30022 FORMER COMPANY: FORMER CONFORMED NAME: Safety Quick Lighting & Fans Corp. DATE OF NAME CHANGE: 20140203 10-Q 1 f2ssql10q050418.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 

FORM 10-Q

 

[x]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

 

For the quarterly period ended March 31, 2018

 

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 265, 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 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 whether the registrant has submitted electronically and posted on its corporate Web site, 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 registrant 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerate filer  [ ] Accelerated Filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Emerging growth company [X]    

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As May 11, 2018, the issuer had 53,414,901 shares of common stock, no par value per share (“Common Stock”), issued and outstanding and 13,456,936 shares of Series A Convertible Preferred Stock, no par value per share (“Series A Preferred Stock”), issued and outstanding.

 
 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION  
Item 1. Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 
Item 3. Quantitative & Qualitative Disclosures about Market Risks 34 
Item 4. Controls and Procedures 34 
PART II OTHER INFORMATION  
Item 1. Legal Proceedings 35 
Item 1A. Risk Factors 35 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35 
Item 3. Defaults upon Senior Securities 35 
Item 5. Other Information 35 
Item 6. Exhibits 36 

 

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

 

 

 

 
 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

SQL TECHNOLOGIES CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
Assets          
           
Current assets:          
Cash and cash equivalents  $4,759,862   $4,877,720 
Accounts receivable   1,816,372    1,049,965 
Inventory   2,265,527    2,352,573 
Prepaid expenses   42,777    61,714 
Total current assets   8,884,538    8,341,972 
           
   Furniture and equipment, net   177,167    194,872 
Patent, net   225,052    204,412 
GE trademark license, net   1,193,066    1,640,466 
Other assets   40,935    40,934 
Total other assets   1,636,220    2,080,684 
           
Total assets  $10,520,758   $10,422,656 
           
Liabilities and Stockholders (Deficit)          
           
Current liabilities:          
Accounts payable & accrued expenses  $2,180,256   $1,364,446 
Notes payable, current portion   3,962,724    70,222 
Notes payable, related party   200,000    200,000 
GE royalty obligation   10,581,728    10,760,566 
Derivative liabilities   18,931,239    19,175,754 
Other current liabilities   39,262    42,332 
Total current liabilities   35,895,209    31,613,320 
           
Long term liabilities:          
Notes payable   —      3,456,732 
Total long-term liabilities   —      3,456,732 
           
Total liabilities   35,895,209    35,070,052 

  

 1 

 

  

Commitments and contingent liabilities:        
Redeemable preferred stock - subject to redemption: $0 par value; 20,000,000 shares authorized; 13,456,936 and 13,056,932 shares issued and outstanding at March 31, 2018 and December 31, 2017, Respectively   45,753,569    45,753,569 
                 
Stockholders’ deficit:                
Common stock: $0 par value, 500,000,000 shares authorized;                
54,414,900 and 53,174,900 shares issued and outstanding                
at March 31, 2018 and December 31, 2017 respectively     18,301,387       17,581,387  
Additional paid-in capital     80,284,874       80,103,806  
Accumulated deficit     (169,678,839 )     (168,050,716 )
Total Stockholders’ deficit     (71,092,578 )     (70,365,523 )
Noncontrolling interest     (35,442 )     (35,442 )
Total Deficit     (71,128,020     (70,400,965 )
Total liabilities, redeemable preferred stock, and stockholders’ deficit   $ 10,520,758     $ 10,422,656  

 

 

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

 

 2 

 

SQL TECHNOLOGIES CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE-MONTHS ENDED MARCH 31,

(Unaudited)

 

        

    2018   2017
Sales   $ 3,138,060     $ 2,613,816  
                 
Cost of sales     (2,429,301 )     (2,004,841 )
                 
Gross profit     708,759       608,975  
                 
   Selling, general and administrative expenses     2,004,629       1,148,660  
Depreciation and amortization     469,593       610,831  
Total operating expenses     2,474,222       1,759,491   
Loss from operations     (1,765,463 )     (1,150,516 )
                 
Other income (expense)                
Interest expense     (83,569 )     (58,000 )
Derivative expenses             (2,061,159 )
Change in fair value of embedded derivative liabilities     244,515       (13,517,422 )
Loss on debt extinguishment             (630,000 )
Gain on exchange     4,571       —    
Other income     4,375       4,412  
Total other income (expense), net     (169,892 )     (16,262,169 )
                 
Net loss including noncontrolling interest     (1,595,571 )     (17,412,685  )
Less: net loss attributable to noncontrolling interest                
Net loss attributable to SQL Technologies Corp.   $ (1,595,571 )   $ (17,412,685 )
                 
Net loss per share - basic and diluted   $ (.031 )   $ (.45 )
                 
Weighted average number of common shares outstanding during the year-basic and diluted     53,196,234       38,462,209  

 

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

 

 3 

 

 

SQL TECHNOLOGIES CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE-MONTHS ENDED MARCH 31,

(UNAUDITED)     

 

   2018  2017
Cash flows from operating activities:          
Net loss attributable to SQL Technologies Corp.  $(1,595,571)  $(17,412,685)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation expense   17,705    6,547 
Amortization of patent   4,488    2,277 
Amortization of GE trademark license   447,400    602,007 
Change in fair value of derivative liabilities   (244,515)   13,517,422 
Derivative expense        2,061,159 
Loss on debt extinguishment        630,000 
Stock compensation, related parties   720,000      
Stock options issued for services, related parties   181,068      
Change in operating assets and liabilities:          
Accounts receivable   (766,407)   (926,469)
Prepaid expenses   18,937    (15,077)
Inventory   87,046    90,955 
Royalty payable   (178,838)   (177,239)
Other   (3,070)   (138,172)
Accounts payable & accrued expenses   815,810    865,421 
Net cash used in operating activities   (495,947)   (893,854)
           
Cash flows from investing activities:          
Payment of patent costs   (25,128)   (30,295)
Net cash used in investing activities   (25,128)   (30,295)

 

  

 4 

 

 

Cash flows from financing activities:      
Repayments of convertible notes        (100,000)
Payments of contingent consideration        50,000 
Proceeds from note payable   435,770    269,448 
Dividends paid   (32,552)   (48,114)
Repayments of note payable        (867,864)
Proceeds from the exercise of warrants        5,000,000 
Proceeds from issuance of stock        237,000 
Net cash provided by financing activities   403,218    4,540,470 
           
Increase (Decrease) cash and cash equivalents   (117,858)   3,616,321 
Cash and cash equivalents at beginning of period   4,877,720    4,125,888 
Cash and cash equivalents at end of period  $4,759,862   $7,742,210 
           
           
Supplementary disclosure of non-cash financing activities:          
Reclassification of derivative liability to additional paid-in-capital  $—     $969,967 
           
Supplementary disclosure of cash flow information          
Cash paid during the period for:          
Interest  $83,569   $79,552 

 

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

 

 5 

 

 

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), the CE Marking (for the European market) and, in December 2016, was approved by the National Fire Protection Association for inclusion in the NFPA 70: National Electrical Code (NEC). 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 ceiling fans and light fixtures, using a power plug installed in ceiling and wall electrical junction boxes. The Company’s base 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 an electric power supply that is connected to the electrical junction box. The plug, which is incorporated in an electrical appliance, attaches to the socket via a male post and is capable of feeding electric power to the appliance. The plug includes a second structural element allowing it to revolve and a releasable latching that provides a retention force between the socket and the plug to prevent unintentional 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 use of the Company’s technology enables the installation and replacement of ceiling fans and lights and wall sconces in a fraction of the time of similar, conventional appliances.

 

The Company currently 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

 

The following is a summary of the Company’s 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.

  

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.

 

 6 

 

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 year ended 2017 and 2016, there was no activity in the Subsidiary.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

 

Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future nonconforming events. Accordingly, actual results could differ significantly from estimates.

 

Reclassifications

 

For comparability, reclassifications of certain prior-year balances were made in order to confirm with current-year presentations.

 

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.

 

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 $4,759,864 and $4,877,720 in money market as of March 31, 2018, and December 31, 2017, respectively. The Company has deposits in financial institutions which exceeds the amount insured by the FDIC. The amount of uninsured deposits was $4,259,894 at March 31, 2018.

 

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.

 

 7 

 

The Company’s net balance of accounts receivable at March 31, 2018 and December 31, 2017:

 

   (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
       
 Accounts Receivable  $1,816,372   $1,049,965 
 Allowance for Doubtful Accounts   —       —   
 Net Accounts Receivable  $1,816,372   $1,049,965 

 

All amounts are deemed collectible at March 31, 2018 and December 31, 2017 and accordingly, the Company has not incurred any bad debt expense at March 31, 2018 and December 31, 2017.

 

Inventory

 

Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method. Cost principally consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes in future demand.

 

   (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
       
Inventory finished goods  $1,611,644   $1,887,034 
Inventory, components parts   653,883    465,539 
 Total inventory  $2,265,527   $2,352,573 

 

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 March 31, 2018, and December 31, 2017, 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 an impairment adjustment of $600,000 was necessary for the year ended 2017.

 

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 various patents 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.

 

 8 

 

GE Trademark Licensing Agreement

 

The Company entered into a Trademark License Agreement with General Electric on June 15, 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. The Company determined an impairment adjustment of $600,000 was necessary for the year ended 2017.

 

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.

 

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.

 

 9 

 

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. 

 

The Company changed its method to estimate the valuation of valuation for fair market values of derivatives in 2017 to a lattice-binomial option-pricing model (“lattice-binomial model”) from the Black-Scholes option-pricing model (“Black-Scholes model”) which was previously used under SFAS 123 and are reflected on our condensed consolidated statement of operations as other (income) expense at each reporting period. 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. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements. Furthermore, depending on the terms of a derivative or embedded derivative, the valuation of derivatives may be removed from the financial statements upon conversion of the underlying instrument into some other security. The change in valuation methodology for accounting estimates had no material impact on the Company’s previous calculations.

 

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 26,751,860 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.

 

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.

 

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.

 

 10 

 

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 lattice-binomial 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.
  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.

 

 11 

 

Stock Based Compensation – Nonemployees

 

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.
  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.

 

 12 

 

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.

  

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.

 

The fair value of share options and similar instruments is estimated on the date of grant using a lattice-binomial 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.

 

 13 

 

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.

 

Revenue Recognition

 

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

 

Sales are recognized at the time title transfers to the customer, generally upon shipment and when all 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.

 

Trade allowances and a provision for estimated returns and other allowances are recorded at the time sales are made, considering historical and anticipated trends.

 

On January 1, 2017, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The adoption has had an immaterial impact to our comparative net income and as such comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis.

 

A majority of our sales revenue continues to be recognized when products are shipped from our manufacturing facilities and from our third-party logistics facility.

 

Cost of Sales

 

Cost of sales represents costs directly related to produce, acquire and source inventory for sale, and provisions for inventory shrinkage and obsolescence. These costs include costs of purchased products, inbound freight, custom duties.

  

Shipping and Handling Cost

 

Costs incurred by the Company to deliver finished goods are expensed and recorded in selling, general and administrative expenses.

 

Selling, general and administrative expenses include employee and related costs, stock compensation, marketing, professional fees, distribution, warehouse costs, and other related selling costs. Stock compensation expense consists of non-cash charges resulting from the issuance of stock units and stock options. Selling expenses include costs incurred in the selling of merchandise. General and administrative expenses include costs incurred in the administration or general operations of the business.

 

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.

 

 14 

 

The Company uses the “treasury stock” method to determine whether there is a dilutive effect of outstanding convertible debt, option and warrant contracts. For the three-months ended March 31, 2018 and 2017, 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 March 31, 2018 and December 31, 2017:

 

   

(Unaudited)

March 31, 2018

 

(Audited)

December 31, 2017

Stock Warrants (Exercise price - $0.375 - $3.00/share)   8,419,924     8,419,924  
Stock Options (Exercise price $0.375 - $4.00/share)   4,875,000     4,875,000  
      Total   13,294,924     13,294,924  

       

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.

  

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.

 

 15 

 

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

 

On January 1, 2017 We adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis. 

 

In August 2017, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, and eliminates the separate measurement and presentation of hedge ineffectiveness. We are currently evaluating the impact of adopting this guidance. We do not expect adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which enhances and clarifies the guidance on the classification and presentation of restricted cash in the statement of cash flows. The Company will adopt ASU 2016-18 in its first quarter of 2019. We do not expect adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

 

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 March 2016, the FASB issued an accounting standard update which simplifies the accounting for share-based payment transactions, inclusive of income tax accounting and disclosure considerations. This guidance is effective for fiscal and interim periods beginning after December 15, 2016 and is required to be applied retrospectively to all impacted share-based payment arrangements. We adopted this guidance on January 1, 2017. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. We are currently evaluating the impact of adopting this guidance.

 16 

 

 

In February 2016, the FASB issued an accounting standard update which modifies the accounting for leasing arrangements, particularly those arrangements classified as operating leases. This update will require entities to recognize the assets and liabilities arising from operating leases on the balance sheet. This guidance is effective for fiscal and interim periods beginning after December 15, 2018 and is required to be applied retrospectively to all leasing arrangements. We are currently assessing the effects this guidance may have on our financial statements. Based on the lease portfolio as of March 31, 2018, we do not expect the Company to have a material impact on its consolidated financial statements.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business (“ASU 2017-01”). The standard clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Under ASU 2017-01, to be considered a business, the assets in the transaction need to include an input and a substantive process that together significantly contribute to the ability to create outputs. Prior to the adoption of the new guidance, an acquisition or disposition would be considered a business if there were inputs, as well as processes that when applied to those inputs had the ability to create outputs. Early adoption is permitted for certain transactions. Adoption of ASU 2017-01 may have a material impact on our consolidated financial statements if we enter into future business combinations.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not anticipate the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements.

  

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement –Period Adjustments.” Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquired business recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquired business. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. We adopted this guidance in the first quarter 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

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 May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” on revenue recognition. This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The original effective date of this guidance was for interim and annual reporting periods beginning after December 15, 2016, early adoption is not permitted, and the guidance must be applied retrospectively or modified retrospectively. In July 2015, the FASB approved an optional one-year deferral of the effective date.  On January 1, 2017 We adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis. 

 17 

 

 

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. Further, the amendments remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The new guidance should be applied on a retrospective basis to all periods presented. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

  

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.

  

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20),” effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This update eliminates from GAAP the concept of extraordinary items. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” Entities commonly raise capital by issuing different classes of shares, including preferred stock, that entitle the holders to certain preferences and rights over the other shareholders. The specific terms of those shares may include conversion rights, redemption rights, voting rights, and liquidation and dividend payment preferences, among other features. One or more of those features may meet the definition of a derivative under GAAP. Shares that include such embedded derivative features are referred to as hybrid financial instruments. The objective of this update is to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40), effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This standard provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The guidance is effective for annual reporting periods ending after December 15, 2016, and early adoption is permitted. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

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.

 18 

 

 

NOTE 3 FURNITURE AND EQUIPMENT

 

Furniture, fixtures, and equipment consisted of the following:

 

   (Unaudited)
March 31,
  (Audited)
December 31,
   2018  2017
Machinery and equipment  $31,456   $31,456 
Computer equipment   6,846    6,846 
Furniture and fixtures   36,059    36,059 
Tooling and production   207,016    207,016 
Leasehold improvements   30,553    30,553 
Total   311,930    311,930 
Less: accumulated depreciation   (134,763)   (117,058)
Total, net  $177,167   $194,872 

 

Depreciation expense amounted to $17,705 and $6,547 for the for the three-months ended March 31, 2018 and 2017, respectively.

 

NOTE 4 INTANGIBLE ASSETS

 

Intangible assets (patents) consisted of the following:

 

   (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
       
Patents  $269,510   $244,382 
Less: Impairment Charges   —      —   
Less: accumulated amortization   (44,458)   (39,970)
Total, net  $225,052   $204,412 

 

Amortization expense on intangible assets amounted to $4,488 and $2,277 for the three-months ended March 31, 2018 and 2017, respectively.

 

Assuming no impairment, the following table sets forth the estimated amortization expense for future periods based on recorded amounts as at March 31, 2018:  

  

Year Ending December 31   
 2018   $17,951 
 2019    17,951 
 2020    17,951 
 2021    17,951 
 2022    17,951 
 2023 and Thereafter    135,298 
 Total    $225,052 

  

 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.

 

  

(Unaudited)

March 31, 2018

 

(Audited)

December 31, 2017

GE Trademark License  $12,000,000   $12,000,000 
Less: Impairment charges   (600,000)   (600,000)
Less: accumulated amortization   (10,206,934)   (9,759,534)
Total, net  $1,193,066   $1,640,466 

 

Amortization expense associated with the GE Trademark License amounted to $447,400 and $602,007 for the three-months ended March 31, 2018 and 2017, respectively. The Company determined an impairment adjustment of $600,000 was necessary for the year ended 2017.

 

Assuming no impairment, the following table sets forth the estimated amortization expense for future periods based on recorded amounts as at March 31, 2018:

 

Year Ending December 31
 2018   $1,193,066 
 Thereafter      
 Total    $1,193,066 

 

NOTE 6 DEFERRED LEASE CREDITS

 

Cash or rent abatements received upon entering certain office leases are recognized on a straight-line basis as a reduction to rent expense over the lease term. The unamortized portion is included in Deferred Lease Credits, which are included in other current liabilities. As of March 31, 2018, and December 31, 2017 the deferred credits were $39,262 and $42,332 respectively. Deferred Rent amortization was $3,069 and ($20,548) for the three-months ended March 31, 2018 and 2017, respectively. 

 

NOTE 7 NOTES PAYABLE

 

At March 31, 2018 and December 31, 2017, the Company had a note payable to a bank in the amount of $40,642 and $70,222, respectively. The note bears interest at prime plus 1.5%, which was 6% as of March 31, 2018, and matures on August 28, 2018. The note is secured by the assets of the Company and personal guarantees by a shareholder and an officer of the Company.

 

On April 13, 2016, the Company entered into a Line of Credit Promissory Note with a third party (the “Line of Credit”), as amended and extended, in the principal sum of up to ten million U.S. Dollars (US $10,000,000) to support purchase orders, inventory and general working capital needs. The Company may draw and/or repay this Line of Credit from time to time until the maturity hereof. The Note provides for monthly payments of interest at nine percent (9%) per annum on outstanding principal and matures on January 10, 2019, at which time the full principal amount and accrued but unpaid interest become due.

 20 

 

 

The Line of Credit note is secured by the assets of the Company. As of March 31, 2018, and December 31, 2017, the outstanding balance on this note was $3,922,082 and $3,456,732, respectively.

 

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 March 31, 2018, 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   
 2018   $240,642 
 2019    3,922,082 
     $4,162,724 

   

NOTE 8 CONVERTIBLE DEBT

 

The Company has recorded derivative liabilities associated with convertible debt instruments, as more fully discussed at Note 9.

 

   Third Party  Related Party  Totals
Balance December 31, 2015  $3,989,950   $50,000   $4,039,950 
Add: Amortization of Debt Discount   474,283    0    474,283 
Less Repayments/Conversions   (4,314,233)   —      —   
Balance December 31, 2016   150,000    50,000    200,000 
Add: Amortization of Debt Discount   —      —      —   
Less Repayments/Conversions   (150,000)   (50,000)   (200,000)
Balance December 31, 2017  $—     $—     $—   
                

On November 26, 2013, May 8, 2014 and June 25, 2014 the Company completed closings in connection with its offering (the “Notes Offering”) of its 12% and 15% Secured Convertible Promissory Notes in the aggregate principal amount of $4,270,100 (the “Notes”), with certain accredited investors, as defined under Regulation D, Rule 501 of the Securities Act. 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”). The Notes and Warrants were treated as derivative liabilities.

 

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 (the “August 2016 Election”). This also provided a third option to all noteholders (the “Preferred Option”), whereby such holders could convert their respective Note(s) into shares of Series A Convertible Preferred Stock (“Preferred Stock”). Pursuant to the August 2016 Election, the Company issued 13,456,936 shares of Preferred Stock, representing $3,364,234 in outstanding Note principal balance.

 

All Notes have either been re-paid in cash, separate debt obligation or by conversion, and all Notes have been terminated.

 

(A)       Terms of Debt

 

The Note debt carried interest between 12% and 15%, and became due in November 2015, May 2016 and September 2016, as extended to July 31, 2016 pursuant to certain forbearance agreements. All Notes issued in connection with the Notes Offering were convertible at $0.25, but are not terminated, and all Warrants issued in connection with the Notes Offering are convertible at $0.375 per share, 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.

 21 

 

 

(B)        Offer to Convert Debt to Preferred Shares

 

For those holders electing the Preferred Option, each holder has received shares of the Preferred Stock on a 1 to 1 ratio to the number of shares of 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 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 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 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 Common Stock, and to thereafter elect to convert their Note, as amended, into Preferred Stock. In addition, each holder entered into a lockup agreement, whereby the 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 holds, (ii) the shares of Preferred Stock obtained upon conversion of its Note, and (iii) the shares of Common Stock underlying the Preferred Stock, for a period of twelve (12) months following the date of such agreement. 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.

 

NOTE 9 DERIVATIVE LIABILITIES

 

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

 

   (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
Balance Beginning of period  $19,175,754   $24,083,314 
 Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability        (13,229,681)
Fair value mark to market adjustment - stock options        2,036,621 
Fair value mark to market adjustment – warrants   (224,515)   12,376,571 
Reclassification of derivative liability to Additional Paid in Capital due to share reservation        (6,091,070)
Balance at end of period  $18,931,239   $19,175,754 

 22 

 

The Company recorded a change in the value of embedded derivative liabilities income/(expense) $244,515 and ($13,517,422) for the three-months ended March 31, 2018 and 2017, respectively. 

 

    Commitment Date    

Recommitment

Date

 
Expected dividends     0%       0%  
Expected volatility     150%       150%  
Expected term     0.90 – 9.56 years       1.16 – 9.56 years  
Risk Free Interest Rate     0.76%-2.40%       1.47%-2.33%  

 

NOTE 10 GE ROYALTY OBLIGATIONS

 

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 March 31, 2018, and December 31, 2017.

 

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 paid to GE is owed in December 2018.

 

Payments are due quarterly based upon the prior quarters’ sales. The Company made payments of $178,837 and $137,084 for the three-months ended 31, 2018 and 2017, 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 to $50,000,000 7%
$50,000,001 to $100,000,000 6%
$100,000,000+ 5%

 

As of March 31, 2018, and December 31, 2017, the outstanding balance was $10,581,728 and $10,760,566, respectively.

  

 23 

 

NOTE 11 STOCKHOLDERS DEFICIT

 

(A)       Common Stock

 

For the three-months ended March 31, 2018 and year ended December 31, 2017, the Company issued the following Common Stock:

 

Transaction Type         Quantity
(shares)
    Valuation
($)
    Range of Value
Per Share
 
                                 
2017 Equity Transactions                                
Common Stock Offering     (1)       69,667     $ 209,000       3.00  
                                 
Common Stock Issued per Exercise of Warrants     (2)       1,666,667       5,000,000       3.00  
                                 
Common Stock Issued per Exercise of Options     (3)       30,000       78,000       2.60  
                                 
Common Stock Issued for the cashless exercise of Warrants     (4)       4,132,068       0       0.0  
                                 
Total 2017 Equity Transactions             5,898,402     $ 5,287,000     $ 2.60-3.00  
                                 
Common Stock Issued per Employment Agreement     (5)       240,000       720,000       3.00  
                                 
Total 2018 Equity Transactions             240,000     $ 720,000     $ 3.00  

 

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

 

(1)       Shares Issued for Common Stock

 

During the nine-months ended September 30, 2017, the Company received gross proceeds of $209,000 from the sale of 69,667 shares of its Common Stock at $3.00 per share to three new Company employees. In connection therewith, the Company issued five-year options to purchase up to 315,000 shares of Common Stock at an exercise price of $3.00 per share.

 

(2)       Shares Issued Pursuant to Warrants Exercised

 

In March 2017, the Company issued 1,666,667 shares of Common Stock upon exercise in full of a warrant having an exercise price of $3.00 per share, and the Company received gross proceeds of $5,000,000.

 

(3)       Shares Issued Pursuant to Options Exercised

 

In April 2017, the Company issued 30,000 shares of Common Stock upon exercise in full of an option having an exercise price of $2.60 per share, and the Company received gross proceeds of $78,000.

 

(4)       Common Stock Issued for the cashless Exercise of Warrants

 

In November 2017, the Company issued 4,132,068 shares of Common Stock upon the cashless exercise of Warrants.

 

 24 

 

(5)       Common Stock Issued pursuant to Employment Agreements

 

In March 2018, the Company issued 120,000 shares of Common Stock, with a total fair market value of $720,000, to each of Mr. Campi and Mr. Wells, which vested pursuant to their respective employment agreements.

 

(B)       Preferred Stock

 

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

 

Transaction Type   Quantity     Valuation     Range of
Value per
Share
 
                   
2016 Preferred Stock Transactions
                   
Preferred Stock Issued per August 2016 Election     13,056,936     $ 44,393,569     $ 3.40  
                         
Total 2016 Preferred Stock Transactions     13,056,936     $ 44,393,569     $ 3.40  
                         
2017 Preferred Stock Transactions                        
                         
Preferred Stock Issued per August 2016 Election     400,000     $ 1,360,000     $ 3.40  
                         
Total 2017 Preferred Stock Transactions     400,000     $ 1,360,000       3.40  
                         
Total 2018 Preferred Stock Transactions     0     $ 0          

 

In accordance with the August 2016 Elections (see Note 8(B)), the Company has issued 13,456,932 shares of 6% Preferred Stock in exchange for Notes having a principal balance of $3,364,234. 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 Common Stock. Holders 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 shares of Common Stock publicly traded nearest the conversion date. During the year ended December 31, 2017 the Company paid dividends in the amount of $149,737 to the Preferred Stock shareholders.

 

Redeemable preferred stock subject to redemption: $0 par value; 20,000,000 shares authorized; 13,456,932 at December 31, 2017 and March 31, 2018.

 

(C)       Stock Options

 

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

 

            Weighted
Average
    Weighted
Average
Remaining
Contractual Life
    Aggregate
Intrinsic
 
      Options     Exercise Price     (In Years)     Value  
Balance, December 31, 2016       1,350,000       $ 0.767        7.81      3,015,000   
Exercised       (30,000)       2.60             (78,000)  
Granted       3,555,000       1.307       7.47       6,230,250  
Forfeited/Cancelled                          
Balance, December 31, 2017       4,875,000      $ 1.150       7.40     $ 9,167,250  
Exercised                          
Granted                          
Forfeited/Cancelled                          
Balance, March 31, 2018       4,875,000     $ 1.150       6.91     $ 9,167,250  

 

 25 

 

The Company has issued, or the Company’s Board of Directors has authorized grants of, options, some of which have vested, to purchase shares of Common Stock through its 2015 Plan. The Company has issued options to purchase, in the aggregate, up to 4,875,000 shares of options to purchase shares of Common Stock, in conjunction with its 2015 Plan, agreements or otherwise. The Company has reserved 4,875,000 shares with the transfer agent for the future issuance for shares of Common Stock associated with options issued.

 

During the three-months ended March 31, 2018, the Company recognized $181,068 of compensation expense related to the vesting of options. The expense computation is based on 61,667 shares of options at $3.00. The fair value of stock option is estimated using the Binomial valuation method of $2.9362.

 

(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, 2016       13,555,651     $ 0.72       1.5  
Issued       898,040       3.31       4.63  
Exercised       (6,033,767)       (3.00)        
Cancelled/Forfeited                    
Balance, December 31, 2017       8,419,924     $ 1.64       2.42  
                           
Issued                    
Exercised                    
Cancelled/Forfeited                    
Balance, March 31, 2018       8,419,924     $ 1.117       1.15  

 

(E)       2015 Stock Plan

 

On April 27, 2015, the Board approved the Company’s 2015 Stock Incentive Plan (the “2015 Plan”). Under the 2015 Plan, the Board has the sole authority to implement, interpret, and/or administer the 2015 Plan unless the Board delegates all or any portion of its authority to implement, interpret, and/or administer the 2015 Plan to a committee of the Board, or (ii) the authority to grant and administer awards under the 2015 Plan to an officer of the Company. The 2015 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. Certain options to be granted to employees under the 2015 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 2015 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 2015 Plan further provides that awards granted under the 2015 Plan cannot be exercised until a majority of the Company’s shareholders have approved the 2015 Plan. The 2015 Plan became effective July 31, 2016.

 

NOTE 12 COMMITMENTS

 

(A)       Operating Lease

 

On September 20, 2017, the Company entered into an operating lease for its Georgia location. The new lease commenced on July 1, 2017 and expires on September 30, 2020. We recognize rent expense under such arrangements on a straight-line basis.

 

On September 27, 2017 the Company entered into two separate residential leases near the Florida office for two of its employees. The term for each lease is 12 months and, each lease carries a rent of $2,000 per month. The collective rent payment is $4,000 per months and will reduce travel costs for the Company.

 

 26 

 

The minimum rent obligations are approximately as follows:

 

      Minimum  
Year     Obligation  
2019     $     78,467  
2020       60,320  
      $ 138,787  

 

(B)       Employment Agreement – Chief Executive Officer

 

On September 1, 2016, the Company entered into an employment agreement with its Chief Executive Officer (the “Campi Agreement”). The Campi Agreement provides for a base salary of $150,000; 120,000 shares of Common Stock in a “Sign on Bonus” which will vest December 31, 2017; 0.25% of annual net sales, paid in cash on a quarterly basis, 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. Pursuant to the Campi Agreement, if terminated without cause during the initial term, the Company shall pay to Mr. Campi (a) 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 (b) 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.

 

For the three-months ended March 31, 2018 and 2017, Mr. Campi earned approximately $42,081 and $46,715, respectively, under the Campi Agreement.

 

(C)       Chairman Agreement

 

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. 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 (a) a base salary of $250,000 per year, which may be adjusted each year at the discretion of the Board; (b) 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”); (c) a sign-on bonus of 120,000 shares of Common Stock, which shall vest in its entirety on January 1, 2020; (d) 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 (e) 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.

  

For the three-months ended March 31, 2018 and 2017, Mr. Kohen earned approximately $74,663 and $90,424, respectively, under the Chairman’s Agreement.

 

(D)       Employee Agreement – President

 

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 (a) a base salary of $250,000 per year, which may be adjusted each year at the discretion of the Board; (b) 1,025,000 shares of Common Stock, which shall vest on January 1, 2019 (the “Wells Compensation Shares”); (c) a sign-on bonus of 120,000 shares of Common Stock, which shall vest in its entirety to Mr. Wells on January 1, 2018; and (d) incentive compensation equal to one quarter of one percent (0.25%) of the Company’s net revenue, paid in cash on an quarterly 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.

 

 27 

 

For the three-months ended March 31, 2018 and 2017, Mr. Wells earned approximately $67,081 and $73,638, respectively, under the Wells Agreement.

 

(D)       Employment Agreement – Chief Operating Officer

 

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 (a) an annual salary of $120,000, and (b) incentive compensation equal to one-quarter of one percent (0.25%) of net revenue, paid in cash on a quarterly basis. In addition, The Board granted Ms. Barron (i) options to purchase up to 200,000 shares of Common Stock at $0.60 per share, which vested on November 15, 2015; (ii) options to purchase up to 150,000 shares of Common Stock at $1.20, which vested on November 15, 2016; and (iii) options to purchase up to 150,000 shares of Common Stock at $1.80, which will vest on November 15, 2017.

 

For the three-months ended March 31, 2018 and 2017, Ms. Barron earned approximately $34,581 and $40,670, respectively, under the Barron Agreement.

 

NOTE 13 SUBSEQUENT EVENTS

 

On April 26, 2018, the Company’s Board of Directors approved the Company’s 2018 Stock Incentive Plan (the “2018 Plan”), relating to the issuance of up to 5,000,000 shares of Common Stock, to be effective for ten (10) years unless earlier terminated. The 2018 Plan is on substantially the same terms as the Company’s 2015 Stock Incentive Plan. On the same date, the Board of Directors amended grants of options to purchase up to 900,000 shares of Common Stock made under the 2015 Plan on April 19, 2017 to be issuable under the 2018 Plan (the “Amended Grants”), because the number of such grants exceeded the number of shares of Common Stock issuable under the 2015 Plan. In addition, on the same date, the Board of Directors approved grants under the 2018 Plan to an employee of the Company consisting of a stock award of 100,000 shares of Common Stock vesting immediately, and an award of options to purchase up to 100,000 shares of Common Stock, expiring two years from the date of grant and having an exercise price of $3.00 per share (the “April 2018 Grants).

 

On or about May 14, 2018, the Company issued Stock Option Agreements representing all unissued grants made on April 19, 2017 under the 2015 Plan, and the Amended Grants and April 2018 Grants under the 2018 Plan, for an aggregate total of options to purchase up to 1,800,000 shares of Common Stock. Also on or about May 14, 2018, the Company issued a Stock Award Agreement for 100,000 shares of Common Stock that vested on April 26, 2018, representing the April 2018 Grants under the 2018 Plan. As of May 14, 2018, the Company has entered into Stock Option Agreements with all grantees of the April 2017 Grants, the Amended Grants, and the April 2018 Grants, thereby issuing, in the aggregate, options to purchase up to 2,250,000 shares of our Common Stock, with 835,000 of such options having vested on June 30, 2017 with an exercise price of $3.00 per share; 901,667 of such options having vested on December 31, 2017 with exercise prices ranging from $3.00 to $4.00 per share; 100,000 of such options having vested on April 26, 2018 with an exercise price of $3.00 per share; 246,667 of such options vesting on December 31, 2018 with exercise prices ranging from $3.00 to $4.00 per share; and 166,666 of such options vesting on December 31, 2019 with an exercise price of $5.00 per share.

 

 28 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Unless the context otherwise requires, all references to “SQL Technologies Corp,” the “Company,” “we,” “us” or “our” include SQL Technologies Corp and its subsidiaries. This management’s discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on April 2, 2018 and related notes contained in Part I, Item 1 of this quarterly report.

 

Forward-Looking Statements

 

The information set forth in this Quarterly Report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in SQL Technologies Corp.’s revenues and profitability, (ii) prospective business opportunities and (iii) our strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, objectives and expectations for future operations. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of the Company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our products and businesses.

 

We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Quarterly Report.

 

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 of electrical fixtures, such as ceiling and wall lights and ceiling fans, by the use of a weight bearing power plug affixed 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.

 

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.

 

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

 

The Company is currently in the process of transitioning its products portfolio to advanced technologies, along with a new sales methods and marketing strategy, which will include unique, innovative advanced technologies (the “Smart SQL”).

 

 29 

 

Results of Operations - For the Three-Months Ended March 31, 2018 Compared to the Three-Months Ended March 31, 2017

 

   

(Unaudited)

Three-Months Ended

March 31,

  Increase (Decreased)   Increase (Decreased)
    2018   2017   $ Change   % Change
                 
Revenue   $ 3,138,060     $ 2,613,816     $ 524,244       20.06 %
                                 
Cost of sales     (2,429,301 )     (2,004,841 )     424,460       21.17 %
                                 
Gross Profit     708,759       608,975       99,784       16.39 %
                                 
   Selling, general and administrative expenses     (2,004,629 )     (1,148,660 )     855,969       74.52 %
 Depreciation and amortization     (469,593 )     (610,831 )     (141,238 )     (23.12 )%
       Total operating expenses     2,474,222       1,759,491       714,731       40.62 %
                                 
Loss from Operations     (1,765,463 )     (1,150,516 )     614,947       53.45 %
                                 
Other Income / (Expense)     (169,892 )     (16,262,169 )     (16,432,061 )     (101.04 )%
                                 
Net Loss   $ (1,595,571 )   $ (17,412,685 )   $ (15,817,114 )     (93.20 )%
                                 
Net loss per share - basic and diluted     (0.031 )     (0.45 )     (0.42 )     (93.26 )%
                                 

Revenue

Net revenue increased to $3,138,060 for the three-months ended March 31, 2018, from revenue of $2,613,816 for the three-months ended March 31, 2017. This increase in revenues is associated with a growing recognition of the Company’s technology and market acceptance.

 

Cost of Sales

We had a cost of sales of $2,429,301 for the three-months ended March 31, 2018, as compared to $2,004,841 for the same period in 2017. The increase is associated with the increase in sales. 

Gross Profit

We had gross profit of $708,759 for the three-months ended March 31, 2018 as compared to gross profit of $608,975 for the same period in 2017.

 

Selling, General and Administrative Expenses

Selling, general and administrative expense (SG&A) increased $714,731 to $2,474,222 during the three-months ended March 31, 2018, from $1,759,491 for the three-months ended March 31, 2017.

 

The increase was primarily due to non-cash stock compensation charges of $901,068 consisting of: 

 

·$720,000 related to the vesting of share grants associated with employment contracts of two Company executives that were entered into in 2016. See Note 11 (A)(5)
·$181,068 related to option expense compensation. See Note 11 (C )
 ·Such increase was partially offset by lower depreciation and amortization charges of $141,238  

 30 

 

Loss from Operations 

 

Loss from operations increased $614,947 to $1,765,463 during the three-month period ended March 31, 2018, from $1,150,516 for the same period in 2017. The increased loss was due to the non-cash charges in SG&A as described above, partially offset by an increase in gross profit.

 

Other Income (Expense)

 

Total other expenses, mostly non-cash charges, decreased $16,432,061 to $169,892 for the three-month period ended March 31, 2018. The decline is primarily due to non-cash derivative charges totaling $15,578,581 during the first quarter of 2017 that were not incurred in the comparable 2018 period.

 

Additionally, the Company’s interest expense increased by $25,569 to $83,569 for the three-month period ended March 31, 2018, from $58,000 for the three-month period ended March 31, 2017.

 

Net Loss and Net Loss per Share 

 

The Company incurred a net loss for the three-month period ended March 31, 2018 of $1,595,571, or $0.03 per share, as compared to net loss of $17,412,685 or $0.45 per share the three-month period ended March 31, 2017.

 

Liquidity and Capital Resources

 

As of March 31, 2018, the Company had $4,759,862 in cash and cash equivalents. As the Company develops its revenue base, it has raised additional funds through the sale of its Common Stock and arranged a $10,000,000 Line of Credit to support the Company’s working capital needs. As of March 31, 2018, the Company had $6,077,918 available under the Line of Credit, which expires January 10, 2019. The Company may need to raise additional capital or arrange alternative financing to replace the expiring facility and fund its working capital needs. It currently has no such financing commitment in place.

 

For the three-month period ended March 31, 2018, the Company used $495,947 of cash for operations as compared with $893,854 used for the same period in 2017. The decrease in cash used for operations was primarily due to the establishing of inventory levels in 2017 that remained stable in 2018.

  

For the three-month period ended March 31, 2018, cash flows used was $25,128 for investing activities as compared with $30,295 used for the same period in 2017. The investments were for patents costs.

 

Cash flows provided from financing activities amounted to $403,218 for the three-month period ended March 31, 2018, which were generated from net proceeds of the line of credit. This compares with $4,540,470 in cash from financing activities during the same period in 2017.

 

As a result of the above operating, investing and financing activities, the Company used $117,858 in cash equivalents for the three-month ended March 31, 2018, as compared with $3,616,321 used during the same period in 2017. The Company had $4,759,862 in cash and cash equivalents at March 31, 2018, as compared to $7,742,209 at March 31, 2017. 

 

 31 

 

The Company had a working capital deficit of $27,010,671 as of March 31, 2018, as compared to $23,271,348 as of December 31, 2017, which includes derivative liabilities of $18,931,239 and $19,175,685, respectively.

 

A majority of the Company’s sales do not require the Company to take delivery of inventory. Production of such inventory comprised of 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.

 

U.S. federal income tax reform could adversely affect us.

On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” (TCJA) that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates to 21 percent from 35 percent, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. We are currently evaluating the impact of the TCJA; we do not expect tax reform to have a material impact on our financial position, results of operations or cash flows.

 

Non-GAAP Financial Measures

 

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, management uses adjusted net income (loss) to evaluate operating and financial performance and believes the measure is useful to investors because it eliminates the impact of certain noncash and/or other items that management does not consider to be indicative of the Company’s performance from period to period. Management also believes this non-GAAP measure is useful to investors to evaluate and compare the Company’s operating and financial performance across periods, as well as facilitating comparisons to others in the Company’s industry.

 

We use the non-GAAP financial measure of Adjusted EBITDA, which is defined as net income (loss), plus interest income; interest expense; depreciation and amortization; unrealized derivative gains and losses, non-recurring income and expenses, and stock-based compensation expense. We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in Adjusted EBITDA.

 

These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States of America. These non-GAAP financial measures exclude significant expenses and income that are required by accounting principles generally accepted in the United States of America (“GAAP”) to be recorded in the company’s financial statements and are subject to inherent limitations. Investors should review the reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures that are included below.

  

The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure, for each of the periods presented:

 

   Quarter Ended March 31,
   2018  2017
Adjusted EBITDA reconciliation to Net Income (Loss):          
Net (loss) income  $(1,595,571)  $(17,412,685)
Other Income / (Expense)          
      Stock compensation – related parties   (720,000)     
      Stock options issued – related parties   (181,068)     
  Depreciation and amortization (1)   (469,593)   (610,831)
  Interest expense   (83,569)   (58,000)
  Derivative expenses        (2,061,159)
  Change in fair value of embedded derivative liabilities   244,515    (13,517,422)
  Loss on debt extinguishment – net (2)        (630,000)
 Gain on exchange   4,571      
 Other income   4,375    4,412 
  Total adjustment   (1,200,769)   (16,873,000)
           
Adjusted EBITDA   (394,802)   (539,685)
           
Net Income (Loss) per share - basic and diluted  $(0.007)   (0.12)

 

 32 

 

 

The following table presents a reconciliation of Adjusted Accumulated deficit reconciliation for each of the periods presented:

 

             
  Quarter Ended Year Ended December 31,
Account 3/31/2018 2017 2016 2015 2014 2013
             
Adjusted Accumulated deficit reconciliation to Net Income (Loss):        
Accumulated deficit  $         (169,678,839)  $  (168,050,716)  $  (141,182,294)  $    (42,703,470)  $    (15,813,260)  $      (8,519,517)
             
Other Income / (Expense)            
Depreciation and amortization (1)               (10,376,559)          (9,906,965)          (7,409,557)          (4,926,954)          (2,457,705)                 (2,689)
Loss on impairment                    (600,000)             (600,000)        
Interest expense                 (2,349,487) (2,265,917) (1,971,183) (990,317) (516,839) (27,669)
Derivative expenses               (11,403,068) (11,403,068) (11,403,068) (1,724,678) (1,724,678) (1,156,193)

Change in fair value of embedded

derivative liabilities

              (76,971,353) (77,215,868) (62,802,676) (19,168,194) 248,102 34,181
Loss on debt extinguishment, net (2)               (42,402,067) (42,402,067) (41,142,067) (12,731) (12,731) (12,731)
Warrant expense                 (1,869,358) (1,869,358)        
Option expense                 (2,184,661) (2,003,593)        
Amortization of Debt Discount                 (4,164,687) (4,164,687) (4,164,687) (4,164,687) (1,782,646) (132,330)
Common stock issued for service                 (1,949,750) (1,229,750) (1,229,750) (375,000) (201,312) (125,000)
Founder shareholders                    (562,500) (562,500) (562,500) (562,500) (562,500) (562,500)
Gain on debt settlement                      (66,458) (66,458) (66,458) (66,458) (66,458) (66,458)
Gain on exchange            
Gain on Debt Extinguishment                  3,288,909 3,288,909 3,288,909 339,195 129,606 106,224
Other income                       49,544 40,598 15,915 2,640 1,814 0
Total adjustment             (151,561,495)      (150,360,724)      (127,447,122)        (31,649,683)          (6,945,348)          (1,945,165)
             
Total Adjusted Accumulated deficit  $           (18,117,344)  $    (17,689,992)  $    (13,735,172)  $    (11,053,787)  $      (8,867,912)  $      (6,574,352)
             

 

(1)Includes amortization of the GE License agreement of $447,400 for the three-months ended March 31, 2018. And $9,755,534; $7,324,415; $4,865,901; $2,424,160; and $0 for the years ended 2017 through 2013, respectively.
(2)Primarily represents conversion of Convertible Notes into the Company’s Preferred Stock and Common Stock resulting in a $41,310,119 non-cash loss due to the difference between the conversion rate and the market value at the time of conversion, and a gain of $3,288,909 reflecting the cost basis of the Convertible Notes that were converted into Common Stock during the fourth quarter of 2016.

 

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements

 

Critical Accounting Policies and Estimates 

 

Critical Accounting Policies Included in the footnotes to the consolidated financial statements in this report is a summary of all significant accounting policies used in the preparation of our consolidated financial statements. Our consolidated financial statements are prepared in accordance with accounting methods and practices as required by accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. In particular, our critical accounting policies and areas in which we use judgment are revenue recognition, the estimated collectability of accounts receivable, the recoverability of obsolete or overstocked inventory, the impairment of assets that are our trademarks and goodwill, the recoverability of deferred tax assets and the measurement of retirement related benefits. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.

 33 

 

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

 

See Notes to the Consolidated Financial Statements in “Note 2 - Summary of Significant Accounting Policies, Recently Issued Accounting Pronouncements”.

  

 

ITEM 3. 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 4. 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.

 

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.

 

 34 

 

 

 PART II OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

We are not currently a party to any pending legal proceedings.

 

 

Item 1A. Risk Factors

 

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

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

As previously reported, on April 19, 2017, the Company’s Board of Directors authorized the Company to grant certain securities under the Company’s 2015 Stock Incentive Plan (the “2015 Plan”), or any successor plan, consisting of, in the aggregate, options to purchase up to 2,150,000 shares of our Common Stock at exercise prices ranging from $3.00 per share to $5.00 per share, vesting on June 30, 2017, December 31, 2017, December 31, 2018 and December 31, 2019 (collectively, the “April 2017 Grants”). On April 26, 2018, the Board of Directors amended certain April 2017 Grants of options to purchase, in the aggregate, up to 900,000 shares of Common Stock to non-employee directors (the “Amended Grants”), to instead be issuable under the 2018 Plan (as defined in Part II, Item 5), because the number of April 2017 Grants exceeded the number of shares of Common Stock issuable under the 2015 Plan. Also, on April 26, 2018, the Company’s Board of Directors authorized a grant of two-year options to purchase up to 100,000 shares of Common Stock at $3.00 per share, vesting on the date of the grant, and a grant of 100,000 shares of Common Stock, vesting on the date of the grant, to an employee of the Company in accordance with the employee’s service agreement (the “April 2018 Grants”).

 

On or about May 14, 2018, the Company issued Stock Option Agreements representing all unissued April 2017 Grants under the 2015 Plan, and the Amended Grants and April 2018 Grants under the 2018 Plan, for an aggregate total of options to purchase up to 1,800,000 shares of Common Stock. Also, on or about May 14, 2018, the Company issued a Stock Award Agreement for 100,000 shares of Common Stock vested on April 26, 2018, representing the April 2018 Grants under the 2018 Plan. As of May 14, 2018, the Company has entered into Stock Option Agreements with all grantees of the April 2017 Grants, the Amended Grants, and the April 2018 Grants, thereby issuing, in the aggregate, options to purchase up to 2,250,000 shares of our Common Stock, with 835,000 of such options having vested on June 30, 2017 with an exercise price of $3.00 per share; 901,667 of such options having vested on December 31, 2017 with exercise prices ranging from $3.00 to $4.00 per share; 100,000 of such options having vested on April 26, 2018 with an exercise price of $3.00 per share; 246,667 of such options vesting on December 31, 2018 with exercise prices ranging from $3.00 to $4.00 per share; and 166,666 of such options vesting on December 31, 2019 with an exercise price of $5.00 per share.

 

The transactions described below were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), as transactions not involving a public offering. All proceeds from the subscriptions for Common Stock and warrants to purchase Common Stock noted below will be used for general working capital purposes.

 

 

Item 3. Defaults upon Senior Securities

 

None.

 

 

Item 5. Other Information

 

On April 26, 2018, the Company’s Board of Directors approved the Company’s 2018 Stock Incentive Plan (the “2018 Plan”), relating to the issuance of up to 5,000,000 shares of Common Stock, to be effective for ten (10) years unless earlier terminated. The 2018 Plan is on substantially the same terms as the 2015 Plan, as more fully described in the Company’s Form 10-K filed on April 2, 2018.

 

U.S. federal income tax reform could adversely affect us.

On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” (TCJA) that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates to 21 percent from 35 percent, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. We are currently evaluating the impact of the TCJA; we do not expect tax reform to have a material impact on our financial position, results of operations or cash flows.

 

 35 

 

 

Item 6. Exhibits

 

No. Description of Exhibit    Note
3.1 Articles of Incorporation of the Company, as amended.   (3)
3.2 Certificate Of Designation of Rights, Preferences and Privileges of Series A Convertible Preferred Stock.   (4)
3.3 The Company’s Bylaws   (2)
10.1 The Company’s 2018 Stock Incentive Plan   (1) *
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 Financial and 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 Financial and 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 Quarterly Report on Form 10-Q for the three-months ended March 31, 2018 are formatted in XBRL (eXtensible Business Reporting Language):  (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Stockholders’ Equity (Deficit), (iv) the Statements of Cash Flows,  and (iv) the Notes to the Financial Statements.   (1)

 

*Indicates management contract or compensatory plan or arrangement.

 

(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 quarterly report on Form 10-Q filed with the SEC on November 14, 2016.
(4)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 15, 2016

 

 

 36 

 

 

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)  

 

 

 37 

 

 

 

 

 

 

EX-10.1 2 f2ssql10q050418ex10_1.htm

SQL TECHNOLOGIES CORP.

2018 STOCK INCENTIVE PLAN

 

1.       Purpose

 

SQL Technologies Corp.’s 2018 Stock Incentive Plan is intended to promote the best interests of SQL Technologies Corp. and its stockholders by (i) assisting the Corporation and its Affiliates in the recruitment and retention of persons with ability and initiative, (ii) providing an incentive to such persons to contribute to the growth and success of the Corporation’s businesses by affording such persons equity participation in the Corporation and (iii) associating the interests of such persons with those of the Corporation and its Affiliates and stockholders.

 

2.       Definitions

 

As used in this Plan the following definitions shall apply:

 

A.                 “Affiliate” means (i) any Subsidiary, (ii) any Parent, (iii) any corporation, or trade or business (including, without limitation, a partnership, limited liability company or other entity) which is directly or indirectly controlled fifty percent (50%) or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Corporation or one of its Affiliates, and (iv) any other entity in which the Corporation or any of its Affiliates has a material equity interest and which is designated as an “Affiliate” by resolution of the Committee.

 

B.                  “Award” means any Option or Stock Award granted hereunder.

 

C.                  “Board” means the Board of Directors of the Corporation.

 

D.                 “Code” means the Internal Revenue Code of 1986, and any amendments thereto.

 

E.                  “Committee” means the Board or any Committee of the Board to which the Board has delegated any responsibility for the implementation, interpretation or administration of this Plan.

 

F.                  “Common Stock” means the common stock, no par value, of the Corporation.

 

G.                 “Consultant” means (i) any person performing consulting or advisory services for the Corporation or any Affiliate, or (ii) a director of an Affiliate.

 

H.                 “Corporation” means SQL Technologies Corp., a Florida corporation.

 

I.                    “Corporation Law” means the Florida Business Corporation Act, as the same shall be amended from time to time.

 

J.                    “Date of Grant” means the date that the Committee approves an Option grant; provided, that all terms of such grant, including the amount of shares subject to the grant, exercise price and vesting are defined at such time.

 

K.                 “Deferral Period” means the period of time during which Deferred Shares are subject to deferral limitations under Section 7.D of this Plan.

 

L.                  “Deferred Shares” means an award pursuant to Section 7.D of this Plan of the right to receive shares of Common Stock at the end of a specified Deferral Period.

 

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M.                “Director” means a member of the Board.

 

N.                 “Eligible Person” means an employee of the Corporation or an Affiliate (including a corporation that becomes an Affiliate after the adoption of this Plan), a Director or a Consultant to the Corporation or an Affiliate (including a corporation that becomes an Affiliate after the adoption of this Plan).

 

O.                 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

P.                  “Fair Market Value” means, on any given date, the current fair market value of the shares of Common Stock as determined as follows:

 

(i)                 If the Common Stock is traded on a national securities exchange, the closing price for the day of determination as quoted on such market or exchange, including the NASDAQ Global Market or NASDAQ Capital Market, which is the primary market or exchange for trading of the Common Stock or if no trading occurs on such date, the last day on which trading occurred, or such other appropriate date as determined by the Committee in its discretion, as reported in The Wall Street Journal or such other source as the Committee deems reliable;

 

(ii)               If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high and the low asked prices for the Common Stock for the day of determination; or

 

(iii)             In the absence of an established market for the Common Stock, Fair Market Value shall be determined by the Committee in good faith.

 

Q.                 “Family Member” means a parent, child, spouse or sibling.

 

R.                  “Incentive Stock Option” means an Option (or portion thereof) intended to qualify for special tax treatment under Section 422 of the Code.

 

S.                  “Nonqualified Stock Option” means an Option (or portion thereof) which is not intended or does not for any reason qualify as an Incentive Stock Option.

 

T.                  “Option” means any option to purchase shares of Common Stock granted under this Plan.

 

U.                 “Parent” means any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation if each of the corporations (other than the Corporation) owns stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

V.                 “Participant” means an Eligible Person who (i) is selected by the Committee or an authorized officer of the Corporation to receive an Award and (ii) is party to an agreement setting forth the terms of the Award, as appropriate.

 

W.               “Performance Agreement” means an agreement described in Section 8 of this Plan.

 

X.                 “Performance Objectives” means the performance objectives established by the Committee pursuant to this Plan for Participants who have received grants of Awards. Performance Objectives may be described in terms of Corporation-wide objectives or objectives that are related to the performance of the individual Participant or the Affiliate, division, department or function within the Corporation or Affiliate in which the Participant is employed or has responsibility. Any Performance Objectives applicable to Awards to the extent that such an Award is intended to qualify as “Performance Based Compensation” under Section 162(m) of the Code shall be limited to specified levels of or increases in the Corporation’s or a business unit’s return on equity, earnings per share, total earnings, earnings growth, return on capital, return on assets, economic value added, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, sales growth, gross margin return on investment, increase in the Fair Market Price of the shares, net operating profit, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on investments (which equals net cash flow divided by total capital), internal rate of return, increase in net present value or expense targets. The Awards intended to qualify as “Performance Based Compensation” under Section 162(m) of the Code shall be pre-established in accordance with applicable regulations under Section 162(m) of the Code and the determination of attainment of such goals shall be made by the Committee. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Corporation (including an event described in Section 9), or the manner in which it conducts its business, or other events or circumstances render the Performance Objectives unsuitable, the Committee may modify such Performance Objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable; provided, however, that no such modification shall be made to an Award intended to qualify as “Performance Based Compensation” under Section 162(m) of the Code unless the Committee determines that such modification will not result in loss of such qualification or the Committee determines that loss of such qualification is in the best interests of the Corporation.

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Y.                 “Performance Period” means a period of time established under Section 8 of this Plan within which the Performance Objectives relating to a Stock Award are to be achieved.

 

Z.                  “Performance Share” means an award pursuant to Section 8 of this Plan of the right to receive shares of Common Stock upon the achievement of specified Performance Objectives.

 

AA.            “Plan” means this SQL Technologies Corp. 2018 Stock Incentive Plan.

 

BB.             “Repricing” means, other than in connection with an event described in Section 9 of this Plan, (i) lowering the exercise price of an Option after it has been granted or (ii) canceling an Option at a time when the exercise price exceeds the then-Fair Market Value of the Common Stock in exchange for another Option.

 

CC.             “Restricted Stock Award” means an award of Common Stock under Section 7.B.

 

DD.            “Securities Act” means the Securities Act of 1933, as amended.

 

EE.             “Stock Award” means a Stock Bonus Award, Restricted Stock Award, Stock Appreciation Right, Deferred Shares, or Performance Shares.

 

FF.              “Stock Bonus Award” means an award of Common Stock under Section 7.A.

 

GG.            “Stock Award Agreement” means a written agreement between the Corporation and a Participant setting forth the specific terms and conditions of a Stock Award granted to the Participant under Section 7. Each Stock Award Agreement shall be subject to the terms and conditions of this Plan and shall include such terms and conditions as the Committee shall authorize.

 

HH.            “Stock Option Agreement” means an agreement (written or electronic) between the Corporation and a Participant setting forth the specific terms and conditions of an Option granted to the Participant. Each Stock Option Agreement shall be subject to the terms and conditions of this Plan and shall include such terms and conditions as the Committee shall authorize.

 

II.                  “Subsidiary” means any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

JJ.                 “Ten Percent Owner” means any Eligible Person owning at the time an Option is granted more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or of a Parent or Subsidiary. An individual shall, in accordance with Section 424(d) of the Code, be considered to own any voting stock owned (directly or indirectly) by or for such Eligible Person’s brothers, sisters, spouse, ancestors and lineal descendants and any voting stock owned (directly or indirectly) by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its stockholders, partners, or beneficiaries.

 

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3. implementation, interpretation and Administration

 

A.                 Delegation to Board Committee. The Board shall have the sole authority to implement, interpret, and/or administer this Plan unless the Board delegates all or any portion of its authority to implement, interpret, and/or administer this Plan to a Committee. To the extent not prohibited by the Certificate of Incorporation or Bylaws of the Corporation, the Board may delegate all or a portion of its authority to implement, interpret, and/or administer this Plan to a Committee of the Board appointed by the Board and constituted in compliance with the applicable Corporation Law. The Committee shall consist solely of two (2) or more Directors who are (i) Non-Employee Directors (within the meaning of Rule 16b-3 under the Exchange Act) for purposes of exercising administrative authority with respect to Awards granted to Eligible Persons who are subject to Section 16 of the Exchange Act; (ii) to the extent required by the rules of the market on which the Corporation’s shares are traded or the exchange on which the Corporation’s shares are listed, “independent” within the meaning of such rules; and (iii) at such times as an Award under this Plan by the Corporation is subject to Section 162(m) of the Code (to the extent relief from the limitation of Section 162(m) of the Code is sought with respect to Awards and administration of the Awards by a committee of “outside directors” is required to receive such relief), “outside directors” within the meaning of Section 162(m) of the Code.

 

B.                  Delegation to Officers. The Committee may delegate to one or more officers of the Corporation the authority to grant and administer Awards to Eligible Persons who are not Directors or executive officers of the Corporation; provided that the Committee shall have fixed the total number of shares of Common Stock that may be subject to such Awards. No officer holding such a delegation is authorized to grant Awards to himself or herself. In addition to the Committee, the officer or officers to whom the Committee has delegated the authority to grant and administer Awards shall have all powers delegated to the Committee with respect to such Awards.

 

C.                  Powers of the Committee. Subject to the provisions of this Plan, and in the case of a Committee appointed by the Board, the specific duties delegated to such Committee, the Committee (and the officers to whom the Committee has delegated such authority) shall have the authority:

 

(i)                 To construe and interpret all provisions of this Plan and all Stock Option Agreements, Stock Award Agreements, Performance Agreements, or any other agreement under this Plan.

 

(ii)               To determine the Fair Market Value of Common Stock in the absence of an established market for the Common Stock.

 

(iii)             To select the Eligible Persons to whom Awards are granted from time to time hereunder.

 

(iv)              To determine the number of shares of Common Stock covered by an Award; to determine whether an Option shall be an Incentive Stock Option or Nonqualified Stock Option; and to determine such other terms and conditions, not inconsistent with the terms of this Plan, of each such Award. Such terms and conditions include, but are not limited to, the exercise price of an Option, purchase price of Common Stock subject to a Stock Award, the time or times when Options or a Stock Award may be exercised or Common Stock issued thereunder, the vesting schedule of an Option, the right of the Corporation to repurchase Common Stock issued pursuant to the exercise of an Option or a Stock Award and other restrictions or limitations (in addition to those contained in this Plan) on the forfeitability or transferability of Options, Stock Awards or Common Stock issued upon exercise of an Option or pursuant to a Stock Award. Such terms may include conditions which shall be determined by the Committee and need not be uniform with respect to Participants.

 

(v)                To accelerate the time at which any Option or Stock Award may be exercised, or the time at which a Stock Award or Common Stock issued under this Plan may become transferable or non-forfeitable.

 

(vi)              To determine whether and under what circumstances an Option or Stock Award may be settled in cash, shares of Common Stock or other property under Section 6.H instead of in Common Stock.

 

 4 

 

(vii)            To waive, amend, cancel, extend, renew, accept the surrender of, modify or accelerate the vesting of or lapse of restrictions on all or any portion of an outstanding Award. Except as otherwise provided by this Plan, Stock Option Agreement, Stock Award Agreement or Performance Agreement or as required to comply with applicable law, regulation or rule, no amendment, cancellation or modification shall, without a Participant’s consent, adversely affect any rights of the Participant; provided, however, that (x) an amendment or modification that may cause an Incentive Stock Option to become a Nonqualified Stock Option shall not be treated as adversely affecting the rights of the Participant and (y) any other amendment or modification of any Stock Option Agreement, Stock Award Agreement or Performance Agreement that does not, in the opinion of the Committee, adversely affect any rights of any Participant, shall not require such Participant’s consent. Notwithstanding the foregoing, the restrictions on the Repricing of Options, as set forth in this Plan, may not be waived.

 

(viii)          To prescribe the form of Stock Option Agreements, Stock Award Agreements, Performance Agreements, or any other agreements under this Plan; to adopt policies and procedures for the exercise of Options or Stock Awards, including the satisfaction of withholding obligations; to adopt, amend, and rescind policies and procedures pertaining to the administration of this Plan; and to make all other determinations necessary or advisable for the administration of this Plan. Except for the due execution of the award agreement by both the Corporation and the Participant, the Award’s effectiveness will not be dependent on any signature unless specifically so provided in the award agreement.

 

The express grant in this Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee; provided that the Committee may not exercise any right or power reserved to the Board. Any decision made, or action taken, by the Committee or in connection with the implementation, interpretation, and administration of this Plan shall be final, conclusive and binding on all persons having an interest in this Plan.

 

4.       Eligibility

 

A.                 Eligibility for Awards. Awards, other than Incentive Stock Options, may be granted to any Eligible Person selected by the Committee. Incentive Stock Options may be granted only to employees of the Corporation or a Parent or Subsidiary.

 

B.                  Eligibility of Consultants. A Consultant shall be an Eligible Person only if the offer or sale of the Corporation’s securities would be eligible for registration on Form S-8 Registration Statement (or any successor form) because of the identity and nature of the service provided by such person, unless the Corporation determines that an offer or sale of the Corporation’s securities to such person will satisfy another exemption from the registration under the Securities Act and complies with the securities laws of all other jurisdictions applicable to such offer or sale. Accordingly, an Award may not be granted pursuant to this Plan for the purpose of the Corporation obtaining financing or for investor relations purposes.

 

C.                  Substitution Awards. The Committee may make Awards under this Plan by assumption, in substitution or replacement of performance shares, phantom shares, stock awards, stock options or similar awards granted by another entity (including an Affiliate) in connection with a merger, consolidation, acquisition of property or stock or similar transaction. Notwithstanding any provision of this Plan (other than the maximum number of shares of Common Stock that may be issued under this Plan), the terms of such assumed, substituted, or replaced Awards shall be as the Committee, in its discretion, determines is appropriate.

 

 5 

 

5.       Common Stock Subject to Plan

 

A.                 Share Reserve and Limitations on Grants. The maximum aggregate number of shares of Common Stock that may be (i) issued under this Plan pursuant to the exercise of Options (without regard to whether payment on exercise of the Stock Option is made in cash or shares of Common Stock), (ii) issued pursuant to Stock Awards shall be 5,000,000 shares. The number of shares of Common Stock subject to the Plan shall be subject to adjustment as provided in Section 9. Notwithstanding any provision hereto to the contrary, shares subject to the Plan shall include shares forfeited in a prior year as provided herein. For purposes of determining the number of shares of Common Stock available under this Plan, shares of Common Stock withheld by the Corporation to satisfy applicable tax withholding obligations pursuant to Section 10 of this Plan shall be deemed issued under this Plan. No single participant may receive more than 25% of the total Options awarded in any single year.

 

B.                  Reversion of Shares. If an Option or Stock Award is terminated, expires or becomes unexercisable, in whole or in part, for any reason, the unissued or unpurchased shares of Common Stock which were subject thereto shall become available for future grant under this Plan. Shares of Common Stock that have been actually issued under this Plan shall not be returned to the share reserve for future grants under this Plan; except that shares of Common Stock issued pursuant to a Stock Award which are forfeited to the Corporation or repurchased by the Corporation at the original purchase price of such shares, shall be returned to the share reserve for future grant under this Plan.

 

C.                  Source of Shares. Common Stock issued under this Plan may be shares of authorized and unissued Common Stock or shares of previously issued Common Stock that have been reacquired by the Corporation.

 

6.        Options

 

A.                 Award. In accordance with the provisions of Section 4, the Committee will designate each Eligible Person to whom an Option is to be granted and will specify the number of shares of Common Stock covered by such Option. The Stock Option Agreement shall specify whether the Option is an Incentive Stock Option or Nonqualified Stock Option, the exercise price of such Option, the vesting schedule applicable to such Option, the expiration date of such Option, events of termination of such Option, and any other terms of such Option. No Option that is intended to be an Incentive Stock Option shall be invalid for failure to qualify as an Incentive Stock Option.

 

B.                  Option Price. The exercise price per share for Common Stock subject to an Option shall be determined by the Committee, but shall comply with the following:

 

(i)                 The exercise price per share for Common Stock subject to an Option shall not be less than one hundred percent (100%) of the Fair Market Value on the date of grant.

 

(ii)               The exercise price per share for Common Stock subject to an Incentive Stock Option granted to a Participant who is deemed to be a Ten Percent Owner on the date such option is granted, shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date of grant.

 

C.                  Maximum Option Period. The maximum period during which an Option may be exercised shall be ten (10) years from the date such Option was granted. In the case of an Incentive Stock Option that is granted to a Participant who is or is deemed to be a Ten Percent Owner on the date of grant, such Option shall not be exercisable after the expiration of five (5) years from the date of grant.

 

 6 

 

D.                 Maximum Value of Options which are Incentive Stock Options. To the extent that the aggregate Fair Market Value of the Common Stock with respect to which Incentive Stock Options granted to any Participant are exercisable for the first time during any calendar year (under all stock option plans of the Corporation or any Parent or Subsidiary) exceeds $100,000 (or such other amount provided in Section 422 of the Code), the Options shall not be deemed to be Incentive Stock Options. For purposes of this section, the Fair Market Value of the Common Stock will be determined as of the time the Incentive Stock Option with respect to the Common Stock is granted. This section will be applied by taking Incentive Stock Options into account in the order in which they are granted.

 

E.                  Nontransferability. Options granted under this Plan which are intended to be Incentive Stock Options shall be nontransferable except by will or by the laws of descent and distribution and, during the lifetime of the Participant, shall be exercisable by only the Participant to whom the Incentive Stock Option is granted. Except to the extent transferability of a Nonqualified Stock Option is provided for in the Stock Option Agreement or is approved by the Committee, during the lifetime of the Participant to whom the Nonqualified Stock Option is granted, such Option may be exercised only by the Participant. If the Stock Option Agreement so provides or the Committee so approves, a Nonqualified Stock Option may be transferred by a Participant through a gift or domestic relations order to the Participant’s family members to the extent such transfer complies with applicable securities laws and regulations and provided that such transfer is not a transfer for value (within the meaning of applicable securities laws and regulations). The holder of a Nonqualified Stock Option transferred pursuant to this section shall be bound by the same terms and conditions that governed the Option during the period that it was held by the Participant. No right or interest of a Participant in any Option shall be liable for, or subject to, any lien, obligation, or liability of such Participant, unless such obligation is to the Corporation itself or to an Affiliate.

 

F.                  Vesting. Options will vest as provided in the Stock Option Agreement.

 

G.                 Termination. Options will terminate as provided in the Stock Option Agreement.

 

H.                 Exercise. Subject to the provisions of this Plan and the applicable Stock Option Agreement, an Option may be exercised to the extent vested in whole at any time or in part from time to time at such times and in compliance with such requirements as the Committee shall determine. A partial exercise of an Option shall not affect the right to exercise the Option from time to time in accordance with this Plan and the applicable Stock Option Agreement with respect to the remaining shares subject to the Option. An Option may not be exercised with respect to fractional shares of Common Stock. The Participant may face certain restrictions on his/her ability to exercise Options and/or sell underlying shares when such Participant is potentially in possession of insider information. The Corporation will make the Participant aware of any formal insider trading policy it adopts, and the provisions of such insider trading policy (including any amendments thereto) shall be binding upon the Participant.

 

I.                    Payment. Unless otherwise provided by the Stock Option Agreement, payment of the exercise price for an Option shall be made in cash or a cash equivalent acceptable to the Committee or if the Common Stock is traded on an established securities market, by payment of the exercise price by a broker-dealer or by the Option holder with cash advanced by the broker-dealer if the exercise notice is accompanied by the Option holder’s written irrevocable instructions to deliver the Common Stock acquired upon exercise of the Option to the broker-dealer or by delivery of the Common Stock to the broker-dealer with an irrevocable commitment by the broker-dealer to forward the exercise price to the Corporation. With the consent of the Committee, payment of all or a part of the exercise price of an Option may also be made (i) by surrender to the Corporation (or delivery to the Corporation of a properly executed form of attestation of ownership) of shares of Common Stock that have been held for such period prior to the date of exercise as is necessary to avoid adverse accounting treatment to the Corporation, or (ii) any other method acceptable to the Committee. If Common Stock is used to pay all or part of the exercise price, the sum of the cash or cash equivalent and the Fair Market Value (determined as of the date of exercise) of the shares surrendered must not be less than the Option price of the shares for which the Option is being exercised.

 

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J.                    Stockholder Rights. No Participant shall have any rights as a stockholder with respect to shares subject to an Option until the date of exercise of such Option and the certificate for shares of Common Stock to be received on exercise of such Option has been issued by the Corporation.

 

K.                 Disposition and Stock Certificate Legends for Incentive Stock Option Shares. A Participant shall notify the Corporation of any sale or other disposition of Common Stock acquired pursuant to an Incentive Stock Option if such sale or disposition occurs (i) within two years of the grant of an Option or (ii) within one year of the issuance of the Common Stock to the Participant. Such notice shall be in writing and directed to the Chief Financial Officer of the Corporation or is his/her absence, the Chief Executive Officer. The Corporation may require that certificates evidencing shares of Common Stock purchased upon the exercise of Incentive Stock Options issued under this Plan be endorsed with a legend in substantially the following form:

 

THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED PRIOR TO ___, 20___, IN THE ABSENCE OF A WRITTEN STATEMENT FROM THE CORPORATION TO THE EFFECT THAT THE CORPORATION IS AWARE OF THE FACTS OF SUCH SALE OR TRANSFER.

 

The blank contained in this legend shall be filled in with the date that is the later of (i) one year and one day after the date of the exercise of such Incentive Stock Option or (ii) two years and one day after the grant of such Incentive Stock Option.

 

L.                  No Repricing. In no event shall the Committee permit a Repricing of any Option without the approval of the stockholders of the Corporation.

 

7.        Stock Awards

 

A.                 Stock Bonus Awards. Stock Bonus Awards may be granted by the Committee. Each Stock Award Agreement for a Stock Bonus Award shall be in such form and shall contain such terms and conditions (including provisions relating to consideration, vesting, reacquisition of shares following termination, and transferability of shares) as the Committee shall deem appropriate. The terms and conditions of Stock Award Agreements for Stock Bonus Awards may change from time to time and need not be uniform with respect to Participants, and the terms and conditions of separate Stock Bonus Awards need not be identical.

 

B.                  Restricted Stock Awards. Restricted Stock Awards may be granted by the Committee. Each Stock Award Agreement for a Restricted Stock Award shall be in such form and shall contain such terms and conditions (including provisions relating to purchase price, consideration, vesting, reacquisition of shares following termination, and transferability of shares) as the Committee shall deem appropriate. The terms and conditions of the Stock Award Agreements for Restricted Stock Awards may change from time to time and need not be uniform with respect to Participants, and the terms and conditions of separate Restricted Stock Awards need not be identical. Vesting of any grant of Restricted Stock Awards may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 8 of this Plan regarding Performance Shares.

 

C.                  Deferred Shares. The Committee may authorize grants of Deferred Shares to Participants upon the recommendation of the Corporation’s management, and upon such terms and conditions as the Committee may determine in accordance with the following provisions:

 

(i)                 Each grant shall constitute the agreement by the Corporation to issue or transfer shares of Common Stock to the Participant in the future in consideration of the performance of services, subject to the fulfillment during the Deferral Period of such conditions as the Committee may specify.

 

(ii)               Each grant may be made without additional consideration from the Participant or in consideration of a payment by the Participant that is less than the Fair Market Value on the date of grant.

 

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(iii)             Each grant shall provide that the Deferred Shares covered thereby shall be subject to a Deferral Period, which shall be fixed by the Committee on the date of grant, and any grant or sale may provide for the earlier termination of such period in the event of a change in control of the Corporation or other similar transaction or event.

 

(iv)              During the Deferral Period, the Participant shall not have any right to transfer any rights under the subject Award, shall not have any rights of ownership in the Deferred Shares and shall not have any right to vote such shares, but the Committee may on or after the date of grant, authorize the payment of dividend or other distribution equivalents on such shares in cash or additional shares on a current, deferred or contingent basis.

 

(v)                Any grant, or the vesting thereof, may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 8 of this Plan regarding Performance Shares.

 

(vi)              Each grant shall be evidenced by an agreement delivered to and accepted by the Participant and containing such terms and provisions as the Committee may determine consistent with this Plan. The terms and conditions of the agreements for Deferred Shares may change from time to time and need not be uniform with respect to Participants, and the terms and conditions of separate Deferred Shares need not be identical.

 

8.        Performance Shares

 

A.                 The Committee may authorize grants of Performance Shares, which shall become payable to the Participant upon the achievement of specified Performance Objectives, upon such terms and conditions as the Committee may determine in accordance with the following provisions:

 

(i)                 Each grant shall specify the number of Performance Shares to which it pertains, which may be subject to adjustment to reflect changes in compensation or other factors.

 

(ii)               The Performance Period with respect to each Performance Share shall commence on the date established by the Committee and may be subject to earlier termination in the event of a change in control of the Corporation or similar transaction or event.

 

(iii)             Each grant shall specify the Performance Objectives that are to be achieved by the Participant.

 

(iv)              Each grant may specify in respect of the specified Performance Objectives a minimum acceptable level of achievement below which no payment will be made and may set forth a formula for determining the amount of any payment to be made if performance is at or above such minimum acceptable level but falls short of the maximum achievement of the specified Performance Objectives.

 

(v)                Each grant shall specify the time and manner of payment of Performance Shares that shall have been earned, and any grant may specify that any such amount may be paid by the Corporation in cash, shares of Common Stock or any combination thereof and may either grant to the Participant or reserve to the Committee the right to elect among those alternatives.

 

(vi)              Any grant of Performance Shares may specify that the amount payable with respect thereto may not exceed a maximum specified by the Committee on the date of grant.

 

(vii)            Any grant of Performance Shares may provide for the payment to the Participant of dividend or other distribution equivalents thereon in cash or additional shares of Common Stock on a current, deferred or contingent basis.

 

(viii)          If provided in the terms of the grant and subject to the requirements of Section 162(m) of the Code (in the case of awards intended to qualify for exception therefrom), the Committee may adjust Performance Objectives and the related minimum acceptable level of achievement if, in the sole judgment of the Committee, events or transactions have occurred after the date of grant that are unrelated to the performance of the Participant and result in distortion of the Performance Objectives or the related minimum acceptable level of achievement.

 

 9 

 

(ix)              Each grant shall be evidenced by an agreement that shall be delivered to and accepted by the Participant, which shall state that the Performance Shares are subject to all of the terms and conditions of this Plan and such other terms and provisions as the Committee may determine consistent with this Plan. The terms and conditions of the agreements for Performance Shares may change from time to time and need not be uniform with respect to Participants, and the terms and conditions of separate Performance Shares need not be identical.

 

(x)                Until the achievement of the Performance Objectives and the resulting issuance of the Performance Shares, the Participant shall not have any rights as a stockholder in the Performance Shares and shall not have any right to vote such shares, but the Committee may on or after the date of grant, authorize the payment of dividend or other distribution equivalents on such shares in cash or additional shares on a current, deferred or contingent basis.

 

9.        Changes in Capital Structure

 

A.                 No Limitations of Rights. The existence of outstanding Awards shall not affect in any way the right or power of the Corporation or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation’s capital structure or its business, or any merger or consolidation of the Corporation, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

 

B.                  Changes in Capitalization. If the Corporation 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 hereunder and (ii) the number of and class of shares then reserved for issuance under this Plan and the maximum number of shares for which Awards may be granted to a Participant during a specified time period shall be appropriately and proportionately adjusted. The conversion of convertible securities of the Corporation shall not be treated as effected “without receiving consideration.” The Committee shall make such adjustments, and its determinations shall be final, binding and conclusive.

 

C.                  Merger, Consolidation or Asset Sale. If the Corporation 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 this Plan, unless provisions are made in connection with such transaction for the continuance of this 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 Agreement or Stock Award Agreement, terminate immediately as of the effective date of any such merger, consolidation or sale.

 

D.                 Limitation on Adjustment. Except as previously expressly provided, neither the issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Corporation convertible into such shares or other securities, nor the increase or decrease of the number of authorized shares of stock, nor the addition or deletion of classes of stock, shall affect, and no adjustment by reason thereof shall be made with respect to, the number, class or price of shares of Common Stock then subject to outstanding Options or Stock Awards.

 

10.        Withholding of Taxes

 

The Corporation or an Affiliate shall have the right, before any certificate for any Common Stock is delivered, to deduct or withhold from any payment owed to a Participant any amount that is necessary in order to satisfy any withholding requirement that the Corporation or Affiliate in good faith believes is imposed upon it in connection with U.S federal, state, or local taxes, including transfer taxes, as a result of the issuance of, or lapse of restrictions on, such Common Stock, or otherwise require such Participant to make provision for payment of any such withholding amount. Subject to such conditions as may be established by the Committee, the Committee may permit a Participant to (i) have Common Stock otherwise issuable under an Option or Stock Award withheld to the extent necessary to comply with minimum statutory withholding rate requirements; (ii) tender back to the Corporation shares of Common Stock received pursuant to an Option or Stock Award to the extent necessary to comply with minimum statutory withholding rate requirements for supplemental income; (iii) deliver to the Corporation previously acquired Common Stock; (iv) have funds withheld from payments of wages, salary or other cash compensation due the Participant; (v) pay the Corporation or its Affiliate in cash, in order to satisfy part or all of the obligations for any taxes required to be withheld or otherwise deducted and paid by the Corporation or its Affiliate with respect to the Option of Stock Award; or (vi) establish a 10b5-1 trading plan for withheld stock designed to facilitate the sale of stock in connection with the vesting of such shares, the proceeds of which shall be utilized to make all applicable withholding payments in a manner to be coordinated by the Corporation’s Chief Financial Officer.

 

 10 

 

11.        Compliance with Law and Approval of Regulatory Bodies

 

A.                 General Requirements. No Option or Stock Award shall be exercisable, no Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements), any listing agreement to which the Corporation is a party, and the rules of all domestic stock exchanges or quotation systems on which the Corporation’s shares may be listed. The Corporation shall have the right to rely on an opinion of its counsel as to such compliance. In the absence of an effective and current registration statement on an appropriate form under the Securities Act, or a specific exemption from the registration requirements of the Securities Act, shares of Common Stock issued under this Plan shall be restricted shares. Any share certificate issued to evidence Common Stock when a Stock Award is granted or for which an Option is exercised may bear such restrictive legends and statements as the Committee may deem advisable to assure compliance with federal and state laws and regulations. No Option or Stock Award shall be exercisable, no Stock Award shall be granted, no Common Stock shall be issued, no certificate for shares shall be delivered, and no payment shall be made under this Plan until the Corporation has obtained such consent or approval as the Committee may deem advisable from regulatory bodies having jurisdiction over such matters.

 

B.                  Participant Representations. The Committee may require that a Participant, as a condition to receipt or exercise of a particular award, execute and deliver to the Corporation a written statement, in form satisfactory to the Committee, in which the Participant represents and warrants that the shares are being acquired for such person’s own account, for investment only and not with a view to the resale or distribution thereof. The Participant shall, at the request of the Committee, be required to represent and warrant in writing that any subsequent resale or distribution of shares of Common Stock by the Participant shall be made only pursuant to either (i) a registration statement on an appropriate form under the Securities Act of 1933, which registration statement has become effective and is current with regard to the shares being sold, or (ii) a specific exemption from the registration requirements of the Securities Act of 1933, but in claiming such exemption the Participant shall, prior to any offer of sale or sale of such shares, obtain a prior favorable written opinion of counsel, in form and substance satisfactory to counsel for the Corporation, as to the application of such exemption thereto.

 

12.        General Provisions

 

A.                 Effect on Employment and Service. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall (i) confer upon any individual any right to continue in the employ or service of the Corporation or an Affiliate, (ii) in any way affect any right and power of the Corporation or an Affiliate to change an individual’s duties or terminate the employment or service of any individual at any time with or without assigning a reason therefor or (iii) except to the extent the Committee grants an Option or Stock Award to such individual, confer on any individual the right to participate in the benefits of this Plan.

 

B.                  Use of Proceeds. The proceeds received by the Corporation from any sale of Common Stock pursuant to this Plan shall be used for general corporate purposes.

 

C.                  Unfunded Plan. This Plan, insofar as it provides for grants, shall be unfunded, and the Corporation shall not be required to segregate any assets that may at any time be represented by grants under this Plan. Any liability of the Corporation to any Participant with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Corporation shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Corporation.

 

 11 

 

D.                 Rules of Construction. Headings are given to the Sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law.

 

E.                  Choice of Law. This Plan and all Stock Option Agreements, Stock Award Agreements, and Performance Agreements (or any other agreements) entered into under this Plan shall be interpreted under the Corporation Law excluding (to the greatest extent permissible by law) any rule of law that would cause the application of the laws of any jurisdiction other than the Corporation Law.

 

F.                  Fractional Shares. The Corporation shall not be required to issue fractional shares pursuant to this Plan. The Committee may provide for elimination of fractional shares or the settlement of such fractional shares in cash.

 

G.                 Foreign Employees. In order to facilitate the making of any grant or combination of grants under this Plan, the Committee may provide for such special terms for Awards to Participants who are foreign nationals, or who are employed by the Corporation or any Affiliate outside of the United States, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan, as then in effect, unless this Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Corporation.

 

13.        Amendment and Termination

 

The Board may amend or terminate this Plan from time to time; provided, however, stockholder approval shall be required for any amendment that (i) increases the aggregate number of shares of Common Stock that may be issued under this Plan, except as contemplated herein; (ii) changes the class of employees eligible to receive Incentive Stock Options; (iii) modifies the restrictions on Repricings set forth in this Plan; or (iv) is required by the terms of any applicable law, regulation or rule, including the rules of any market on which the Corporation shares are traded or exchange on which the Corporation shares are listed. Except as specifically permitted by this Plan, any Stock Option Agreement or any Stock Award Agreement or as required to comply with applicable law, regulation or rule, no amendment shall, without a Participant’s consent, adversely affect any rights of such Participant under any Option or Stock Award outstanding at the time such amendment is made; provided, however, that an amendment that may cause an Incentive Stock Option to become a Nonqualified Stock Option shall not be treated as adversely affecting the rights of the Participant. Any amendment requiring stockholder approval shall be approved by the stockholders of the Corporation within twelve (12) months of the date such amendment is adopted by the Board.

 

14.        Effective Date of Plan; Duration of Plan

 

A.                 This Plan shall be effective upon adoption by the Board, subject to approval within twelve (12) months by the stockholders of the Corporation. Unless and until the Plan has been approved by the stockholders of the Corporation, no Award may be exercised. In the event that the stockholders of the Corporation shall not approve the Plan within such twelve (12) month period, the Plan and any previously granted Awards shall terminate.

 

B.                  Unless previously terminated, this Plan will terminate ten (10) years after the earlier of (i) the date this Plan is adopted by the Board, or (ii) the date this Plan is approved by the stockholders, except that Awards that are granted under this Plan prior to its termination will continue to be administered under the terms of this Plan until the Awards terminate, expire or are exercised.

 

 

IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed by a duly authorized officer as of the date of adoption of this Plan by the Board of Directors.

 

SQL TECHNOLOGIES CORP.

 

 

 

By: /s/ John Campi

John Campi

Chief Executive Officer

 

 12 

EX-31.1 3 f2ssql10q050418ex31_1.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

EXHIBIT 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

 

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, I, John P. Campi, certify that:

1. I have reviewed this report on Form 10-Q of SQL Technologies Corp., for the period ended March 31, 2018;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: May 14, 2018

/s/ John P. Campi

John P. Campi

Chief Executive Officer

Principle Executive Officer

EX-31.2 4 f2ssql10q050418ex31_2.htm CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

EXHIBIT 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

 

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, I, John P. Campi certify that:

1. I have reviewed this report on Form 10-Q of SQL Technologies Corp., for the period ended March 31, 2018;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: May 14, 2018

/s/ John P. Campi

John P. Campi

Principal Financial Officer

Principal Accounting Officer

EX-32.1 5 f2ssql10q050418ex32_1.htm CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of SQL Technologies Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John P. Campi, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

(1)       the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)       the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ John P. Campi

John P. Campi

Chief Executive Officer

and Principal Executive Officer

 

Date: May 14, 2018

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 6 f2ssql10q050418ex32_2.htm CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of SQL Technologies Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John P. Campi, principal financial officer and principal accounting officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

(1)       the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)       the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ John P. Campi

John P. Campi

Principal Financial Officer

Principal Accounting Officer

 

Date: May 14, 2018

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
May 11, 2018
Document And Entity Information    
Entity Registrant Name SQL Technologies Corp.  
Entity Central Index Key 0001598981  
Document Type 10-Q  
Document Period End Date Mar. 31, 2018  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   53,414,901
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2018  
XML 14 R2.htm IDEA: XBRL DOCUMENT v3.8.0.1
Balance Sheets - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 4,759,862 $ 4,877,720
Accounts recievable 1,816,372 1,049,965
Inventory 2,265,527 2,352,573
Prepaid expenses 42,777 61,714
Total current assets 8,884,538 8,341,972
Furniture and equipment - net 177,167 194,872
Patent - net 225,052 204,412
GE trademark license - net 1,193,066 1,640,466
Other assets 40,935 40,934
Total other assets 1,636,220 2,080,684
Total assets 10,520,758 10,422,656
Current liabilities:    
Accounts payable & accrued expenses 2,180,256 1,364,446
Notes payable-current portion 3,962,724 70,222
Notes payable - related party 200,000 200,000
GE royalty obligation 10,581,728 10,760,566
Derivative liabilities 18,931,239 19,175,754
Other current liabilities 39,262 42,332
Total current liabilities 35,895,209 31,613,320
Long term liabilities:    
Notes payable 3,456,732
Total long-term liabilities 3,456,732
Total liabilities 35,895,209 35,070,052
Commitments and contingent liabilities:    
Redeemable preferred stock - subject to redemption: $0 par value; 20,000,000 shares authorized; 13,456,936 and 13,056,932 shares issued and outstanding at March 31, 2018 and December 31, 2017, Respectively 45,753,569 45,753,569
Stockholders' deficit:    
Common stock: $0 par value, 500,000,000 shares authorized; 54,414,900 and 53,174,900 shares issued and outstanding at March 31, 2018 and December 31, 2017 respectively 18,301,387 17,581,387
Additional paid-in capital 80,284,874 80,103,806
Accumulated deficit (169,678,839) (168,050,716)
Total Stockholders' deficit (71,092,578) (70,365,523)
Noncontrolling interest (35,442) (35,442)
Total Deficit (71,128,020) (70,400,965)
Total liabilities, redeemable preferred stock, and stockholders' deficit $ 10,520,758 $ 10,422,656
XML 15 R3.htm IDEA: XBRL DOCUMENT v3.8.0.1
Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Common Stock Par Value $ 0 $ 0
Common Stock Authorized 500,000,000 500,000,000
Common Stock Issued 54,414,900 53,174,900
Common Stock Outstanding 54,414,900 53,174,900
XML 16 R4.htm IDEA: XBRL DOCUMENT v3.8.0.1
Statements of Operations - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Income Statement [Abstract]    
Sales $ 3,138,060 $ 2,613,816
Cost of sales (2,429,301) (2,004,841)
Gross profit 708,759 608,975
Selling, general and administrative expenses 2,004,629 1,148,660
Depreciation and amortization 469,593 610,831
Total operating expense 2,474,222 1,759,491
Loss from operations (1,765,463) (1,150,516)
Other income (expense)    
Interest expense (83,569) (58,000)
Change in fair value of embedded derivative liabilities 244,515 (13,517,422)
Loss on debt extinguishment (630,000)
Gain on exchange 4,571
Other income 4,375 4,412
Total other income (expense) – net (169,892) (16,262,169)
Net loss including noncontrolling interest (1,595,571) (17,412,685)
Net loss attributable to Safety Quick Lighting & Fans Corp. $ (1,595,571) $ (17,412,685)
Net loss per share - basic and diluted $ (0.031) $ (.45)
Weighted average number of common shares outstanding during the year - basic and diluted 53,196,234 38,462,209
XML 17 R5.htm IDEA: XBRL DOCUMENT v3.8.0.1
Statements of Cash Flows - USD ($)
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Cash flows from operating activities:    
Net loss attributable to Safety Quick Lighting & Fans Corp. $ (1,595,571) $ (17,412,685)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation expense 17,705 6,547
Amortization of patent 4,488 2,277
Amortization of GE trademark license 447,400 602,007
Change in fair value of derivative liabilities (244,515) 13,517,422
Derivative expense 2,061,159
Loss on debt extinguishment 630,000
Stock compensation - related parties 720,000
Stock options issued for services - related parties 181,068
Change in operating assets and liabilities:    
Accounts receivable (766,407) (926,469)
Prepaid expenses 18,937 (15,077)
Inventory 87,046 90,955
Royalty payable (178,838) (177,239)
Other (3,070) (138,172)
Accounts payable & accrued expenses 815,810 865,421
Net cash used in operating activities (495,947) (893,854)
Cash flows from investing activities:    
Payment of patent costs (25,128) (30,295)
Net cash used in investing activities (25,128) (30,295)
Cash flows from financing activities:    
Repayments of convertible notes (100,000)
Payments of contingent consideration 50,000
Proceeds from note payable 435,770 269,448
Dividends paid (32,552) (48,114)
Repayments of notes payable (867,864)
Proceeds from the exercise of warrants 5,000,000
Proceeds from issuance of stock   237,000
Net cash provided by financing activities 403,218 4,540,470
Increase (Decrease) cash and cash equivalents (117,858) 3,616,321
Cash and cash equivalents at beginning of year 4,877,720 4,125,888
Cash and cash equivalents at end of year 4,759,862 7,742,210
Supplementary disclosure of non-cash financing activities:    
Reclassification of derivative liability to additional paid-in-capital 969,967
Cash paid during the year for:    
Interest $ 83,569 $ 79,552
XML 18 R6.htm IDEA: XBRL DOCUMENT v3.8.0.1
Organization and Nature of Operations
3 Months Ended
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Nature of Operations

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), the CE Marking (for the European market) and, in December 2016, was approved by the National Fire Protection Association for inclusion in the NFPA 70: National Electrical Code (NEC). 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 ceiling fans and light fixtures, using a power plug installed in ceiling and wall electrical junction boxes. The Company’s base 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 an electric power supply that is connected to the electrical junction box. The plug, which is incorporated in an electrical appliance, attaches to the socket via a male post and is capable of feeding electric power to the appliance. The plug includes a second structural element allowing it to revolve and a releasable latching that provides a retention force between the socket and the plug to prevent unintentional 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 use of the Company’s technology enables the installation and replacement of ceiling fans and lights and wall sconces in a fraction of the time of similar, conventional appliances.

 

The Company currently 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.

XML 19 R7.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of the Company’s 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.

  

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 year ended 2017 and 2016, there was no activity in the Subsidiary.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

 

Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future nonconforming events. Accordingly, actual results could differ significantly from estimates.

 

Reclassifications

 

For comparability, reclassifications of certain prior-year balances were made in order to confirm with current-year presentations.

 

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.

 

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 $4,759,864 and $4,877,720 in money market as of March 31, 2018, and December 31, 2017, respectively. The Company has deposits in financial institutions which exceeds the amount insured by the FDIC. The amount of uninsured deposits was $4,259,894 at March 31, 2018.

 

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 at March 31, 2018 and December 31, 2017:

  

    (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
         
 Accounts Receivable   $ 1,816,372     $ 1,049,965  
 Allowance for Doubtful Accounts             —    
 Net Accounts Receivable   $ 1,816,372     $ 1,049,965  

 

All amounts are deemed collectible at March 31, 2018 and December 31, 2017 and accordingly, the Company has not incurred any bad debt expense at March 31, 2018 and December 31, 2017.

 

Inventory

 

Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method. Cost principally consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes in future demand.

 

    (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
         
Inventory finished goods   $ 1,611,644     $ 1,887,034  
Inventory, components parts     653,883       465,539  
 Total inventory   $ 2,265,527     $ 2,352,573  

 

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 March 31, 2018, and December 31, 2017, 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 an impairment adjustment of $600,000 was necessary for the year ended 2017.

 

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 various patents 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 June 15, 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. The Company determined an impairment adjustment of $600,000 was necessary for the year ended 2017.

 

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.

 

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. 

 

The Company changed its method to estimate the valuation of valuation for fair market values of derivatives in 2017 to a lattice-binomial option-pricing model (“lattice-binomial model”) from the Black-Scholes option-pricing model (“Black-Scholes model”) which was previously used under SFAS 123 and are reflected on our condensed consolidated statement of operations as other (income) expense at each reporting period. 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. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements. Furthermore, depending on the terms of a derivative or embedded derivative, the valuation of derivatives may be removed from the financial statements upon conversion of the underlying instrument into some other security. The change in valuation methodology for accounting estimates had no material impact on the Company’s previous calculations.

 

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 26,751,860 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.

 

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.

 

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 lattice-binomial 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.
  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 – Nonemployees

 

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.
  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.

  

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.

 

The fair value of share options and similar instruments is estimated on the date of grant using a lattice-binomial 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.

 

Revenue Recognition

 

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

 

Sales are recognized at the time title transfers to the customer, generally upon shipment and when all 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.

 

Trade allowances and a provision for estimated returns and other allowances are recorded at the time sales are made, considering historical and anticipated trends.

 

On January 1, 2017, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The adoption has had an immaterial impact to our comparative net income and as such comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis.

 

A majority of our sales revenue continues to be recognized when products are shipped from our manufacturing facilities and from our third-party logistics facility.

 

Cost of Sales

 

Cost of sales represents costs directly related to produce, acquire and source inventory for sale, and provisions for inventory shrinkage and obsolescence. These costs include costs of purchased products, inbound freight, custom duties.

  

Shipping and Handling Cost

 

Costs incurred by the Company to deliver finished goods are expensed and recorded in selling, general and administrative expenses.

 

Selling, general and administrative expenses include employee and related costs, stock compensation, marketing, professional fees, distribution, warehouse costs, and other related selling costs. Stock compensation expense consists of non-cash charges resulting from the issuance of stock units and stock options. Selling expenses include costs incurred in the selling of merchandise. General and administrative expenses include costs incurred in the administration or general operations of the business.

 

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 three-months ended March 31, 2018 and 2017, 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 March 31, 2018 and December 31, 2017:

 

   

(Unaudited)

March 31, 2018

 

(Audited)

December 31, 2017

Stock Warrants (Exercise price - $0.375 - $3.00/share)   8,419,924     8,419,924  
Stock Options (Exercise price $0.375 - $4.00/share)   4,875,000     4,875,000  
      Total   13,294,924     13,294,924  

       

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.

  

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

 

On January 1, 2017 We adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis. 

 

In August 2017, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, and eliminates the separate measurement and presentation of hedge ineffectiveness. We are currently evaluating the impact of adopting this guidance. We do not expect adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which enhances and clarifies the guidance on the classification and presentation of restricted cash in the statement of cash flows. The Company will adopt ASU 2016-18 in its first quarter of 2019. We do not expect adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

 

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 March 2016, the FASB issued an accounting standard update which simplifies the accounting for share-based payment transactions, inclusive of income tax accounting and disclosure considerations. This guidance is effective for fiscal and interim periods beginning after December 15, 2016 and is required to be applied retrospectively to all impacted share-based payment arrangements. We adopted this guidance on January 1, 2017. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. We are currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued an accounting standard update which modifies the accounting for leasing arrangements, particularly those arrangements classified as operating leases. This update will require entities to recognize the assets and liabilities arising from operating leases on the balance sheet. This guidance is effective for fiscal and interim periods beginning after December 15, 2018 and is required to be applied retrospectively to all leasing arrangements. We are currently assessing the effects this guidance may have on our financial statements. Based on the lease portfolio as of March 31, 2018, we do not expect the Company to have a material impact on its consolidated financial statements.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business (“ASU 2017-01”). The standard clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Under ASU 2017-01, to be considered a business, the assets in the transaction need to include an input and a substantive process that together significantly contribute to the ability to create outputs. Prior to the adoption of the new guidance, an acquisition or disposition would be considered a business if there were inputs, as well as processes that when applied to those inputs had the ability to create outputs. Early adoption is permitted for certain transactions. Adoption of ASU 2017-01 may have a material impact on our consolidated financial statements if we enter into future business combinations.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not anticipate the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements.

  

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement –Period Adjustments.” Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquired business recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquired business. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. We adopted this guidance in the first quarter 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

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 May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” on revenue recognition. This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The original effective date of this guidance was for interim and annual reporting periods beginning after December 15, 2016, early adoption is not permitted, and the guidance must be applied retrospectively or modified retrospectively. In July 2015, the FASB approved an optional one-year deferral of the effective date.  On January 1, 2017 We adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis. 

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. Further, the amendments remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The new guidance should be applied on a retrospective basis to all periods presented. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

  

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.

  

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20),” effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This update eliminates from GAAP the concept of extraordinary items. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” Entities commonly raise capital by issuing different classes of shares, including preferred stock, that entitle the holders to certain preferences and rights over the other shareholders. The specific terms of those shares may include conversion rights, redemption rights, voting rights, and liquidation and dividend payment preferences, among other features. One or more of those features may meet the definition of a derivative under GAAP. Shares that include such embedded derivative features are referred to as hybrid financial instruments. The objective of this update is to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40), effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This standard provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The guidance is effective for annual reporting periods ending after December 15, 2016, and early adoption is permitted. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

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.

XML 20 R8.htm IDEA: XBRL DOCUMENT v3.8.0.1
Furniture and Equipment
3 Months Ended
Mar. 31, 2018
Property, Plant and Equipment [Abstract]  
Furniture and Equipment

Furniture, fixtures, and equipment consisted of the following

 

    (Unaudited)
March 31,
  (Audited)
December 31,
    2018   2017
Machinery and equipment   $ 31,456     $ 31,456  
Computer equipment     6,846       6,846  
Furniture and fixtures     36,059       36,059  
Tooling and production     207,016       207,016  
Leasehold improvements     30,553       30,553  
Total     311,930       311,930  
Less: accumulated depreciation     (134,763 )     (117,058 )
Total, net   $ 177,167     $ 194,872  

 

Depreciation expense amounted to $17,705 and $6,547 for the for the three-months ended March 31, 2018 and 2017, respectively.

  

XML 21 R9.htm IDEA: XBRL DOCUMENT v3.8.0.1
Intangible Assets
3 Months Ended
Mar. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

NOTE 4 INTANGIBLE ASSETS

 

Intangible assets (patents) consisted of the following:

 

    (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
         
Patents   $ 269,510     $ 244,382  
Less: Impairment Charges     —         —    
Less: accumulated amortization     (44,458 )     (39,970 )
Total, net   $ 225,052     $ 204,412  

 

Amortization expense on intangible assets amounted to $4,488 and $2,276 for the three-months ended March 31, 2018 and 2017, respectively.

 

Assuming no impairment, the following table sets forth the estimated amortization expense for future periods based on recorded amounts as at March 31, 2018:

  

Year Ending December 31    
  2018     $ 17,951  
  2019       17,951  
  2020       17,951  
  2021       17,951  
  2022       17,951  
  2023 and Thereafter       135,298  
  Total      $ 225,052  

  

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

XML 22 R10.htm IDEA: XBRL DOCUMENT v3.8.0.1
GE Trademark License
3 Months Ended
Mar. 31, 2018
Notes to Financial Statements  
GE Trademark License

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.

 

   

(Unaudited)

March 31, 2018

 

(Audited)

December 31, 2017

GE Trademark License   $ 12,000,000     $ 12,000,000  
Less: Impairment charges     (600,000)         (600,000)    
Less: accumulated amortization     (10,206,934 )     (9,759,534 )
Total, net   $ 1,193,066     $ 1,640,466  

 

Amortization expense associated with the GE Trademark License amounted to $447,400 and $602,007 for the three-months ended March 31, 2018 and 2017, respectively. The Company determined an impairment adjustment of $600,000 was necessary for the year ended 2017.

 

Assuming no impairment, the following table sets forth the estimated amortization expense for future periods based on recorded amounts as at March 31, 2018:

 

Year Ending December 31
  2018     $ 1,193,066  
  Thereafter          
  Total      $ 1,193,066  

  

 

XML 23 R11.htm IDEA: XBRL DOCUMENT v3.8.0.1
Deferred Lease Credits
3 Months Ended
Mar. 31, 2018
Notes to Financial Statements  
Deferred Lease Credits

 

NOTE 6 DEFERRED LEASE CREDITS

 

Cash or rent abatements received upon entering certain office leases are recognized on a straight-line basis as a reduction to rent expense over the lease term. The unamortized portion is included in Deferred Lease Credits, which are included in other current liabilities. As of March 31, 2018, and December 31, 2017 the deferred credits were $39,262 and $42,332 respectively. Deferred Rent amortization was $3,069 and ($20,548) for the three-months ended March 31, 2018 and 2017, respectively. 

XML 24 R12.htm IDEA: XBRL DOCUMENT v3.8.0.1
Note Payable
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Note Payable

NOTE 7 NOTES PAYABLE

 

At March 31, 2018 and December 31, 2017, the Company had a note payable to a bank in the amount of $40,642 and $70,222, respectively. The note bears interest at prime plus 1.5%, which was 6% as of March 31, 2018, and matures on August 28, 2018. The note is secured by the assets of the Company and personal guarantees by a shareholder and an officer of the Company.

 

On April 13, 2016, the Company entered into a Line of Credit Promissory Note with a third party (the “Line of Credit”), as amended and extended, in the principal sum of up to ten million U.S. Dollars (US $10,000,000) to support purchase orders, inventory and general working capital needs. The Company may draw and/or repay this Line of Credit from time to time until the maturity hereof. The Note provides for monthly payments of interest at nine percent (9%) per annum on outstanding principal and matures on January 10, 2019, at which time the full principal amount and accrued but unpaid interest become due.

 

The Line of Credit note is secured by the assets of the Company. As of March 31, 2018, and December 31, 2017, the outstanding balance on this note was $3,922,082 and $3,456,732, respectively.

 

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 March 31, 2018, 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    
  2018     $ 240,642  
  2019       3,922,082  
        $ 4,162,724  

   

XML 25 R13.htm IDEA: XBRL DOCUMENT v3.8.0.1
Convertible Debt
3 Months Ended
Mar. 31, 2018
Convertible Debt - Net  
Convertible Debt

NOTE 8 CONVERTIBLE DEBT

 

The Company has recorded derivative liabilities associated with convertible debt instruments, as more fully discussed at Note 9.

 

    Third Party   Related Party   Totals
Balance December 31, 2015   $ 3,989,950     $ 50,000     $ 4,039,950  
Add: Amortization of Debt Discount     474,283       0       474,283  
Less Repayments/Conversions     (4,314,233 )     —         —    
Balance December 31, 2016     150,000       50,000       200,000  
Add: Amortization of Debt Discount     —         —         —    
Less Repayments/Conversions     (150,000 )     (50,000 )     (200,000 )
Balance December 31, 2017   $ —       $ —       $ —    
                         

On November 26, 2013, May 8, 2014 and June 25, 2014 the Company completed closings in connection with its offering (the “Notes Offering”) of its 12% and 15% Secured Convertible Promissory Notes in the aggregate principal amount of $4,270,100 (the “Notes”), with certain accredited investors, as defined under Regulation D, Rule 501 of the Securities Act. 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”). The Notes and Warrants were treated as derivative liabilities.

 

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 (the “August 2016 Election”). This also provided a third option to all noteholders (the “Preferred Option”), whereby such holders could convert their respective Note(s) into shares of Series A Convertible Preferred Stock (“Preferred Stock”). Pursuant to the August 2016 Election, the Company issued 13,456,936 shares of Preferred Stock, representing $3,364,234 in outstanding Note principal balance.

 

All Notes have either been re-paid in cash, separate debt obligation or by conversion, and all Notes have been terminated.

 

(A)       Terms of Debt

 

The Note debt carried interest between 12% and 15%, and became due in November 2015, May 2016 and September 2016, as extended to July 31, 2016 pursuant to certain forbearance agreements. All Notes issued in connection with the Notes Offering were convertible at $0.25, but are not terminated, and all Warrants issued in connection with the Notes Offering are convertible at $0.375 per share, 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)        Offer to Convert Debt to Preferred Shares

 

For those holders electing the Preferred Option, each holder has received shares of the Preferred Stock on a 1 to 1 ratio to the number of shares of 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 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 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 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 Common Stock, and to thereafter elect to convert their Note, as amended, into Preferred Stock. In addition, each holder entered into a lockup agreement, whereby the 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 holds, (ii) the shares of Preferred Stock obtained upon conversion of its Note, and (iii) the shares of Common Stock underlying the Preferred Stock, for a period of twelve (12) months following the date of such agreement. 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.

XML 26 R14.htm IDEA: XBRL DOCUMENT v3.8.0.1
Derivative Liabilities
3 Months Ended
Mar. 31, 2018
Notes to Financial Statements  
Derivative Liabilities

NOTE 9 DERIVATIVE LIABILITIES

 

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

 

    (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
Balance Beginning of period   $ 19,175,754     $ 24,083,314  
 Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability             (13,229,681 )
Fair value mark to market adjustment - stock options             2,036,621  
Fair value mark to market adjustment – warrants     (224,515 )     12,376,571  
Reclassification of derivative liability to Additional Paid in Capital due to share reservation             (6,091,070 )
Balance at end of period   $ 18,931,239     $ 19,175,754  

 

The Company recorded a change in the value of embedded derivative liabilities income/(expense) $244,515 and ($13,517,422) for the three-months ended March 31, 2018 and 2017, respectively. 

 

    Commitment Date    

Recommitment

Date

 
Expected dividends     0%       0%  
Expected volatility     150%       150%  
Expected term     0.90 – 9.56 years       1.16 – 9.56 years  
Risk Free Interest Rate     0.76%-2.40%       1.47%-2.33%  

 

XML 27 R15.htm IDEA: XBRL DOCUMENT v3.8.0.1
GE Royalty Obligations
3 Months Ended
Mar. 31, 2018
Notes to Financial Statements  
GE Royalty Obligations

NOTE 10 GE ROYALTY OBLIGATIONS

 

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 March 31, 2018, and December 31, 2017.

 

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 paid to GE is owed in December 2018.

 

Payments are due quarterly based upon the prior quarters’ sales. The Company made payments of $541,858 and $489,108 for the three-months ended March 31, 2018 and 2017, 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%

 

As of March 31, 2018, and December 31, 2017, the outstanding balance was $10,581,728 and $10,760,566, respectively.

  

 

XML 28 R16.htm IDEA: XBRL DOCUMENT v3.8.0.1
Stockholders Deficit
3 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Stockholders Deficit

 

NOTE 11 STOCKHOLDERS DEFICIT

 

(A)       Common Stock

 

For the three-months ended March 31, 2018 and year ended December 31, 2017, the Company issued the following Common Stock:

 

Transaction Type         Quantity
(shares)
    Valuation
($)
    Range of Value
Per Share
 
                                 
2017 Equity Transactions                                
Common Stock Offering     (1)       69,667     $ 209,000       3.00  
                                 
Common Stock Issued per Exercise of Warrants     (2)       1,666,667       5,000,000       3.00  
                                 
Common Stock Issued per Exercise of Options     (3)       30,000       78,000       2.60  
                                 
Common Stock Issued for the cashless exercise of Warrants     (4)       4,132,068       0       0.0  
                                 
Total 2017 Equity Transactions             5,898,402     $ 5,287,000     $ 2.60-3.00  
                                 
Common Stock Issued per Employment Agreement     (5)       240,000       720,000       3.00  
                                 
Total 2018 Equity Transactions             240,000     $ 720,000     $ 3.00  

 

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

 

(1)       Shares Issued for Common Stock

 

During the nine-months ended September 30, 2017, the Company received gross proceeds of $209,000 from the sale of 69,667 shares of its Common Stock at $3.00 per share to three new Company employees. In connection therewith, the Company issued five-year options to purchase up to 315,000 shares of Common Stock at an exercise price of $3.00 per share.

 

(2)       Shares Issued Pursuant to Warrants Exercised

 

In March 2017, the Company issued 1,666,667 shares of Common Stock upon exercise in full of a warrant having an exercise price of $3.00 per share, and the Company received gross proceeds of $5,000,000.

 

(3)       Shares Issued Pursuant to Options Exercised

 

In April 2017, the Company issued 30,000 shares of Common Stock upon exercise in full of an option having an exercise price of $2.60 per share, and the Company received gross proceeds of $78,000.

 

(4)       Common Stock Issued for the cashless Exercise of Warrants

 

In November 2017, the Company issued 4,132,068 shares of Common Stock upon the cashless exercise of Warrants.

 

(5)       Common Stock Issued pursuant to Employment Agreements

 

In March 2018, the Company issued 120,000 shares of Common Stock, with a total fair market value of $720,000, to each of Mr. Campi and Mr. Wells, which vested pursuant to their respective employment agreements.

 

(B)       Preferred Stock

 

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

 

Transaction Type   Quantity     Valuation     Range of
Value per
Share
 
                   
2016 Preferred Stock Transactions
                   
Preferred Stock Issued per August 2016 Election     13,056,936     $ 44,393,569     $ 3.40  
                         
Total 2016 Preferred Stock Transactions     13,056,936     $ 44,393,569     $ 3.40  
                         
2017 Preferred Stock Transactions                        
                         
Preferred Stock Issued per August 2016 Election     400,000     $ 1,360,000     $ 3.40  
                         
Total 2017 Preferred Stock Transactions     400,000     $ 1,360,000       3.40  
                         
Total 2018 Preferred Stock Transactions     0     $ 0          

 

 

In accordance with the August 2016 Elections (see Note 8(B)), the Company has issued 13,456,932 shares of 6% Preferred Stock in exchange for Notes having a principal balance of $3,364,234. 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 Common Stock. Holders 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 shares of Common Stock publicly traded nearest the conversion date. During the year ended December 31, 2017 the Company paid dividends in the amount of $149,737 to the Preferred Stock shareholders.

 

Redeemable preferred stock subject to redemption: $0 par value; 20,000,000 shares authorized; 13,456,932 and 13,056,932 shares issued and outstanding at December 31, 2017 and March 31, 2018, respectively

 

(C)       Stock Options

 

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

 

            Weighted
Average
    Weighted
Average
Remaining
Contractual Life
    Aggregate
Intrinsic
 
      Options     Exercise Price     (In Years)     Value  
Balance, December 31, 2016       1,350,000       $ 0.767        7.81      3,015,000   
Exercised       (30,000)       2.60             (78,000)  
Granted       3,555,000       1.307       7.47       6,230,250  
Forfeited/Cancelled                          
Balance, December 31, 2017       4,875,000      $ 1.150       7.40     $ 9,167,250  
Exercised                          
Granted                          
Forfeited/Cancelled                          
Balance, March 31, 2018       4,875,000     $ 1.150       6.91     $ 9,167,250  

 

The Company has issued, or the Company’s Board of Directors has authorized grants of, options, some of which have vested, to purchase shares of Common Stock through its 2015 Plan. The Company has issued options to purchase, in the aggregate, up to 4,875,000 shares of options to purchase shares of Common Stock, in conjunction with its 2015 Plan, agreements or otherwise. The Company has reserved 4,875,000 shares with the transfer agent for the future issuance for shares of Common Stock associated with options issued.

 

During the three-months ended March 31, 2018, the Company recognized $181,068 of compensation expense related to the vesting of options. The expense computation is based on 61,667 shares of options at $3.00. The fair value of stock option is estimated using the Binomial valuation method of $2.9362. 

 

(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, 2016       13,555,651     $ 0.72       1.5  
Issued       898,040       3.31       4.63  
Exercised       (6,033,767)       (3.00)        
Cancelled/Forfeited                    
Balance, December 31, 2017       8,419,924     $ 1.64       2.42  
                           
Issued                    
Exercised                    
Cancelled/Forfeited                    
Balance, March 31, 2018       8,419,924     $ 1.117       1.15  

 

(E)       2015 Stock Plan

 

On April 27, 2015, the Board approved the Company’s 2015 Stock Incentive Plan (the “2015 Plan”). Under the 2015 Plan, the Board has the sole authority to implement, interpret, and/or administer the 2015 Plan unless the Board delegates all or any portion of its authority to implement, interpret, and/or administer the 2015 Plan to a committee of the Board, or (ii) the authority to grant and administer awards under the 2015 Plan to an officer of the Company. The 2015 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. Certain options to be granted to employees under the 2015 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 2015 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 2015 Plan further provides that awards granted under the 2015 Plan cannot be exercised until a majority of the Company’s shareholders have approved the 2015 Plan. The 2015 Plan became effective July 31, 2016.

 

 

XML 29 R17.htm IDEA: XBRL DOCUMENT v3.8.0.1
Commitments
3 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments

NOTE 12 COMMITMENTS

 

(A)       Operating Lease

 

On September 20, 2017, the Company entered into an operating lease for its Georgia location. The new lease commenced on July 1, 2017 and expires on September 30, 2020. We recognize rent expense under such arrangements on a straight-line basis.

 

On September 27, 2017 the Company entered into two separate residential leases near the Florida office for two of its employees. The term for each lease is 12 months and, each lease carries a rent of $2,000 per month. The collective rent payment is $4,000 per months and will reduce travel costs for the Company.

 

The minimum rent obligations are approximately as follows:

 

      Minimum  
Year     Obligation  
2019     $     78,467  
2020       60,320  
      $ 138,787  

 

(B)       Employment Agreement – Chief Executive Officer

 

On September 1, 2016, the Company entered into an employment agreement with its Chief Executive Officer (the “Campi Agreement”). The Campi Agreement provides for a base salary of $150,000; 120,000 shares of Common Stock in a “Sign on Bonus” which will vest December 31, 2017; 0.25% of annual net sales, paid in cash on a quarterly basis, 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. Pursuant to the Campi Agreement, if terminated without cause during the initial term, the Company shall pay to Mr. Campi (a) 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 (b) 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.

 

For the three-months ended March 31, 2018 and 2017, Mr. Campi earned approximately $42,081 and $46,715, respectively, under the Campi Agreement.

 

(C)       Chairman Agreement

 

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. 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 (a) a base salary of $250,000 per year, which may be adjusted each year at the discretion of the Board; (b) 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”); (c) a sign-on bonus of 120,000 shares of Common Stock, which shall vest in its entirety on January 1, 2020; (d) 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 (e) 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.

  

For the three-months ended March 31, 2018 and 2017, Mr. Kohen earned approximately $74,663 and $90,424, respectively, under the Chairman’s Agreement.

 

(D)       Employee Agreement – President

 

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 (a) a base salary of $250,000 per year, which may be adjusted each year at the discretion of the Board; (b) 1,025,000 shares of Common Stock, which shall vest on January 1, 2019 (the “Wells Compensation Shares”); (c) a sign-on bonus of 120,000 shares of Common Stock, which shall vest in its entirety to Mr. Wells on January 1, 2018; and (d) incentive compensation equal to one quarter of one percent (0.25%) of the Company’s net revenue, paid in cash on an quarterly 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.

 

For the three-months ended March 31, 2018 and 2017, Mr. Wells earned approximately $67,081 and $73,638, respectively, under the Wells Agreement.

 

(D)       Employment Agreement – Chief Operating Officer

 

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 (a) an annual salary of $120,000, and (b) incentive compensation equal to one-quarter of one percent (0.25%) of net revenue, paid in cash on a quarterly basis. In addition, The Board granted Ms. Barron (i) options to purchase up to 200,000 shares of Common Stock at $0.60 per share, which vested on November 15, 2015; (ii) options to purchase up to 150,000 shares of Common Stock at $1.20, which vested on November 15, 2016; and (iii) options to purchase up to 150,000 shares of Common Stock at $1.80, which will vest on November 15, 2017.

 

For the three-months ended March 31, 2018 and 2017, Ms. Barron earned approximately $34,581 and $40,670, respectively, under the Barron Agreement.

XML 30 R18.htm IDEA: XBRL DOCUMENT v3.8.0.1
Subsequent Events
3 Months Ended
Mar. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events

NOTE 13 SUBSEQUENT EVENTS

 

On April 26, 2018, the Company’s Board of Directors approved the Company’s 2018 Stock Incentive Plan (the “2018 Plan”), relating to the issuance of up to 5,000,000 shares of Common Stock, to be effective for ten (10) years unless earlier terminated. The 2018 Plan is on substantially the same terms as the Company’s 2015 Stock Incentive Plan. On the same date, the Board of Directors amended grants of options to purchase up to 900,000 shares of Common Stock made under the 2015 Plan on April 19, 2017 to be issuable under the 2018 Plan (the “Amended Grants”), because the number of such grants exceeded the number of shares of Common Stock issuable under the 2015 Plan. In addition, on the same date, the Board of Directors approved grants under the 2018 Plan to an employee of the Company consisting of a stock award of 100,000 shares of Common Stock vesting immediately, and an award of options to purchase up to 100,000 shares of Common Stock, expiring two years from the date of grant and having an exercise price of $3.00 per share (the “April 2018 Grants).

 

On or about May 14, 2018, the Company issued Stock Option Agreements representing all unissued grants made on April 19, 2017 under the 2015 Plan, and the Amended Grants and April 2018 Grants under the 2018 Plan, for an aggregate total of options to purchase up to 1,800,000 shares of Common Stock. Also on or about May 14, 2018, the Company issued a Stock Award Agreement for 100,000 shares of Common Stock that vested on April 26, 2018, representing the April 2018 Grants under the 2018 Plan. As of May 14, 2018, the Company has entered into Stock Option Agreements with all grantees of the April 2017 Grants, the Amended Grants, and the April 2018 Grants, thereby issuing, in the aggregate, options to purchase up to 2,250,000 shares of our Common Stock, with 835,000 of such options having vested on June 30, 2017 with an exercise price of $3.00 per share; 901,667 of such options having vested on December 31, 2017 with exercise prices ranging from $3.00 to $4.00 per share; 100,000 of such options having vested on April 26, 2018 with an exercise price of $3.00 per share; 246,667 of such options vesting on December 31, 2018 with exercise prices ranging from $3.00 to $4.00 per share; and 166,666 of such options vesting on December 31, 2019 with an exercise price of $5.00 per share.

 

XML 31 R19.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Basis of Presentation

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.

Principles of Consolidation

  

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

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 year ended 2017 and 2016, there was no activity in the Subsidiary.

Use of Estimates

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

 

Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future nonconforming events. Accordingly, actual results could differ significantly from estimates.

Reclassifications

Reclassifications

 

For comparability, reclassifications of certain prior-year balances were made in order to confirm with current-year presentations.

Risks and Uncertainties

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.

Cash and Cash Equivalents

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 $4,759,864 and $4,877,720 in money market as of March 31, 2018, and December 31, 2017, respectively. The Company has deposits in financial institutions which exceeds the amount insured by the FDIC. The amount of uninsured deposits was $4,259,894 at March 31, 2018.

Accounts Receivable and Allowance for Doubtful Accounts

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 at March 31, 2018 and December 31, 2017:

 

   (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
       
 Accounts Receivable  $1,816,372   $1,049,965 
 Allowance for Doubtful Accounts        —   
 Net Accounts Receivable  $1,816,372   $1,049,965 

 

All amounts are deemed collectible at March 31, 2018 and December 31, 2017 and accordingly, the Company has not incurred any bad debt expense at March 31, 2018 and December 31, 2017.

Inventory

Inventory

 

Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method. Cost principally consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes in future demand.

 

   (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
       
Inventory finished goods  $1,611,644   $1,887,034 
Inventory, components parts   653,883    465,539 
 Total inventory  $2,265,527   $2,352,573 

 

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 March 31, 2018, and December 31, 2017, the Company has determined that no allowance is required.

Valuation of Long-Lived Assets and Identifiable Intangible Assets

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 an impairment adjustment of $600,000 was necessary for the year ended 2017.

Property and Equipment

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

Intangible Asset Patent

 

The Company developed various patents 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

GE Trademark Licensing Agreement

 

The Company entered into a Trademark License Agreement with General Electric on June 15, 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. The Company determined an impairment adjustment of $600,000 was necessary for the year ended 2017.

Fair Value of Financial Instruments

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.

 

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

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

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. 

 

The Company changed its method to estimate the valuation of valuation for fair market values of derivatives in 2017 to a lattice-binomial option-pricing model (“lattice-binomial model”) from the Black-Scholes option-pricing model (“Black-Scholes model”) which was previously used under SFAS 123 and are reflected on our condensed consolidated statement of operations as other (income) expense at each reporting period. 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. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements. Furthermore, depending on the terms of a derivative or embedded derivative, the valuation of derivatives may be removed from the financial statements upon conversion of the underlying instrument into some other security. The change in valuation methodology for accounting estimates had no material impact on the Company’s previous calculations.

 

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 26,751,860 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.

Beneficial Conversion Feature

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.

Debt Issue Costs and Debt Discount

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

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

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

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 lattice-binomial 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.
  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

Stock Based Compensation – Nonemployees

 

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.
  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.

  

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.

 

The fair value of share options and similar instruments is estimated on the date of grant using a lattice-binomial 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.

 

Revenue Recognition

Revenue Recognition

 

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

 

Sales are recognized at the time title transfers to the customer, generally upon shipment and when all 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.

 

Trade allowances and a provision for estimated returns and other allowances are recorded at the time sales are made, considering historical and anticipated trends.

 

On January 1, 2017, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The adoption has had an immaterial impact to our comparative net income and as such comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis.

 

A majority of our sales revenue continues to be recognized when products are shipped from our manufacturing facilities and from our third-party logistics facility.

 

Cost of Sales

 

Cost of Sales

 

Cost of sales represents costs directly related to produce, acquire and source inventory for sale, and provisions for inventory shrinkage and obsolescence. These costs include costs of purchased products, inbound freight, custom duties.

  

Shipping and Hadling Cost

Shipping and Handling Cost

 

Costs incurred by the Company to deliver finished goods are expensed and recorded in selling, general and administrative expenses.

 

Selling, general and administrative expenses include employee and related costs, stock compensation, marketing, professional fees, distribution, warehouse costs, and other related selling costs. Stock compensation expense consists of non-cash charges resulting from the issuance of stock units and stock options. Selling expenses include costs incurred in the selling of merchandise. General and administrative expenses include costs incurred in the administration or general operations of the business.

Earnings (Loss) Per Share

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 three-months ended March 31, 2018 and 2017, 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 March 31, 2018 and December 31, 2017:

 

 

(Unaudited)

March 31, 2018

 

(Audited)

December 31, 2017

Stock Warrants (Exercise price - $0.375 - $3.00/share)   8,419,924     8,419,924  
Stock Options (Exercise price $0.375 - $4.00/share)   4,875,000     4,875,000  
      Total   13,294,924     13,294,924  
Related Parties

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.

Contingencies

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

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

Recently Issued Accounting Pronouncements

 

On January 1, 2017 We adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis. 

 

In August 2017, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, and eliminates the separate measurement and presentation of hedge ineffectiveness. We are currently evaluating the impact of adopting this guidance. We do not expect adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which enhances and clarifies the guidance on the classification and presentation of restricted cash in the statement of cash flows. The Company will adopt ASU 2016-18 in its first quarter of 2019. We do not expect adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

 

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 March 2016, the FASB issued an accounting standard update which simplifies the accounting for share-based payment transactions, inclusive of income tax accounting and disclosure considerations. This guidance is effective for fiscal and interim periods beginning after December 15, 2016 and is required to be applied retrospectively to all impacted share-based payment arrangements. We adopted this guidance on January 1, 2017. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. We are currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued an accounting standard update which modifies the accounting for leasing arrangements, particularly those arrangements classified as operating leases. This update will require entities to recognize the assets and liabilities arising from operating leases on the balance sheet. This guidance is effective for fiscal and interim periods beginning after December 15, 2018 and is required to be applied retrospectively to all leasing arrangements. We are currently assessing the effects this guidance may have on our financial statements. Based on the lease portfolio as of March 31, 2018, we do not expect the Company to have a material impact on its consolidated financial statements.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business (“ASU 2017-01”). The standard clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Under ASU 2017-01, to be considered a business, the assets in the transaction need to include an input and a substantive process that together significantly contribute to the ability to create outputs. Prior to the adoption of the new guidance, an acquisition or disposition would be considered a business if there were inputs, as well as processes that when applied to those inputs had the ability to create outputs. Early adoption is permitted for certain transactions. Adoption of ASU 2017-01 may have a material impact on our consolidated financial statements if we enter into future business combinations.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not anticipate the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements.

  

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement –Period Adjustments.” Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquired business recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquired business. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. We adopted this guidance in the first quarter 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

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 May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” on revenue recognition. This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The original effective date of this guidance was for interim and annual reporting periods beginning after December 15, 2016, early adoption is not permitted, and the guidance must be applied retrospectively or modified retrospectively. In July 2015, the FASB approved an optional one-year deferral of the effective date.  On January 1, 2017 We adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis. 

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. Further, the amendments remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The new guidance should be applied on a retrospective basis to all periods presented. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

  

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.

  

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20),” effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This update eliminates from GAAP the concept of extraordinary items. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” Entities commonly raise capital by issuing different classes of shares, including preferred stock, that entitle the holders to certain preferences and rights over the other shareholders. The specific terms of those shares may include conversion rights, redemption rights, voting rights, and liquidation and dividend payment preferences, among other features. One or more of those features may meet the definition of a derivative under GAAP. Shares that include such embedded derivative features are referred to as hybrid financial instruments. The objective of this update is to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We adopted this guidance on January 1, 2016. The adoption of this guidance did not have a material impact on our financial position, results of

XML 32 R20.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Accounts Receivable and Allowance for Doubtful Accounts

   (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
       
 Accounts Receivable  $1,816,372   $1,049,965 
 Allowance for Doubtful Accounts        —   
 Net Accounts Receivable  $1,816,372   $1,049,965 
Schedule of Inventory

 

   (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
       
Inventory, finished goods  $1,611,644   $1,887,034 
Inventory, components parts   653,883    465,539 
 Total inventory  $2,265,527   $2,352,573 

 

Earnings (Loss) Per Share
 

(Unaudited)

March 31, 2018

 

(Audited)

December 31, 2017

Stock Warrants (Exercise price - $0.375 - $3.00/share)   8,419,924     8,419,924  
Stock Options (Exercise price $0.375 - $4.00/share)   4,875,000     4,875,000  
      Total   13,294,924     13,294,924  
XML 33 R21.htm IDEA: XBRL DOCUMENT v3.8.0.1
Furniture and Equipment (Tables)
3 Months Ended
Mar. 31, 2018
Property, Plant and Equipment [Abstract]  
Furniture and Equipment

    (Unaudited)
March 31,
  (Audited)
December 31,
    2018   2017
Machinery and equipment   $ 31,456     $ 31,456  
Computer equipment     6,846       6,846  
Furniture and fixtures     36,059       36,059  
Tooling and production     207,016       207,016  
Leasehold improvements     30,553       30,553  
Total     311,930       311,930  
Less: accumulated depreciation     (134,763 )     (117,058 )
Total, net   $ 177,167     $ 194,872  

 

XML 34 R22.htm IDEA: XBRL DOCUMENT v3.8.0.1
Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets
  (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
         
Patents   $ 269,510     $ 244,382  
Less: Impairment Charges     —         —    
Less: accumulated amortization     (44,458 )     (39,970 )
Total, net   $ 225,052     $ 204,412  

 

Intangible Assets - Future Amortization

  

Year Ending December 31    
  2018     $ 17,951  
  2019       17,951  
  2020       17,951  
  2021       17,951  
  2022       17,951  
  2023 and Thereafter       135,298  
  Total      $ 225,052  

  

XML 35 R23.htm IDEA: XBRL DOCUMENT v3.8.0.1
GE Trademark License (Tables)
3 Months Ended
Mar. 31, 2018
Notes to Financial Statements  
GE Trademark License

   

(Unaudited)

March 31, 2018

 

(Audited)

December 31, 2017

GE Trademark License   $ 12,000,000     $ 12,000,000  
Less: Impairment charges     (600,000)         (600,000)    
Less: accumulated amortization     (10,206,934 )     (9,759,534 )
Total, net   $ 1,193,066     $ 1,640,466  

   

GE Trademark License - Future Amortization

Year Ending December 31
  2018     $ 1,193,066  
  Thereafter          
  Total      $ 1,193,066  
XML 36 R24.htm IDEA: XBRL DOCUMENT v3.8.0.1
Note Payable (Tables)
3 Months Ended
Mar. 31, 2018
Note Payable To Bank Tables  
Future Commitments
Principal Due in Next 12 months    
  2018     $ 240,642  
  2019       3,922,082  
        $ 4,162,724  

   

XML 37 R25.htm IDEA: XBRL DOCUMENT v3.8.0.1
Convertible Debt - Net (Tables)
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Convertible Debt - Net
    Third Party   Related Party   Totals
Balance December 31, 2015   $ 3,989,950     $ 50,000     $ 4,039,950  
Add: Amortization of Debt Discount     474,283       0       474,283  
Less Repayments/Conversions     (4,314,233 )     —         —    
Balance December 31, 2016     150,000       50,000       200,000  
Add: Amortization of Debt Discount     —         —         —    
Less Repayments/Conversions     (150,000 )     (50,000 )     (200,000 )
Balance December 31, 2017   $ —       $ —       $ —    
                         

 

XML 38 R26.htm IDEA: XBRL DOCUMENT v3.8.0.1
Derivative Liabilities (Tables)
3 Months Ended
Mar. 31, 2018
Notes to Financial Statements  
Derivative Liabilities - Fair Value

 

    (Unaudited)
March 31, 2018
  (Audited)
December 31, 2017
Balance Beginning of period   $ 19,175,754     $ 24,083,314  
 Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability             (13,229,681 )
Fair value mark to market adjustment - stock options             2,036,621  
Fair value mark to market adjustment – warrants     (224,515 )     12,376,571  
Reclassification of derivative liability to Additional Paid in Capital due to share reservation             (6,091,070 )
Balance at end of period   $ 18,931,239     $ 19,175,754  

 

Derivative Liabilities - Assumptions Used
    Commitment Date    

Recommitment

Date

 
Expected dividends     0%       0%  
Expected volatility     150%       150%  
Expected term     0.90 – 9.56 years       1.16 – 9.56 years  
Risk Free Interest Rate     0.76%-2.40%       1.47%-2.33%  

 

XML 39 R27.htm IDEA: XBRL DOCUMENT v3.8.0.1
GE Royalty Obligation (Tables)
3 Months Ended
Mar. 31, 2018
Notes to Financial Statements  
GE Royalty Obligation

 

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%

 

XML 40 R28.htm IDEA: XBRL DOCUMENT v3.8.0.1
Stockholders Deficit (Tables)
3 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Common Stock
Transaction Type         Quantity
(shares)
    Valuation
($)
    Range of Value
Per Share
 
                                 
2017 Equity Transactions                                
Common Stock Offering     (1)       69,667     $ 209,000       3.00  
                                 
Common Stock Issued per Exercise of Warrants     (2)       1,666,667       5,000,000       3.00  
                                 
Common Stock Issued per Exercise of Options     (3)       30,000       78,000       2.60  
                                 
Common Stock Issued for the cashless exercise of Warrants     (4)       4,132,068       0       0.0  
                                 
Total 2017 Equity Transactions             5,898,402     $ 5,287,000     $ 2.60-3.00  
                                 
Common Stock Issued per Employment Agreement     (5)       240,000       720,000       3.00  
                                 
Total 2018 Equity Transactions             240,000     $ 720,000     $ 3.00  

 

Preferred Stock

 

Transaction Type   Quantity     Valuation     Range of
Value per
Share
 
                   
2016 Preferred Stock Transactions
                   
Preferred Stock Issued per August 2016 Election     13,056,936     $ 44,393,569     $ 3.40  
                         
Total 2016 Preferred Stock Transactions     13,056,936     $ 44,393,569     $ 3.40  
                         
2017 Preferred Stock Transactions                        
                         
Preferred Stock Issued per August 2016 Election     400,000     $ 1,360,000     $ 3.40  
                         
Total 2017 Preferred Stock Transactions     400,000     $ 1,360,000       3.40  
                         
Total 2018 Preferred Stock Transactions     0     $ 0          

 

Stock Option Activity
            Weighted
Average
    Weighted
Average
Remaining
Contractual Life
    Aggregate
Intrinsic
 
      Options     Exercise Price     (In Years)     Value  
Balance, December 31, 2016       1,350,000       $ 0.767        7.81      3,015,000   
Exercised       (30,000)       2.60             (78,000)  
Granted       3,555,000       1.307       7.47       6,230,250  
Forfeited/Cancelled                          
Balance, December 31, 2017       4,875,000      $ 1.150       7.40     $ 9,167,250  
Exercised                          
Granted                          
Forfeited/Cancelled                          
Balance, March 31, 2018       4,875,000     $ 1.150       6.91     $ 9,167,250  

 

Summary of Warrant Activity

 

  

      Number of
Warrants
    Weighted
Average Exercise
Price
    Weighted Average Remaining Contractual Life (in Years)  
Balance, December 31, 2016       13,555,651     $ 0.72       1.5  
Issued       898,040       3.31       4.63  
Exercised       (6,033,767)       (3.00)        
Cancelled/Forfeited                    
Balance, December 31, 2017       8,419,924     $ 1.64       2.42  
                           
Issued                    
Exercised                    
Cancelled/Forfeited                    
Balance, March 31, 2018       8,419,924     $ 1.117       1.15  

 

 

XML 41 R29.htm IDEA: XBRL DOCUMENT v3.8.0.1
Commitments (Tables)
3 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Minimum Rent Obligations
      Minimum  
Year     Obligation  
2019     $     78,467  
2020       60,320  
      $ 138,787  

 

XML 42 R30.htm IDEA: XBRL DOCUMENT v3.8.0.1
Organization and Nature of Operations (Details Narrative)
Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Ownership Percentage of Subsidiary 98.80%
XML 43 R31.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Accounting Policies [Abstract]    
Accounts Receivable $ 1,816,372 $ 1,049,965
Allowance for Doubtful Accounts
Net Accounts Receivable $ 1,816,372 $ 1,049,965
XML 44 R32.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies (Details 1) - shares
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Common Stock Equivalents 13,294,924 13,294,924
Convertible Debt    
Common Stock Equivalents
Stock Warrant    
Common Stock Equivalents 8,419,924 8,419,924
Stock Options    
Common Stock Equivalents 4,875,000 4,875,000
XML 45 R33.htm IDEA: XBRL DOCUMENT v3.8.0.1
Summary of Significant Accounting Policies (Details 2) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Summary Of Significant Accounting Policies Details 2    
Inventory finished goods $ 1,887,034 $ 1,611,644
Inventory, components parts 465,539 653,883
Total inventory $ 2,352,573 $ 2,265,527
XML 46 R34.htm IDEA: XBRL DOCUMENT v3.8.0.1
Furniture and Equipment (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Total $ 311,930 $ 311,930
Less: Accumulated Depreciation (134,763) (117,058)
Property and Equipment net 177,167 194,872
Machinery and Equipment    
Total 31,456 31,456
Computer Equipment    
Total 6,846 6,846
Furniture and Fixtures    
Total 36,059 36,059
Tooling and Production    
Total 207,016 207,016
Leasehold Improvements [Member]    
Total $ 30,553 $ 30,553
XML 47 R35.htm IDEA: XBRL DOCUMENT v3.8.0.1
Intangible Assets (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]    
Patents $ 269,510 $ 244,382
Less: Impairment Charges
Less: Accumulated Amortization (44,458) (39,970)
Patents - net $ 225,052 $ 204,412
XML 48 R36.htm IDEA: XBRL DOCUMENT v3.8.0.1
Intangible Assets (Details 1) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]    
2018   $ 17,951
2019   17,951
2020   17,951
2021   17,951
2022   17,951
2023 and Thereafter   135,298
Total $ 225,052 $ 204,412
XML 49 R37.htm IDEA: XBRL DOCUMENT v3.8.0.1
GE Trademark License (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
GE Trademark License $ 12,000,000  
Less: Impairment charges (600,000)  
Less: accumulated amortization (10,206,934)  
Total, net $ 1,193,066 $ 1,640,466
GE Trademark    
GE Trademark License   12,000,000
Less: Impairment charges   (600,000)
Less: accumulated amortization   (9,759,534)
Total, net   $ 1,640,466
XML 50 R38.htm IDEA: XBRL DOCUMENT v3.8.0.1
GE Trademark License (Details 1) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
2018   $ 17,951
Total $ 225,052 204,412
GE Trademark    
2018   1,193,066
Total   $ 1,193,066
XML 51 R39.htm IDEA: XBRL DOCUMENT v3.8.0.1
Notes Payable (Details)
Dec. 31, 2017
USD ($)
Debt Disclosure [Abstract]  
2018 $ 240,642
2019 3,922,082
Total $ 4,162,724
XML 52 R40.htm IDEA: XBRL DOCUMENT v3.8.0.1
Convertible Debt - Net (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Third Party    
Beginning Balance, Convertible Debt $ 150,000 $ 3,989,950
Add: amortization of debt discount   474,283
Less Repayments/Conversions (150,000) (4,314,233)
Ending Balance, Convertible Debt 0 150,000
Related Party    
Beginning Balance, Convertible Debt 50,000 50,000
Add: amortization of debt discount   0
Less Repayments/Conversions (50,000)
Ending Balance, Convertible Debt 0 50,000
Total    
Beginning Balance, Convertible Debt 200,000  
Add: amortization of debt discount   474,283
Less Repayments/Conversions (200,000)
Ending Balance, Convertible Debt $ 0 $ 200,000
XML 53 R41.htm IDEA: XBRL DOCUMENT v3.8.0.1
Derivative Liabilities (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Derivative liabilities [Roll Forward]    
Balance Beginning of period $ 19,175,754 $ 24,083,314
Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability (13,229,681)
Fair value mark to market adjustment - stock options 2,036,621
Fair value mark to market adjustment - warrants (224,515) 12,376,571
Reclassification of derivative liability to Additional Paid-in-Capital due to share reservation (6,091,070)
Balance at end of period $ 18,931,239 $ 19,175,754
XML 54 R42.htm IDEA: XBRL DOCUMENT v3.8.0.1
Derivative Liabilities - Assumptions Used (Details)
3 Months Ended
Mar. 31, 2018
Commitment Date | Minimum  
Expected term 10 months 25 days
Risk free interest rate 0.76%
Commitment Date | Maximum  
Expected dividends 0.00%
Expected volatility 150.00%
Expected term 9 years 6 months 21 days
Risk free interest rate 2.40%
Remeasurement Date | Minimum  
Expected term 1 year 1 month 27 days
Risk free interest rate 91.47%
Remeasurement Date | Maximum  
Expected dividends 0.00%
Expected volatility 150.00%
Expected term 9 years 6 months 21 days
Risk free interest rate 2.33%
XML 55 R43.htm IDEA: XBRL DOCUMENT v3.8.0.1
GE Royalty Obligation (Details)
3 Months Ended
Mar. 31, 2018
USD ($)
Tier 1 | Minimum  
Net Sales in Contract Year $ 0
Tier 1 | Maximum  
Net Sales in Contract Year $ 50,000,000
Percentage of the Contract Year Net Sales owed to GE 7.00%
Tier 2 | Minimum  
Net Sales in Contract Year $ 50,000,000
Tier 2 | Maximum  
Net Sales in Contract Year $ 100,000,000
Percentage of the Contract Year Net Sales owed to GE 6.00%
Tier 3 | Minimum  
Net Sales in Contract Year $ 100,000,000
Percentage of the Contract Year Net Sales owed to GE 5.00%
XML 56 R44.htm IDEA: XBRL DOCUMENT v3.8.0.1
Stockholders Deficit (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Quantity 240,000 5,898,402
Valuation $ 720,000 $ 5,287,000
Range of Value per share, minimum $ 3.00 $ 3
Common Stock 5    
Quantity 240,000  
Valuation $ 720,000  
Range of Value per share, minimum $ 3.00  
Common Stock 1    
Quantity   69,667
Valuation   $ 209,000
Range of Value per share, minimum   $ 3
Common Stock 2    
Quantity   1,666,667
Valuation   $ 5,000,000
Range of Value per share, minimum   $ 3
Common Stock 3    
Quantity   30,000
Valuation   $ 78,000
Range of Value per share, minimum   $ 2.60
Common Stock 4    
Quantity   4,132,068
Valuation   $ 0
Range of Value per share, minimum   $ 0
XML 57 R45.htm IDEA: XBRL DOCUMENT v3.8.0.1
Stockholders Deficit (Details 1) - 15% Secured Convertible Promissory Notes [Member] - USD ($)
Dec. 31, 2017
Dec. 31, 2016
2017 Preferred Stock Transactions [Member]    
Preferred Stock Issued $ 400,000  
Preferred Stock Issued (in shares) 1,360,000  
Preferred Stock Issued (in dollars per share) $ 3.40  
2016 Preferred Stock Transactions [Member]    
Preferred Stock Issued   $ 13,056,936
Preferred Stock Issued (in shares)   44,393,569
Preferred Stock Issued (in dollars per share)   $ 3.40
XML 58 R46.htm IDEA: XBRL DOCUMENT v3.8.0.1
Stockholders Deficit (Details 2) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]    
Balance at beginning 4,875,000 1,350,000
Exercised   (30,000)
Granted   3,555,000
Balance at end 4,875,000 4,875,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]    
Balance at beginning $ 1.150 $ 0.767
Exercised   2.60
Granted   1.307
Balance at end $ 1.150 $ 0.767
Share-based Compensation Arrangement by Share-based Payment Award, Options, Weighted Average Remaining Contractual Life [Roll Forward]    
Balance at beginning 7 years 4 months 24 days 7 years 9 months 22 days
Granted   7 years 5 months 20 days
Balance at end 6 years 10 months 28 days 7 years 4 months 24 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Aggregate Intrinsic Value [Roll Forward]    
Balance at beginning $ 9,167,250 $ 3,015,000
Exercised   (78,000)
Granted   6,230,250
Balance at end $ 9,167,250 $ 9,167,250
XML 59 R47.htm IDEA: XBRL DOCUMENT v3.8.0.1
Stockholders Deficit (Details 3) - $ / shares
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]    
Balance, at beginning 8,419,924 13,555,651
Issued   898,040
Exercised   (6,033,767)
Balance, at end 8,419,924 8,419,924
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]    
Balance, at beginning $ 1.64 $ 0.72
Issued   3.31
Exercised   (3.00)
Balance, at end $ 1.117 $ 1.64
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Weighted Average Remaining Contractual Life [Roll Forward]    
Balance, at beginning 1 year 1 month 24 days 1 year 6 months
Issued   4 years 7 months 17 days
Balance, at end 1 year 1 month 24 days 1 year 6 months
XML 60 R48.htm IDEA: XBRL DOCUMENT v3.8.0.1
Commitments (Details) - Minimum Obligation
Dec. 31, 2017
USD ($)
2019 $ 78,467
2020 60,320
Total $ 138,787
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