UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to
Commission
File Number: 001-41276
SKYX
Platforms Corp.
(Exact
name of registrant as specified in its charter)
2855
W. McNab Road
Pompano
Beach, Florida33069
(Address, including zip code, of principal executive offices)
(855)759-7584
(Registrant’s telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, no par value per share SKYX The Nasdaq Stock Market LLC
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The
aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $107,896,912
based on the closing price as reported on The Nasdaq Stock Market LLC as of June 30, 2022, the last business day of the registrant’s
most recently completed second fiscal quarter.
As
of March 20, 2023, the registrant had 83,119,862shares of common stock, no par value per share,
issued and outstanding.
TABLE
OF CONTENTS
Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 1
RISK FACTORS SUMMARY 2
PART I
Item 1. Business 3
Item 1A. Risk Factors 16
Item 1B. Unresolved Staff Comments 44
Item 2. Properties 44
Item 3. Legal Proceedings 44
Item 4. Mine Safety Disclosures 44
PART II
Item 6. [Reserved] 45
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51
Item 8. Financial Statements and Supplementary Data 51
Item 9A. Controls and Procedures 51
Item 9B. Other Information 52
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 52
PART III
Item 10. Directors, Executive Officers and Corporate Governance 54
Item 11. Executive Compensation 60
Item 14. Principal Accountant Fees and Services 83
PART IV
Item 15. Exhibits and Financial Statement Schedules 84
SIGNATURES 88
FINANCIAL STATEMENTS F-1
i
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K (this “Form 10-K”) of SKYX Platforms Corp. (the “Company,” “Sky Technologies,”
“we,” “us,” or “our”) contains forward-looking statements that are based on management’s beliefs
and assumptions and on information currently available to management. All statements other than statements of historical facts contained
in this Form 10-K, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects,
plans, objectives of management, outlook, and expected market growth, are forward-looking statements. In some cases, you can identify
forward-looking statements by the following words: “may,” “might,” “will,” “could,” “would,”
“should,” “expect,” “intend,” “plan,” “aim,” “objective,” “anticipate,”
“believe,” “estimate,” “predict,” “project,” “potential,” “continue,”
“ongoing,” “target,” “seek” or the negative of these terms or other comparable terminology, although
not all forward-looking statements contain these words. These statements involve risks, uncertainties and other factors, many of which
have outcomes that are difficult to predict and may be outside our control, that may cause actual results, levels of activity, performance
or achievements to be materially different from the information expressed or implied by these forward-looking statements. Forward-looking
statements in this Form 10-K include, but are not limited to, statements about:
● our ability to raise additional financing to support our operations as needed;
● any downturn in the cyclical industries in which our customers operate;
● the potential outcome of any legal proceedings;
● our ability to successfully sell and distribute our products and technologies;
● our ability to attract and retain key executives and qualified personnel;
● the potential impact of natural disasters and other catastrophic events;
● risks related to ownership of our common stock;
These
forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject
to risks, uncertainties, and other factors, including unpredictable or unanticipated factors that we have not discussed in this Form
10-K. Investors should refer to the “Risk Factors” section of this Form 10-K for a discussion of other important factors,
many of which are outside of our control, that may cause actual results to differ materially from those expressed or implied by the forward-looking
statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-K will prove to be
accurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant
uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any
other person that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in
this Form 10-K represent our views as of the date of this Form 10-K. We anticipate that subsequent events and developments will cause
our views to change; however, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by U.S. federal securities laws. You should, therefore, not rely on these
forward-looking statements as representing our views as of any date subsequent to the date of this Form 10-K.
RISK
FACTORS SUMMARY
The
following is a summary of the principal risks that could materially adversely affect our business, results of operations and financial
condition, all of which are more fully described in the section titled “Risk Factors.” This summary should be read in conjunction
with the “Risk Factors” section and should not be relied upon as an exhaustive summary of the material risks facing our business,
as it does not address all of the risks that we face.
● We depend on a limited number of third-party manufacturers and suppliers.
PART
I
ITEM
1. BUSINESS
Our
Mission
As electricity is a standard in every home and building,
our mission is to make homes and buildings become safe advanced and smart as the standard.
Overview
Sky
Technologies has a series of highly disruptive advanced-safe-smart platform technologies, with over 60 U.S. and global patents and patent
pending applications. Our technologies place an emphasis on high quality and ease of use, while significantly enhancing both safety and
lifestyle in homes and buildings. We believe that our products are a necessity in every room in both homes and other buildings in the
U.S. and globally.
Our
first-generation technologies enable light fixtures, ceiling fans and other electrically wired products to be installed safely and plugged
in to a ceiling’s electrical outlet box within seconds, and without the need to touch hazardous wires. The plug and play technology
method is a universal power-plug device that has a matching receptacle that is simply connected to the electrical outlet box on the ceiling,
enabling a safe and quick plug and play installation of light fixtures and ceiling fans in just seconds. The plug and play power-plug
technology eliminates the need of touching hazardous electrical wires while installing light fixtures, ceiling fans and other hard wired
electrical products. In recent years, we have developed prototypes that expand the capabilities of our power-plug product, to include
advanced safe and quick universal installation methods, as well as advanced smart capabilities, which are currently in the third and
final prototype stage prior to launching. The smart features contained in the final prototype include control of light fixtures and ceiling
fans by the SkyHome App, through WIFI, Bluetooth Low Energy (“BLE”) and voice control connections. The SkyHome App will allow
scheduling, energy savings eco mode, dimming, back-up emergency light, night light, light color changing and much more.
We
believe that due to safety, convenience, cost, and time that all hard-wired electrical products, such as light fixtures, ceiling fans
and other products, should become plug and play and smart, as the standard, enabling consumers to plug their fixtures and control them
through their smart phones at any time.
Our
second-generation technology, which is in the second stage prototype, is an all-in-one safe and smart advanced platform (the “Smart
Sky Platform”) that is designed to enhance all-around safety and lifestyle of homes and other buildings.
We
believe that our patented advanced, safe and smart home platform technologies will enhance and promote safety in homes and
buildings and make them smart, as a standard, in a fraction of the time and cost, as compared to other market
products.
We
believe that our smart home products will enable builders to deliver smart homes as a standard, in the same way they deliver electricity
and appliances as a standard.
As
our products, including our prototype advanced, safe and smart products, can be easily implemented and installed in both existing and
new homes and buildings in just minutes, installing our products is expected to save a major part of the cost and time associated with
installation of smart home products. As many people spend the majority of time at their homes, we believe that they should have an affordable,
easily installed, standard solution to make their homes safe, secured and smart. Similar to how smartphones serve people as an all-in-one
personal smart platform, we believe that our all-in-one Smart Sky Platform will enable every room in homes and other buildings to include
a smart platform as a standard.
The
Smart Sky Platform technology is an open system that can integrate with both existing and new smart home features, devices, and systems.
The Smart Sky Platform prototype is designed and built in a way that it can accommodate additional smart home features, enabling the
platform to serve as a gateway for safe and smart technologies into rooms/homes, buildings, and that it can act like a “Panama-Canal”
that can accommodate other type of software systems, wireless systems, electronic chips and more.
Since
2015, we have generated over $29 million in sales from our standard products, which include ceiling fans and light fixtures with our
standard “plug and play” feature built in and are described further below under “Products—Our First Product:
The Weight Bearing Power-Plug”. We have decided to wind down the sales of our standard products by discontinuing production of
light fixtures and ceiling fans that include the older version of our standard Sky Plug & Receptacle in favor of launching our
new line of products, which are in the third and final prototype stage prior to launching and include a universal “plug and
play” adapter kit, our smart products, which will include smart light fixtures and ceiling fans with our smart “plug and
play” features, and our Smart Sky Platform. Additional information regarding our new line of products is described below under
“Products—Advanced Products” and “—Smart Products.” We elected to do so since we believe that
the market has great demand for smart advanced products, and that we will be able to generate significant sales from our new line of
advanced and smart products from direct sales as well as from licensing. Our first generation of advanced and smart products are in
the third and final prototype stage prior to launching. We expect that all advanced and smart products will be commercially
available during 2023. As part of the launch of certain
products, we have allowed customers to pre-order prior to general availability.
Recent
Developments
On
February 6, 2023 (the “Signing Date”), we entered into the Stock Purchase Agreement (the “Stock Purchase Agreement”)
with the stockholders (the “Sellers”) of Belami, a California corporation, pursuant to which we agreed to acquire all of
the issued and outstanding shares of Belami from the Sellers (the transactions contemplated by the Stock Purchase Agreement, the “Acquisition”).
Belami is a strategic e-commerce lighting and home décor conglomerate that the Company expects will serve as a marketing and growth
platform and will provide several distribution channels, including to retail customers, builders and professionals.
At
the closing of the Acquisition (the “Acquisition Closing”), Belami’s stock will transfer to the Company, and the Company
will pay to the Sellers as consideration (i) $7.0 million in cash, net of indebtedness (other than permitted indebtedness), transaction
expenses (as provided in the Stock Purchase Agreement), and bonuses to certain employees and consultants, and the release to Sellers
of a $1.0 million payment held in escrow, which the Company paid into escrow on the Signing Date, and (ii) 2,018,692 shares of the Company’s
common stock, no par value (the “common stock”), which is equal to $6.48 million divided by $3.21, which is the average closing
price per share of the common stock on The Nasdaq Stock Market LLC (“Nasdaq”) for the 20 trading days immediately preceding
the Signing Date. The Company will also pay to the Sellers, on the first anniversary of the Acquisition Closing date (the “Deferred
Payment Date”), (i) $3.22 million in cash and (ii) a number of shares of common stock equal to approximately $6.4 million divided
by the average closing price per share of the common stock on Nasdaq for the 20 trading days immediately preceding the Deferred Payment
Date, subject to a minimum price per share of $3.00 and a maximum price per share of $4.00. The deferred payment will be increased or
decreased by the amount of a working capital adjustment, as provided for in the Stock Purchase Agreement, and will be subject to offset
for indemnification claims. Any payment of the working capital adjustment by the Company will be paid one-third in cash and two-thirds
in common stock, equal to such adjustment amount divided by the average closing price per share of common stock on Nasdaq for the 20
trading days immediately preceding the date of the post-closing adjustment, up to 100,000 shares of common stock (with any additional
amount to be paid in cash).
In
addition, prior to the Acquisition Closing, an amount of cash equal to Belami’s retained earnings is required to be distributed
to the Sellers. If the amount of cash distributed is insufficient, the Company will be required to deliver a promissory note to Sellers
at the Acquisition Closing equal to the difference between retained earnings and the cash distributed, with a term of one year and an
interest rate equal to the short-term applicable federal rate then in effect. The Company also agreed to assume Belami’s loan agreement
with PNC Bank, National Association, consisting of a $2.0 million revolving line of credit and a term loan of approximately $2.5 million.
In
connection with the Acquisition, the Company closed private placement offerings (the “Private Placements”) pursuant to
securities purchase agreements with certain existing Company investors, providing for the issuance and sale by the Company to such
investors of (i) subordinated secured convertible promissory notes in the aggregate principal amount of $10.35 million and (ii)
warrants to purchase an aggregate of up to 1,391,667 shares of the Company’s common stock for certain investors. The proceeds will be used for the cash
component of the Acquisition consideration and to pay certain transaction expenses in connection with the Acquisition and the
Private Placements.
In
March 2023, the Company also acquired 50% of the equity of a strategic e-commerce private label lighting website, for $225,000. The other
50% of the equity is owned by Belami. The Company expects that this acquisition will serve as another marketing and growth platform for
the Company and will provide additional distribution to both professional and retail channels for the Company’s products.
Safety
We
believe that safety is a necessity and the top priority in all aspects of life. Therefore, our technologies and products emphasize human
safety, home, building and property safety and security, while combining safety features with high demand smart home features. We believe
our products should contribute to the elimination of many cases of hazardous incidents, including ladder falls, electric shock/electrocutions,
fires, carbon monoxide poisonings, injuries and deaths, as management believes that our products will result in easier installment processes
and enhance the use of life saving products such as smoke detectors, carbon monoxide detectors, and emergency lights, among other products.
Our products, including the Smart Sky Platform’s second-generation prototype, incorporate our “plug and play” technology,
which eliminates the need to touch wires during the later plug-in install, replacement and maintenance, and cleaning and, accordingly,
could result in reduced incidents of electrical shocks and fires resulting from faulty wiring. The installation of our products and retrofitting
of electrical services does not require the services of a licensed electrician but does not preclude the services of a licensed electrician.
As more individuals engage in do-it-yourself (DIY) lighting projects, using our products rather than traditional lighting products could
reduce incidents of incorrect wiring, shocks, injury and even death. In addition, we believe installing our products will allow installers
to spend less time on a ladder during initial installation. Installers often wire light fixtures and fans while also holding such fixture
or fan; with our products, including the Smart Sky Platform, the initial receptacle installation will be completed on the ladder and,
afterwards, the fixture can simply be plugged into place, resulting in a faster and, we believe, much safer process, as installers can
focus on wiring without also holding potentially heavy or breakable fixtures. Further, the Smart Sky Platform will incorporate a hard-wired
smoke detector with battery back-up and a carbon monoxide monitor, which we believe could reduce injuries and deaths from fire and carbon
monoxide poisoning.
Products
Our
products are designed to improve all around home and building safety and lifestyle. While we have developed and created working prototypes
of our advanced and smart products, as described below, we are continuing to refine the product prototypes and expect that all advanced
and smart products will be commercially available during 2023.
Our
First Product: The Weight Bearing Power-Plug
Our
first patented technology was the Power-Plug, a weight bearing power plug that acts as a safe and quick installation device, designed
for “plug and play” installation of weight bearing electronics, such as light fixtures, ceiling fans and other electrical
products, into ceiling electrical outlet boxes.
Our
patented technology consists of a fixable socket and a revolving plug (the Power-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 Power-Plug, which is comprised of a non-conductive body that
houses corresponding conductive rings, attaches to the socket via a male post and can feed electric power to an appliance. The Power-Plug
also includes a second structural element allowing it to revolve with a releasable latch that, when engaged, provides a retention force
between the socket and the Power-Plug to prevent disengagement. The socket and Power-Plug can be detached by releasing the latch, disengaging
the electric power from the Power-Plug. The socket is designed to replace the support bar incorporated in electric junction boxes, and
the Power-Plug can be installed in light fixtures, ceiling fans, wall sconce fixtures and other electrical devices and products. Once
installed, the socket can remain affixed to the junction box, enabling any electronic fixture installed with the Power-Plug to be connected
and/or removed in seconds. The combined socket and Power-Plug technology are referred to throughout this Form 10-K as the “Sky
Plug & Receptacle”.
We
have previously sold products with the Sky Plug & Receptacle built in, including ceiling fans and light fixtures. We have decided
to wind down the sales of our standard products by discontinuing production of light fixtures and ceiling fans that include the older
version of our standard Sky Plug & Receptacle in favor of launching our new line of products described below.
Advanced
Products
Sky
– Universal Power-Plug & Receptacle: Our universal “plug and play” Sky Plug & Receptacle technology is
comprised of two devices. The first device is a male Power-Plug Retrofit Kit, which can be easily embedded in the base of light fixtures
and ceiling fans. The second device is a Ceiling Receptacle, which can be connected to a ceiling outlet box. After a one-time installation
of the Ceiling Receptacle to a ceiling outlet box, a light fixture or ceiling fan that includes the Power-Plug Retrofit Kit can be plugged
into the Ceiling Receptacle within seconds. The Universal Power-Plug & Receptacle should contribute to the elimination of hazardous
incidents in homes and buildings including ladder falls, electric shock/electrocutions, fires, injuries, and deaths, etc.
Smart
Products
SkyHome
App: Our proprietary SkyHome Application works with both iPhones and Android phones. The SkyHome App controls products through WIFI
and BLE and is designed to control our products through additional communication methods as needed. The SkyHome App controls various
products, features and specifications, including scheduling, controlling, voice control, safety features, security features, lifestyle
features, sound, lights, dimming, emergency back-up battery and much more.
Sky
Smart – Universal Power-Plug & Receptacle: Our Sky Smart Plug & Receptacle system contains two devices. First, the
male Smart Power-Plug, which includes a smart electronic board, comes as a Retrofit Kit, that can be simply embedded to the base of light
fixtures and ceiling fans, enabling them to become both Plug and Play and Smart. The second device is a Ceiling Receptacle that can be
simply connected to a ceiling outlet box. After a one-time simple installation of the Ceiling Receptacle to a ceiling outlet box,
a light fixture or ceiling fan that includes the male Smart Plug Retrofit Kit can be plugged into the Ceiling Receptacle within seconds.
Our Smart Power-Plug is controlled by our proprietary SkyHome App or through voice control and is an open system that can integrate
with other smart home devices and systems. Our Smart Power-Plug is connected through WIFI and BLE, and includes numerous smart features,
including scheduling, energy saving-eco mode, dimming, back-up emergency light, night light, light color changing and more. We believe
that, due to safety, convenience, cost and time, all hard-wired electrical products, such as light fixtures and ceiling fans, should
become plug and play and smart, as the standard, enabling consumers to plug their fixture and control them through their smart phones
at any time. The Smart Universal Power-Plug & Receptacle should contribute to the elimination of hazardous incidents in homes and
buildings including ladder falls, electric shock/electrocutions, fires, injuries, and deaths, etc.
Sky
– Smart Plug and Play Ceiling Fans: Our line of high-end smart plug and play ceiling fans can be installed to our matching
ceiling receptacle within seconds. Our smart ceiling fans incorporate advanced technologies, have unique modern designs, and are controlled
by our proprietary SkyHome App or through voice control, and are an open system that can integrate with other smart home devices and
systems. Our Smart Plug and Play Ceiling Fan is connected through WIFI and BLE, and includes numerous smart features, including scheduling,
energy saving-eco mode, dimming, back-up emergency light, night light, light color changing and more. We believe that, due to safety,
convenience, cost and time, all hard-wired electrical products, such as ceiling fans, should become plug and play and smart, as the standard,
enabling consumers to plug their fixture and control them through their smart phones at any time. The Smart Plug and Play Ceiling Fan
should contribute to the elimination of hazardous incidents in homes and buildings including ladder falls, electric shock/electrocutions,
fires, injuries, and deaths, etc.
Sky
– Smart Plug and Play Lighting: Our line of high-end Smart Plug and Play light fixtures can be installed to our matching ceiling
receptacle within seconds. Our smart light fixtures incorporate advanced technologies, have unique modern designs, and are controlled
by our proprietary SkyHome App or through voice control, and are an open system that can integrate with other smart home devices and
systems. Our smart light fixture is connected through WIFI and BLE, and includes numerous smart features, including scheduling, energy
saving-eco mode, dimming, back-up emergency light, night light, light color changing and more. We believe that, due to safety, convenience,
cost and time, all hard-wired electrical products, such as light fixtures should become plug and play and smart, as the standard, enabling
consumers to plug their fixture and control them through their smart phones at any time. The Smart Plug and Play Lighting should contribute
to the elimination of hazardous incidents in homes and buildings including ladder falls, electric shock/electrocutions, fires, injuries,
and deaths, etc.
Sky
– All-In-One Smart Sky Platform: As most people spend a majority of their time in their homes, we believe that they should have an
easy solution to make their homes safe, secured, and smart in a simple way and as the standard. We believe that our patented advanced-safe-smart
home platform technologies will make homes and buildings safe, have numerous technological features and smart as a standard, in a fraction
of time and cost, compared to other market products. Our all-in-one Smart Sky Platform is designed to enhance the all-around safety and
lifestyle of homes and buildings and can be easily implemented and installed to the ceiling receptacle in both existing and new homes
and buildings within minutes. Our Smart Sky Platform includes distinctive advanced smart and safety technologies, has unique modern designs
and is controlled by our proprietary SkyHome App or through voice control. It is an open system that can integrate with other smart home
devices and systems.
As
smart phones serve people as an all-in-one personal smart platform, we believe that our all-in-one Smart Sky Platform technology enables
every room in homes and buildings to have a smart platform as a standard. Our Smart Sky Platform is connected through WIFI and BLE, includes
numerous smart and safety features, including a smart smoke detector, a smart carbon monoxide detector, time scheduling, temperature
sensor, humidity sensor, WIFI extender, energy saving-eco mode, high quality speakers, back-up battery that can power back-up internet
and an emergency light, as well as dimming, night light, light color changing and more. The platform’s electrical power and transformer,
combined with the size of our platform’s data storage space, which represents vast electronic “Real-Estate” in terms
of today’s technology, driven by microchips, enables the platform to accommodate a significant amount of software as well as electronic
microchips, while the unique ceiling location of the platform significantly enhances the performance of the platform’s features,
including WIFI and BLE.
The
Smart Sky Platform is inconspicuous to the décor. It is designed to install over existing ceiling electrical outlet boxes while
allowing any pre-existing fixture to reconnect to the same box utilizing our Retrofit Kits. This innovation gives us access to the best
location for the gathering and distribution of electronic signals, virtually unlimited power for our low-voltage safety and smart features,
and a vast amount of electronic real estate.
This
open-system Smart Sky Platform is intended to seamlessly integrate unrelated safe and smart products into a single, spatially designed
unit whose functionality is controlled by an all-in-one app, the SkyHome App. The Smart Sky Platform will eliminate the need for installation
of numerous stand-alone devices and their integration into a working unit.
The
Smart Sky Platform’s location on the ceiling significantly advances smart home products’ performance, including the speed
and range of both WIFI and Bluetooth, as well as the performance of sensors and alarms.
The
adoption of the Smart Sky Platform should contribute to the elimination of hazardous incidents in homes and buildings including ladder
falls, electric shock/electrocutions, fires, carbon monoxide poisonings, injuries, and deaths, etc.
Installation
takes only minutes and fixtures previously hung from that location can still be plugged into the Smart Sky Platform.
Sustainability
We
aim to provide safe and sustainable solutions to consumers, who increasingly consider sustainability and energy efficiency when purchasing
products. We believe that creating sustainable products and streamlining our operations drives efficiency, innovation and, ultimately,
long-term value-creation. In designing and improving our products, we consider and apply sustainability strategies, as appropriate. For
example, our products’ features include an energy savings economical mode, which can help users reduce their energy consumption, and we
generally use LED lighting in our ceiling fans and light fixtures, which is more energy-efficient than traditional lighting products.
Cyber
Security
We
have implemented measures and protocols to ensure that our users’ information is safe and fully protected. We use high
level of cyber security measures and protocols to ensure that our software, technologies, servers, products, platform, and devices are
all protected to prevent any type of unauthorized or illegal access or interference to our software, technologies, servers, products,
platforms, and devices.
Our
products, platforms and devices communicate over MQTT and are encrypted over Transport Layer Security, with each individual product,
platform and device having its own set of certificates, keys, and universally unique identifiers, which ensures that each device can
only communicate with its own topic. This ensures that even in extreme cases of illegally gaining control over a specific device, it
will not affect any other devices.
Each
login to the platform generates the user a temporary token that grants access to the services for a limited amount of time, which ensures
that there is no permanent access token that can be used by hackers for unauthorized access. Each token has permissions to access only
the user’s resources.
Our
solutions are designed in a way that the user will need to conduct a restricted set of permissions, thus minimizing the risk of unwanted
users gaining control over other locations.
Sky
Plug & Receptacle – NEC Code
The
NEC (National Electrical Code) is the U.S. electrical safety building code, and is the benchmark for safe electrical design, installation,
and inspection to protect people and property from electrical hazards. It has been adopted in some form in all 50 states in the United
States and is intended to improve safety in U.S. homes and buildings.
Based
on the safety aspects of the Sky Plug & Receptacle, it was voted into the NEC and is represented by 10 different segments in the
NEC Code Book. The Company has provided data relating to safety aspects of its receptacle as to electrocutions, fires and ladder falls
to NEC.
One
of the key votes and segments relating to our technologies in the NEC Code Book was the change of the definition of “receptacle”
in the Code Book, which we believe is one of the most significant additions to the NEC in the past 120 years. The NEC leads the United
States and globally with respect to electrical safety standards; as such, we believe the reputable standards of the NEC can assist with
the adoption of our technology in additional countries.
Pursuant
to these NEC provisions, the Sky Plug & Receptacle enables builders to expedite and obtain a Certificate of Occupancy without the
need to install a light fixture to the ceiling.
During
the third quarter of 2022, the Company received NEC generic name approval for its weight-bearing safe plug and play outlet/receptacle
for ceilings as WSCR (Weight-Supporting Ceiling Receptacle) for its universal ceiling outlet and WSAF (Weight-Supporting Attachment Fitting)
for its ceiling plug. The specifications for the WSCR and WSAF received a standardization approval vote by the American National Standards
Institute (ANSI) and the National Electrical Manufacturers Association (NEMA), leading U.S. standardization organizations. The American
National Standards Institute’s and the National Electrical Manufacturers Association’s vote for the standardization of the
Company’s weightbearing plug and outlet/receptacle for ceilings does not guarantee approval by the National Fire Protection Association’s
(NFPA) Committee on the National Electrical Code (which consists of multiple code-making panels and a technical correlating committee
and develops the National Electrical Code (NEC)) or any other trade or regulatory organization and does not guarantee that any of the
Company’s products will become NEC mandatory in any jurisdiction, or that any of the Company’s current or future products
or technologies will be adopted by any state, country, or municipality, within any specific timeframe or at all.
Intellectual
Property
Developing
and maintaining a strong intellectual property position is one of the most important elements of our business. We rely on a combination
of patents, copyright, trademarks, and trade secret laws, as well as confidential procedures and contractual provisions, to protect our
proprietary technology and our brands. We enter into confidentiality and proprietary rights agreements with our employees, consultants
and other third parties. We have sought, and will continue to seek, patent protection for our technology and for improvements to our
technology, as well as for any of our other technologies where we believe such protection will be advantageous. In addition, certain
intellectual property and proprietary information held by a third party is central to our products and technologies. If we lose our rights
to use such intellectual property and proprietary information in the future, our business or operating results and our ability to complete
could be adversely impacted.
We
protect our intellectual property through various aspects and strategies including broad and particular intellectual
property claims. We have over 60 U.S. and global patents and patent applications, including in China, India, and Europe as well in other
countries around the world. These patents and patent applications protect different aspects of our technologies. We sought intellectual
property protection of our technologies in China due to our current manufacturing operations and prospective sales in China’s market,
and we sought protection in India in anticipation of future growth into India’s developing market, both with respect to the sales
of our products and our potential operations. As of December 31, 2022, in the U.S., we owned seven issued patents, which expire from
2036 to 2038, and six pending or published but not yet issued patents, and outside of the U.S., we owned eight issued patents, which
expire from 2026 to 2039, and 46 pending or published but not yet issued patents. We intend to diligently maintain and vigorously defend
the intellectual property of Sky Technologies, and to enhance our patent protections actively and continuously in the U.S. and globally.
The
issued patents are directed to various aspects our platform technologies, including our smart and standard plug and play products, as
well as our safe and smart platform technologies. As further innovations are developed, we intend to seek additional patent protection
to enhance and maintain our competitive advantage. Additionally, we have submitted 10 trademark applications, seven of which have been
issued and three of which are pending.
GE
- General Electric Agreements
We
have two U.S. and global agreements with GE related to our products.
On
June 15, 2011, we entered into the License Agreement with GE, pursuant to which we have the right to market certain ceiling light and
fan fixtures displaying the GE brand. We and GE subsequently amended the License Agreement, including on April 17, 2013, August 13, 2014,
September 25, 2018, May 2019 and December 1, 2020. The License Agreement imposes certain manufacturing and quality control conditions
that we must maintain to continue to use the GE brand. The License Agreement is nontransferable and cannot be sublicensed. Various
termination clauses are applicable to the License Agreement; however, none were applicable as of December 31, 2022.
On
August 13, 2014, we entered into a second amendment to the License Agreement pertaining to our royalty obligations. Under the
initial terms of the amendment, we agreed to pay GE a minimum trademark license fee of $12.0 million by November 30, 2018 (the
“Initial Royalty Obligation”) for the rights assigned in the original contract. The amendment provided that, if we did
not pay to GE royalties equal to the Initial Royalty Obligation over the term of the License Agreement, we would owe the difference
to GE in December 2018.
We
are expanding our relationship with GE to collaborate on mutual capabilities, and in December 2020, we entered into the current
amendment to the License Agreement. The amendments following the second amendment expanded our product range, including smart, and
added additional global territory rights. The License Agreement has been extended for an additional five years and expires on
November 30, 2023. Pursuant to the third amendment, entered September 2018, the approximate remaining payment of $10.0 million
pursuant to the Initial Royalty Obligation was waived, and we agreed to pay GE an aggregate amount
of $6.0 million, consisting of three annual installments of $2.0 million to be paid to GE in each of December 2018, 2019 and 2020.
In December 2020, we restructured the royalty payment obligations due of approximately
$4.4 million, plus $0.7 million in interest. We agreed to pay a total of $5.1 million to GE in quarterly installments through
December 2023, including $100,000 due December 2020, an aggregate of $500,000 due in four equal installments in 2021, an aggregate
of $1.2 million due in four equal installments in 2022 and an aggregate of $3.3 million due in four equal installments in 2023 (the
“Minimum Payments”). In the event the Company receives significant funding rounds of at least $50.0 million in funding,
it is required to use a portion of such funding to pay certain amounts to GE. The Minimum Payments will be in addition to the
royalty payments made to GE during the respective year, as set forth below.
Royalty
payments are due quarterly, using a December 1 – November 30 contract year and based upon the prior quarter’s sales. Royalty
payments will be paid from sales of GE branded product subject to the following repayment schedule:
Net Sales in Contract Year Percentage of Contract Year Net Sales owed to GE
As
of December 31, 2022, the remaining royalty obligations amounted to $2,638,000, which are expected to be paid in 2023.
Employees
Our
management members include leading executives from various industries and have joined us as they believe in our vision, technology, and
strategy. Many of our key personnel are employed pursuant to an employment agreement or a consulting agreement.
As
of December 31, 2022, we had 37 total employees and consultants, 29 of which are full-time. We also employ independent contractors to
support our operations. We have never had a work stoppage, and none of our employees are represented by a labor union.
We consider our relations with our employees to be good. We expect to continue to expand our staff and team of engineers to develop our products.
Our
human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our current
and future employees. We encourage and support the growth and development of our employees. Continual learning and career development
is advanced through ongoing performance and development conversations with employees, and reimbursement is available to employees for
seminars, conferences, formal education and other training events employees attend in connection with their job duties.
Our
core values of accountability, openness, and integrity underscore everything we do and drive our day-to-day interactions. The safety,
health and wellness of our employees is a top priority.
Business
Strategy
Our
business strategy is to enhance safety and advance smart living lifestyle in homes and other buildings.
Following
commercial launch of our advanced and smart products, we plan to educate retail and commercial consumers about our products through a
coordinated public relation campaign that will cover the safety aspects of our products and all the related hazardous incidents and property
damage that our products can prevent, including ladder falls, electric shock/electrocutions, fires, carbon monoxide poisonings, injuries,
deaths and more.
We
will also educate on all our advanced smart technology features.
We
believe our total addressable market in the United States exceeds $500 billion, based on the Company’s internal calculations derived
from the estimation of the total target user pool, projected average selling price, and projected units per household. We believe there
are billions of installations of light and other electrical fixtures globally. Our estimates of the addressable market for our products
may prove to be incorrect. The projected demand for our products could materially differ from actual demand. Even if the total addressable
market for our products is as large as we have estimated and even if we are able to gain market awareness and acceptance, we may not
be able to penetrate the existing market to capture additional market share.
Lead
and Seed Strategy: We expect to lead by selling our highly disruptive line of products through a variety of channels as well
as seed our products through licensing to various industries.
As
part of our sales campaign, we intend to use online channels and may also utilize social media influencers. As part of the launch
of certain products, we have allowed, and may in the future allow customers to pre-order prior to general availability. Our future revenue
streams may also include data aggregation and subscriptions. We can provide no assurance that we will be able to successfully expand
our operations or activities, gain market awareness or acceptance of our products, or achieve our expectations described above.
Product
Usage
Our
products and technologies can be used in new and existing homes and buildings, including by builders, rental properties, hotels, cruise
ships, elder living facilities, schools, hospitals, offices, commercial, and retail. We provide a one-year full performance warranty
on all our products, as well as part replacements. We intend to provide extended warranty coverage plans in the future.
Our
Opportunity
Based
on the significance of the safety aspects and lifestyle features of our products, we believe that our products are a necessity in most
rooms, homes, and other buildings, both in the U.S. and globally, and that they can help prevent most related hazardous incidents in
homes and buildings, including ladder falls, electric shock/electrocutions, fires, carbon monoxide poisonings, injuries, and deaths.
Therefore, we believe our product is a necessity in rooms, homes and other buildings.
We
believe that our series of highly disruptive advanced-safe-smart platform technologies are a necessity as they are expected to disrupt
and positively influence various industries, both in the U.S. and globally.
We
believe that all light fixtures should become plug and play, smart and controlled by an app as a standard, and that light fixtures should
be installed to the ceiling within seconds, safely and without the need to touch dangerous electrical wires. Our product is intended
to help prevent most of related ladder falls, electric shock/electrocutions, fires, carbon monoxide poisonings, injuries, and deaths.
We
believe that all ceiling fans should become plug and play, smart and controlled by an app as a standard, and that ceiling fans should
be installed to the ceiling within seconds, safely and without the need to touch dangerous electrical wires. Our product is intended
to help prevent most of related ladder falls, electric shock/electrocutions, fires, carbon monoxide poisonings, injuries, and deaths.
We
believe that homes and buildings should become safe and smart as a standard. Our Advanced All-In-One Safe Smart Sky Platform enables
rooms, homes, and buildings to become safe and smart.
Our
Advanced Smart Sky Platform significantly enhances smart home products’ performance, including the speed and range of both WIFI
and Bluetooth, as well as the performance of sensors and alarms. We believe that widespread adoption of the Smart Sky Platform should
contribute to the elimination of most related hazardous incidents in homes and buildings including ladder falls, electric shock/electrocutions,
fires, carbon monoxide poisonings, injuries, and deaths. Therefore, we believe our product is a necessity in rooms, homes, and buildings.
Our
Advanced All-In-One Safe Smart Sky Platform can be used in existing homes and buildings, by builders, rental properties, hotels, cruise
ships, elder living facilities, schools, hospitals, offices, commercial, retail and other.
We
launched our new universal power plug, our SkyHome App, and our smart universal plug, as well as the smart ceiling fans and lighting
fixtures containing such plug, in December 2022. Bringing our products to market will require us to take certain steps, including, but
not limited to, the following:
Expected
Revenue Stream
We
believe our products will enable us to access a global market with multiple revenue streams, including:
● Global market with numerous potential product applications
● Product sales
● Royalties/Licensing
● Subscription model
● Monitoring services
● Sale of product and licensing rights to additional countries
Royalties
from the Sky Plug & Receptacle. Management has agreed to license products in the U.S. and globally through the efforts of
its GE licensing and trademark agreements. We anticipate we will also license our smart technologies products currently in development.
Selling/Licensing
Country Rights. Management is considering selling and licensing marketing rights to certain countries in exchange for payment