SKYX Platforms (SKYX) 10-Q 2016 Q3 Quarterly report

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 September 30, 2016

OR

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

For the transition period from ___________to ____________

Commission File Number 333-197821

SQL TECHNOLOGIES CORP.

(Exact name of small business issuer as specified in its charter)

FLORIDA	46-3645414
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4400 North Point Parkway

Suite 154

Alpharetta, GA 30022

(Address, including zip code, of principal executive offices)

(770) 754-4711

(Issuer’s telephone number)

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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerate filer [ ] Accelerated Filer [ ]

Non-accelerated filer [ ] Smaller reporting company [x]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [x]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 14, 2016, the issuer had 47,276,499 shares of common stock issued and outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	1
Item 1. Consolidated Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative & Qualitative Disclosures about Market Risks	41
Item 4. Controls and Procedures	41
PART II OTHER INFORMATION	42
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults upon Senior Securities	43
Item 5. Other Information	43
Item 6. Exhibits	44

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. Consolidated Financial Statements

SQL Technologies Corp. and Subsidiary

Consolidated Balance Sheets

	(Unaudited)		(Audited)
	September 30, 2016		December 31, 2015
Assets
Current assets:
Cash	$	4,997,643	$	450,868
Accounts receivable		1,669,322		234,309
Inventory		2,969,766		263,871
Prepaid expenses		21,435		35,769
Other current assets		78,000		210
Total current assets		9,736,166		985,028
Furniture and Equipment - net		118,645		127,521
Other assets:
Patent - net		100,276		83,174
Debt issue costs - net		—		14,605
GE trademark license - net		5,290,970		7,123,746
Other assets		124,765		65,714
Total other assets		5,516,011		7,287,239
Total assets	$	15,370,822	$	8,399,788
Liabilities and Stockholders (Deficit)
Current liabilities:
Accounts payable & accrued expenses	$	2,377,140	$	807,798
Convertible debt - net of debt discount  $-0- and $474,283 at		1,694,233		3,989,950
September 30, 2016 and December 31, 2015 respectively
Convertible debt - related parties - net of debt discount  $-0- and		50,000		50,000
$-0- at September 30, 2016 and December 31, 2015 respectively
Notes payable - current portion		3,118,018		107,944
Notes payable - related party		200,000		—
Derivative liabilities		25,016,860		24,157,838
Other current liabilities		7,180		46,010
Total current liabilities		32,463,431		29,159,540
Long term liabilities:
Notes payable		104,276		193,800
GE royalty obligation		11,409,934		11,795,855
Total long term liabilities		11,514,210		11,989,655
Total liabilities		43,977,641		41,149,195

Table Of Contents  1

Stockholders' deficit:
Preferred stock: $0 par value, 20,000,000 shares authorized;
7,080,000 and -0- shares issued and outstanding
at September 30, 2016 and December 31, 2015 respectively	24,072,000	-
Common stock: $0 par value, 500,000,000 shares authorized;
47,076,499 and 41,501,251 shares issued and outstanding
at September 30, 2016 and December 31, 2015 respectively	11,506,641	2,892,078
Common stock to be issued	-	625,000
Additional paid-in capital	51,487,789	6,472,427
Accumulated deficit	(116,393,807)	(42,703,470)
Total Stockholders' deficit	(28,571,377)	(32,713,965)
Non-controlling interest	(35,442)	(35,442)
Total Deficit	(28,606,819)	(32,749,407)
Total liabilities and stockholders' deficit	$                        15,370,822	$                        8,399,788

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

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SQL Technologies Corp. and Subsidiary

Consolidated Statements of Operations

Nine Months Ended September 30, 2016 and 2015

(Unaudited)

	Three Months		Nine Months
	September 30, 2016	September 30, 2015	September 30, 2016	September 30, 2015
Sales	$                    1,932,312	$                       262,897	$                    5,534,741	$                    2,482,035
Cost of sales	(1,593,926)	(248,675)	(4,848,476)	(2,195,655)
Gross profit	338,386	14,222	686,265	286,380
General and administrative expenses	1,613,880	1,220,844	4,550,323	3,741,198
Loss from operations	(1,275,494)	(1,206,622)	(3,864,058)	(3,454,818)
Other income (expense)
Interest expense	(139,924)	(880,394)	(902,690)	(2,273,951)
Derivative expenses	(2,446,918)	-	(7,410,369)	-
Change in fair value of embedded derivative liabilities	(3,183,183)	(7,993,408)	(38,644,799)	(7,357,719)
Loss on debt extinguishment - net	(22,121,217)	-	(22,121,217)	-
Other income	4,648	-	8,796	-
Total other expense - net	(27,886,594)	(8,873,802)	(69,070,279)	(9,631,670)
Net income (loss) including non-controlling interest	(29,162,088)	(10,080,424)	(72,934,337)	(13,086,489)
Less: net loss attributable to non-controlling interest	-	-	-	-
Net income (loss) attributable to SQL Technologies Corp.	$                (29,162,088)	$                (10,080,424)	$                (72,934,337)	$                (13,086,489)
Net loss per share - basic and diluted	$                            (0.624)	$                            (0.25)	$                            (1.634)	$                            (0.34)
Weighted average number of common shares outstanding during the year -
basic and diluted	46,702,330	40,479,962	44,830,045	38,131,295

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

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SQL Technologies Corp. and Subsidiary

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2016 and 2015

(Unaudited)

	Nine Months
	September 30, 2016	September 30, 2015
Cash flows from operating activities:
Net loss attributable to SQL Technologies Corp.	$                      (72,934,337)	$                      (13,086,489)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	19,714	16,471
Amortization of debt issue costs	14,605	117,098
Amortization of debt discount	474,283	1,621,257
Amortization of patent	5,774	3,705
Amortization of GE trademark license	1,832,777	1,826,087
Change in fair value of derivative liabilities	38,644,799	7,357,719
Derivative expense	7,410,369	-
Gain on debt extinguishment	(180,783)	-
Loss on debt extinguishment	22,302,000	-
Stock options issued for services - related parties	193,250	62,500
Change in operating assets and liabilities:
Accounts receivable	(1,435,013)	(116,878)
Prepaid expenses	14,334	11,583
Inventory	��        (2,705,895)	(514,186)
Royalty payable	(385,922)	(178,043)
Other	(175,671)	(22,999)
Accounts payable & accrued expenses	1,569,345	36,239
Net cash used in operating activities	(5,336,371)	(2,865,936)
Cash flows from investing activities:
Purchase of property & equipment	(10,837)	(3,053)
Payment of patent costs	(22,877)	(28,302)
Net cash used in investing activities	(33,714)	(31,355)
Cash flows from financing activities:
Repayments of convertible notes	(2,770,000)	-
Proceeds from note payable	3,791,576	-
Proceeds from note payable - related party	500,000	-
Stock issued in exchange for interest	158,312	429,646
Stock issued in exchange for principal	1,870,000	-
Repayments of notes	(871,028)	(77,201)
Repayments of notes - related party	(300,000)	-
Proceeds from issuance of stock	7,538,000	1,970,832
Net cash provided by financing activities	9,916,860	2,323,277
(Decrease) Increase cash and cash equivalents	4,546,775	(574,014)
Cash and cash equivalents at beginning of period	450,868	1,241,487
Cash and cash equivalents at end of period	$                          4,997,643	$                             667,473

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Supplementary disclosure of non-cash financing activities:
Reduction in principal balance of notes from escrow balance	$                                          -	$                                           -
Debt discount recorded on convertible debt accounted for as a derivative liability	$                                          -	$                                           -
Reclassification of derivative liability to additional paid-in-capital	$                       45,015,362	$                                           -
Supplementary disclosure of cash flow information
Cash paid during the period for:
Interest	$                                75,887	$                             457,297

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

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SQL Technologies Corp. and Subsidiary

Notes to Condensed Financial Statements

Note 1 Organization and Nature of Operations

SQL Technologies Corp. (f/k/a SafetyQuick Lighting& Fans Corp.), a Florida corporation (the “Company”), wasoriginallyorganized in May2004as a limitedliabilitycompanyunder thenameofSafetyQuickLight,LLC. The Company was converted to corporationonNovember6,2012.EffectiveAugust12,2016,theCompanychanged itsnamefrom“SafetyQuick Lighting& Fans Corp.” to “SQL Technologies Corp.” The Companyholdsa numberof worldwide patents,and has received a varietyoffinal electricalcodeapprovals,includingULListing and CSA approval(forthe UnitedStates andCanadianMarkets), and CE(fortheEuropean market). The Company maintains offices in Georgia, Florida and in Foshan, PeoplesRepublicofChina.

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

Theplugis also comprisedofanonconductive bodythat housescorrespondingconductiverings,attachestothesocketviaa male post and iscapable offeeding electricpowerto anappliance.Theplug includesa second structural elementallowingit to revolve and a releasablelatching which,when engaged, providesa retention forcebetweenthesocket andthe plugto prevent disengagement. The socket andplugcanbe detached byreleasingthelatch, thereby disengagingtheelectricpowerfromthe plug.The socket isdesignedto replacethesupport bar incorporated in electricjunctionboxes,andthe plugcanbe installedinlightfixtures,ceilingfans andwallsconcefixtures.

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

The Company’s fiscal year end is December31.

Note 2 SummaryofSignificantAccounting 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.

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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.

Risks and Uncertainties

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

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

Principles of Consolidation

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

Non-controlling Interest

In May 2012, in connection with the sale of the Company’s membership units in the Subsidiary, the Company’s ownership percentage in the Subsidiary decreased from 98.8% to 94.35%. The Company then reacquired these membership units in September 2013, increasing the ownership percentage from 94.35% back to 98.8%. During 2014, there was no activity in the Subsidiary. Its pro rata share of the Company’s 2014 and 2015 loss from operations is recognized in the financial statements.

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 $4,997,643 and$450,868in money market asofSeptember30, 2016and December31, 2015,respectively.

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.

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The Company recognizes anallowancefor losseson accountsreceivable in an amountequaltotheestimatedprobablelosses netofrecoveries. Theallowanceis basedonananalysis ofhistorical baddebtexperience, current receivablesaging,andexpectedfuture bad debts, aswellas an assessmentofspecificidentifiablecustomeraccountsconsidered at riskoruncollectible.

The Company’s net balance of accounts receivable for three months ended September 30, 2016 and for the year ended December 31, 2015:

	September 30, 2016 (Unaudited)		December 31, 2015 (Audited)
Accounts Receivable	$	1,669,322	$	234,309
Allowance for Doubtful Accounts		—		—
Net Accounts Receivable	$	1,669,322	$	234,309

All amounts are deemed collectible at September 30, 2016 and December 31, 2015 and accordingly, the Company has not incurred any bad debt expense at September 30, 2016 and December 31, 2015.

Inventory

Inventory consistsoffinishedgoodspurchased,whicharevaluedatthe lowerofcostormarketvalue,withcostbeingdeterminedonthefirst-in, first-out (FIFO) method. The Companyperiodicallyreviews historical salesactivityto determinepotentiallyobsoleteitems and alsoevaluatestheimpactofanyanticipated changesin futuredemand.

At September 30, 2016 and December 31, 2015, the Company had $2,969,766 and $263,871 in inventory, respectively. The Company will maintain an allowance based on specific inventory items that have shown no activity over a 24-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of September 30, 2016, and December 31, 2015, the Company has determined that no allowance is required.

Valuation of Long-lived Assets and Identifiable Intangible Assets

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

Property and Equipment

Property andequipmentis stated at cost, less accumulateddepreciation,and is reviewed for impairmentwhenever events or changesin circumstancesindicatethatthecarrying amountofan asset maynotberecoverable.

Depreciation ofproperty andequipmentisprovidedutilizing thestraight-line methodovertheestimated useful lives, rangingfrom5 to 7yearsoftherespective assets.Expendituresfor maintenance and repairs are charged to expense asincurred.

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.

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Intangible Asset Patent

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

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

GE Trademark Licensing Agreement

The Company enteredintoaTrademarkLicense AgreementwithGeneral ElectriconSeptember, 2011 (the “License Agreement”)allowing theCompany toutilize the“GE trademark”on productswhichmeetthestringent manufacturing andqualityrequirementsofGeneral Electric (the “GETrademarkLicense”).Asdescribed further inNote5 to these financial statements,theCompany and General Electric amendedtheLicense Agreement inAugust2014.Asa resultof thatamendment,theCompany is required to pay a minimum trademarklicensingfee (the“RoyaltyObligation”)to General Electricof $12,000,000.The repaymentscheduleis basedona percentofsales,withanyunpaidbalanceduein November2018.UnderSFAS142 “Accountingfor CertainIntangibleAssets”theCompany hasrecordedthevalueofthe LicensingAgreementandwillamortize itoverthe lifeofthe LicenseAgreement,whichis60 months.

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 – Observableinputsthatreflectquotedmarket prices inactivemarkets foridenticalassetsor liabilities.

• Level 2Inputsreflectquotedprices foridenticalassetsorliabilitiesin marketsthatarenotactive;quotedprices for similar assetsorliabilitiesinactivemarkets;inputs otherthanquotedpricesthatare observable fortheassetsor liabilities; orinputsthatare derivedprincipallyfromorcorroboratedbyobservable marketdata bycorrelationorothermeans.

• Level 3 –UnobservableinputsreflectingtheCompany’s assumptions incorporated invaluation techniquesused to determine fairvalue.These assumptions are required tobeconsistentwithmarketparticipantassumptionsthatare reasonablyavailable.

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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 47020 “Debt with Conversion and Other Options” for consideration of any beneficial conversion features.

Derivative Financial Instruments

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

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

Beneficial Conversion Feature

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

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

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 certainconvertible debtissued,theCompany mayprovidethedebtholder withanoriginalissuediscount.Theoriginalissuediscountwouldberecorded todebt discount,reducingtheface amountofthe noteand is amortized to interest expenseoverthelifeofthedebt.

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.

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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 7181030 of the FASB Accounting Standards Codification. Pursuant to paragraph 71810306 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

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

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

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

• Expected termofshareoptionsand similar instruments: Theexpectedlifeofoptionsand similar instruments representstheperiodoftimetheoptionand/orwarrant areexpectedto beoutstanding.Pursuant toParagraph71810502(f)(2)(i)oftheFASBAccountingStandardsCodificationtheexpectedtermofshareoptionsand similar instruments representstheperiodoftimetheoptionsand similar instruments areexpectedtobeoutstanding taking intoconsiderationofthecontractual termoftheinstruments and employees’expectedexercise and postvestingemployment terminationbehavior into thefairvalue(orcalculated value) oftheinstruments. Pursuant to paragraph71810S991,it maybeappropriate to usethesimplified method, i.e.,expectedterm = ((vesting term +originalcontractual term) / 2), if (i) A companydoesnothavesufficient historical exercisedatatoprovidea reasonable basisupon whichto estimateexpectedtermduetothelimited periodoftimeitsequityshareshavebeenpubliclytraded; (ii) A companysignificantly changesthetermsof itsshareoptiongrantsorthe typesofemployeesthatreceive shareoptiongrants suchthat itshistorical exercisedatamaynolongerprovidea reasonable basisupon whichto estimateexpectedterm;or(iii) A company hasor expectstohavesignificant structuralchangesinitsbusiness suchthat itshistorical exercisedatamaynolongerprovidea reasonable basisupon whichto estimateexpectedterm. The Company usesthesimplified method tocalculate expectedtermofshareoptionsand similar instruments astheCompanydoesnothavesufficient historical exercisedatatoprovidea reasonable basisupon whichto estimateexpectedterm.

• Expectedvolatilityoftheentity’s shares andthemethod used to estimateit.Pursuant to ASC Paragraph71810502(f)(2)(ii) athinlytradedornonpublicentitythatusesthecalculatedvaluemethod shall disclosethereasonswhyit isnotpracticable fortheCompany to estimatetheexpectedvolatilityof itsshare price,theappropriate industry sectorindexthatit has selected,thereasons for selectingthatparticularindex,andhowit hascalculatedhistoricalvolatilityusing thatindex.The Company usestheaverage historicalvolatilityofthecomparable companiesovertheexpectedcontractual lifeoftheshareoptionsorsimilar instruments asits expected volatility.Ifsharesofa company arethinlytradedtheuseof weekly or monthlypriceobservationswouldgenerallybemore appropriatethantheuseof dailypriceobservationsasthe volatilitycalculation using daily observationsfor such sharescouldbeartificially inflateddueto a larger spreadbetweenthe bidand askedquotesand lackofconsistent trading inthemarket

• Expectedannualrateofquarterlydividends.Anentitythatuses a methodthatemploys differentdividendratesduringthecontractual term shall disclosetherangeof expecteddividendsused andthe weightedaverageexpecteddividends.Theexpecteddividendyieldis basedontheCompany’s currentdividendyieldasthebest estimateofprojecteddividendyieldforperiodswithin theexpectedtermoftheshareoptionsandsimilarinstruments.

• Risk-freerate(s).Anentitythatuses a methodthatemploys differentrisk-freerates shall disclosetherangeofriskfreerates used. The riskfreeinterest rate is basedontheU.S.Treasuryyieldcurve ineffectatthetimeofgrant for periodswithin theexpectedtermoftheshareoptionsandsimilarinstruments.

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Generally, allformsofshare based payments,includingstockoptiongrants, warrants and restricted stock grants and stockappreciationrights are measured attheirfairvalueontheawards’ grantdate,basedonestimated numberofawardsthatareultimately expectedtovest.

The expense resultingfromshare based payments is recorded in general and administrative expense inthestatementsofoperations.

Stock Based Compensation – Non-Employees

EquityInstrumentsIssuedtoPartiesOtherThan Employees for Acquiring GoodsorServices

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Subtopic 50550 of the FASB Accounting Standards Codification (“Subtopic 50550”).

Pursuant to ASC Section 5055030, 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 termofshareoptionsand similar instruments: Pursuant to Paragraph 71810502(f)(2)(i)oftheFASBAccountingStandardsCodificationtheexpectedtermofshareoptionsand similar instruments representstheperiodoftimetheoptionsand similar instruments areexpectedtobeoutstanding taking intoconsiderationofthecontractual termoftheinstruments and holder’sexpectedexercisebehavior into thefairvalue(orcalculated value) oftheinstruments. The Company uses historicaldatato estimate holder’sexpectedexercise behavior.IftheCompany is anewlyformedcorporationorsharesoftheCompany arethinlytradedthecontractual termoftheshareoptionsand similar instruments is used astheexpectedtermofshareoptionsand similar instruments astheCompanydoesnothavesufficient historical exercisedatatoprovidea reasonable basisupon whichto estimateexpectedterm.

• Expectedvolatilityoftheentity’s shares andthemethod used to estimateit.Pursuant to ASC Paragraph71810502(f)(2)(ii) athinlytradedornonpublicentitythatusesthecalculatedvaluemethod shall disclosethereasonswhyit isnotpracticable fortheCompany to estimatetheexpectedvolatilityof itsshare price,theappropriate industry sectorindexthatit has selected,thereasons for selectingthatparticularindex,andhowit hascalculatedhistoricalvolatilityusing thatindex.The Company usestheaverage historicalvolatilityofthecomparable companiesovertheexpectedcontractual lifeoftheshareoptionsorsimilar instruments asits expected volatility.Ifsharesofa company arethinlytradedtheuseof weekly or monthlypriceobservationswouldgenerallybemore appropriatethantheuseof dailypriceobservationsasthe volatilitycalculation using daily observationsfor such sharescouldbeartificially inflateddueto a larger spreadbetweenthe bidand askedquotesand lackofconsistent trading inthemarket.

• Expectedannualrateofquarterlydividends.Anentitythatuses a methodthatemploys differentdividendratesduringthecontractual term shall disclosetherangeof expecteddividendsused andthe weightedaverageexpecteddividends.Theexpecteddividendyieldis basedontheCompany’s currentdividendyieldasthebest estimateofprojecteddividendyieldforperiodswithin theexpectedtermoftheshareoptionsandsimilarinstruments.

• Risk-freerate(s).Anentitythatuses a methodthatemploys different risk-free rates shall disclosetherangeofriskfree rates used. The risk-free interest rate is basedontheU.S.Treasuryyieldcurve ineffectatthetimeofgrant for periodswithin theexpectedtermoftheshareoptionsandsimilarinstruments.

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Pursuant to ASC paragraph 50550257, 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 50550451) depends on the specific facts and circumstances. Pursuant to ASC paragraph 50550451, 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 5055030 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

Pursuant to Paragraphs50550258and50550259,anentitymay grant fully vested, non-forfeitableequityinstrumentsthatare exercisablebythegranteeonlyafter a specified periodoftime ifthetermsoftheagreementprovidefor earlier exercisability ifthegranteeachievesspecified performanceconditions. Anymeasured costofthetransaction shallberecognized inthesame period(s) and inthesame manner as ifthe entityhadpaidcash forthegoodsorservicesorused cash rebates as a salesdiscountinsteadofpaying with,or using,the equityinstruments. A recognized asset, expense,orsalesdiscountshallnotbereversed if a shareoptionand similar instrumentthatthecounterparty hastheright to exercise expiresunexercised.

Pursuant to ASC paragraph 5055030S991, 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.

Revenue Recognition

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

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

Cost of Sales

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

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

Earnings (Loss) Per Share

Basic net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.

The Company uses the “treasury stock” method to determine whether there is a dilutive effect of outstanding convertible debt, option and warrant contracts. For the nine months ended September 30, 2016 and 2015, the Company reflected net loss and a dilutive net loss, and the effect of considering any common stock equivalents would have been antidilutive for the period. Therefore, separate computation of diluted earnings (loss) per share is not presented for the periods presented.

The Company has the following common stock equivalents at September 30, 2016 and December 31, 2015:

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	September 30, 2016	December 31, 2015
Convertible Debt  (Exercise price - $0.25/share)	6,976,935		18,056,935
Stock Warrants (Exercise price- $0.375 - $3.00/share)	12,745,651		9,728,984
Stock Options (Exercise price $0.60 - $3.50/share)	1,350,000		200,000
Total	21,072,586		27,985,919

Related Parties

The Company follows subtopic 85010 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to Section 8501020 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.

Theconsolidatedfinancial statements shallincludedisclosuresofmaterial related party transactions,otherthancompensation arrangements, expenseallowances,andothersimilar items intheordinary courseofbusiness. However, disclosureoftransactionsthatare eliminated inthepreparationof consolidated orcombined financial statements isnotrequired inthosestatements. The disclosures shallinclude:(a).thenatureoftherelationship(s)involved;(b).a descriptionofthetransactions,includingtransactions towhichnoamountsornominal amounts were ascribed, for eachoftheperiods forwhichincome statements are presented, and suchotherinformation deemed necessary to anunderstanding oftheeffectsofthetransactionsonthefinancial statements;(c).the dollaramountsoftransactions for eachoftheperiods forwhichincome statements are presented andtheeffectsofanychangeinthemethodof establishingthetermsfromthatused inthepreceding period; and(d).amountsduefromorto related parties asofthedate ofeachbalancesheet presentedand,ifnototherwise apparent,theterms and mannerofsettlement.

Contingencies

The Companyfollowssubtopic45020oftheFASBAccountingStandardsCodificationto reportaccountingforcontingencies.Certainconditionsmay exist asofthedatetheconsolidatedfinancial statements are issued,whichmay result in a loss totheCompanybut which will onlyberesolvedwhenoneormore futureevents occur orfail to occur. The Company assesses suchcontingentliabilities,and such assessmentinherentlyinvolvesan exerciseof judgment.Inassessing losscontingenciesrelated tolegal proceedings thatarependingagainsttheCompanyorun-asserted claimsthatmay result in such proceedings,theCompanyevaluatestheperceived meritsofanylegal proceedings orun-asserted claims aswellastheperceived meritsoftheamountofreliefsought or expectedtobe soughttherein.

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.

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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 8551050 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

InApril2015,theFASBissuedAccountingStandardsUpdate No.201503,Interest—ImputationofInterest (Topic83530):SimplifyingthePresentationof DebtIssuance Costs (“ASU201503”).ASU201503requiresthat debtissuance costs related to a recognizeddebtliabilitybepresented inthebalancesheet as a directdeductionfromthecarrying amountof that debt liability,consistentwithdebt discounts.Therecognitionand measurementguidancefordebtissuance costs isnotaffectedbyASU201503.ASU201503is effective for financial statements issued for fiscal yearsbeginningafter December15,2015,and interim periodswithinthosefiscal years. The Company has reclassifieddebtissuance costsfromprepaid expenses andothercurrent assets andotherassets as a reduction todebtinthecondensed consolidated balancesheets.

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 201511, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 201511”), which applies guidance on the subsequent measurement of inventory. ASU 201511 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 201511 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 201511 and is currently evaluating ASU 201511 to determine the potential impact to its condensed consolidated financial statements and related disclosures.

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

Note 3 Furniture and Equipment

Property and equipment consisted of the following at September 30, 2016 and December 31, 2015:

	September 30, 2016 (Unaudited)		December 31, 2015 (Audited)
Office Equipment	$	146,162	$	136,611
Furniture and Fixtures		31,848		30,561
Total		178,010		167,172
Less: Accumulated Depreciation		(59,365)		(39,651)
Property and Equipment - net	$	118,645	$	127,521

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Depreciationexpense amounted to$6,707and$19,714forthethree and nine months endedSeptember30,2016;and$5,603and$16,471forthethree and nine months endedSeptember30,2015,respectively.

Note 4 Intangible Assets

Intangible assets (patents) consisted of the following at September 30, 2016 and December 31, 2015:

	September 30, 2016 (Unaudited)		December 31, 2015 (Audited)
Patents	$	126,669	$	103,792
Less: Impairment Charges		—		—
Less: Accumulated Amortization		(26,392)		(20,618)
Patents - net	$	100,277	$	83,174

Amortization expense associated with patents amounted to $2,095 and $5,774 for the three and nine months ended September 30, 2016, respectively, and $1,384 and $3,705 for the three and nine months ended September 30, 2015, respectively.

At September 30, 2016, future amortization of intangible assets:

Year Ending December 31
2016	$	2,129
2017		8,445
2018		8,445
2019		8,445
2020		8,468
2021 and Thereafter		64,345
	$	100,277

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.

	September 30, 2016 (Unaudited)		December 31, 2015 (Audited)
GE Trademark License	$	12,000,000	$	12,000,000
Less: Impairment Charges		—		—
Less: Accumulated Amortization		(6,709,030)		(4,876,254)
Patents – net	$	5,290,970	$	7,123,746

Amortization expense associatedwith theGETrademarkLicense amounted to$615,385and$1,832,776forthethree and nine months endedSeptember30, 2016, respectively,and$615,385and$1,826,087forthethree and nine monthsendedSeptember30,2015,respectively.

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At September 30, 2016, future amortization of intangible assets is as follows for the remaining:

Year Ending December 31
	2016	$	615,385
	2017		2,441,472
	2018		2,234,113
		$	5,290,970

Note 6 Notes Payable

At September 30, 2016 and December 31, 2015, the Company had a note payable to a bank in the amount of $216,170 and $301,744, respectively. The note, dated May 2007, is due in monthly payments of $10,000 and carries interest at 4.75%. The note is secured by the assets of the Company and personal guarantees by a shareholder and an officer of the Company, and is due August 2018.

On April 13, 2016, the company entered in to an agreement with a third party for a $10,000,000 line of credit. The primary purpose of this line of credit is to fund manufacturing and product related obligations. The note carries interest of 8%, due monthly with principal and unpaid interest due December 31, 2017. The note is secured by the assets of the company. The outstanding balance on this note was $3,006,124 at September 30, 2016.

Principal payments due under the terms of this note are as follows:

Principal Due in Next 12 months
2016	$	111,894
2017		3,110,400
	$	3,222,294

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 September 30, 2016 the outstanding balance is $200,000.

Note 7 Convertible Debt Net

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

	Third Party		Related Party		Totals
Balance December 31, 2014	$	1,911,995	$	26,999	$	1,938,994
Add: Amortization of Debt Discount		2,077,955		23,001		2,100,956
Balance December 31, 2015		3,989,950		50,000		4,039,950
Add: Amortization of Debt Discount		474,283		—		474,283
Less Repayments/Conversions		(2,770,000)		—		(2,770,000)
Balance June 30, 2016		1,694,233		50,000		1,744,234
Less Current portion		(1,694,233)		(50,000)		(1,744,234)
Long-Term Convertible Debt	$	—	$	—	$	—

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

Inadditiontotheterms customarilyincludedin such instruments,the Notesbeganaccruing interestonthedate thateach Investor submittedtheprincipal balance ofsuch Investor’sNote, with theinterest thereon becomingdueandpayableonthe oneyear anniversary, and quarterly thereafter.Upona defaultoftheNotes,theinterest ratewillincreaseby 2%for each30day perioduntilcured. Theprincipal balance ofeachNoteand allunpaidinterest becamepayabletwenty-four (24)monthsafterthedate ofissuance. Theprincipaland outstanding interestunder the NotesareconvertibleintosharesoftheCompany’s common stock at $0.25 per share and are securedbyafirstprioritylien(subjectonlyto anexistingnote withSignature BankofGeorgiaontheCompany’sintellectualproperty and all substitutes, replacements and proceedsofsuchintellectualproperty) pursuant tothetermsofa Security Purchase Agreement,datedasofNovember26,2013,May8,2014andSeptember25,2014,asapplicable,byandbetweenthe CompanyandeachInvestor.

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

The Notes and Warrants were treated as derivative liabilities.

Inconnection with the NotesOffering,theCompany enteredintoRegistrationRightsAgreements, eachdatedasofNovember26,2013,May8,2014and September25,2014,and eachbyandbetweentheCompany and eachoftheInvestors (collectively,the“RegistrationRightsAgreements”), wherebytheCompany agreed to prepare and file a registration statementwith theSECwithinsixty (60)daysafterexecution ofthe applicableRegistrationRightsAgreement and tohavetheregistration statement declared effectivebythe SECwithinninety (90)daysthereafter.

BecausetheCompany wasunableto file a registration statement pursuant tothetermsofeach RegistrationRightsAgreementsdatedasofNovember26, 2013orMay8,2014,theCompany was in defaultundersuch RegistrationRightsAgreements (the “Filing Default Damages”), andbecausetheCompany wasunabletohavea registration statement declared effective pursuant tothetermsoftheRegistrationRightsAgreementsdatedasofNovember26,2013,theCompany was in defaultundersuch RegistrationRightsagreements (the “Effectiveness Default Damages”). The Filing Default Damagesstoppedaccruingonthedatesuch registration statement was filed, andtheEffectiveness Default Damagesstoppedaccruingonthedateit was declaredeffective.

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The Companyinvited theInvestorsholdingNotesdatedNovember26, 2013 to extend thefirstinterest paymentthatwasscheduledtobe paidpursuant tothe NotesdatedNovember26, 2013 (the “Interest Due”) toFebruary24, 2015 and in exchangeofferedtocapitalizetheInterestDueat a rateof12% through payment(the“AdditionalInterest”), all of which was convertible intotheCompany’s common stock at a priceof$0.25 per share. Through September 30, 2016, the Company has issued in total 2,343,191 shares of its common stock representing $585,798 in Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages. As of September 30, 2016, all Additional Interest, Interest Due, Filing Default Damages and Effectiveness Default Damages was repaid by the Company.

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

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

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As of September 30, 2016, The Company received elections, in connection with the August 2016 Election, to (i) convert three (3) Notes into 240,000 shares of common stock of the Company representing an aggregate principal balance of $60,000, and (ii) convert 33 Notes into 13,456,936 shares of Preferred Stock representing an aggregate principal balance of $3,364,234. The Company received no elections in connection with the August 2016 Election to redeem Notes. Two (2) Investors holding Notes representing an aggregate principal balance of $100,000 have not responded to the August 2016 Election. Other than the two (2) aforementioned Investors, all Investors had elected to redeem or convert their Notes into shares of common stock or Preferred Stock.

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

See Note 14, Subsequent Events, for additional information.

(A) TermsofDebt

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

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

(B) FutureCommitments

At September 30, 2016, the Company has outstanding convertible debt of $1,744,233, which is payable within the next twelve months.

(C) Offer toConvert DebttoPreferredShares

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

ForthoseholderselectingthePreferredOption,eachholder has received or willreceive sharesofthePreferredStockona 1 to 1 ratio tothenumberofsharesoftheCompany’s common stockwhicharethen convertibleundersuch holder’s respectiveNote.With respect to interestonjuniorsecurities,dividends,distributions orliquidationpreference, sharesofPreferredStockwillrankseniorto sharesoftheCompany’s common stockorother juniorsecurities.Along with otherterms customary for a classof convertiblepreferredstock,thePreferredStockwillbe convertibleintosharesoftheCompany’s common stock atthesame conversion price asthe Notes(i.e., USD $0.25 per share), and will pay interest quarterly at a rate of six percent (6%). The Preferred Stock will be convertible upon the election of the holder thereof. Shares of the Preferred Stock may be repurchased by the Company upon 30 days’ prior written notice, in whole or in part, for USD $3.50 per share, provided that during such notice period the holder will continue to have the option and right to convert its shares of Preferred Stock into shares of the Company’s common stock. Holders will also have a put option, allowing them to sell their shares of Preferred Stock back to the Company at USD $0.25 per share, the Note conversion price.

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

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During the quarter ended September 30, 2016, noteholders converted $1,770,000 in convertible debt under the Notes into 7,080,000 of Preferred Stock pursuant to the Preferred Option, and the Company had received elections to convert an additional $1,594,234 in convertible debt under the Notes into 6,376,936 shares of Preferred Stock upon receipt of complete paperwork and original Notes (or in the alternative, a Declaration of Loss of Security) from the respective noteholders. All issuances of Preferred Stock pursuant to the Preferred Option have been or will be made only for principal balances due under the Notes, and all interest has been or will be paid directly to the noteholders.

Note 8 Derivative Liabilities

The Company identified conversion features embedded within convertible debt and warrants issued in 2013 and 2014. The Company has determined that the features associated with the embedded conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.

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

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

	September 30, 2016		December 31, 2015
Balance Beginning of period	$	24,157,838	$	5,140,758
Reclassification of derivative liabilities to additional paid in capital related to warrants exercised that ceased being a derivative liability		-		(189,613)
Extinguishment of Derivative Liability - Conversion of Interest to Shares		-		(209,604)
Fair value mark to market adjustment - stock options		(743,624)		134,162
Fair value at the commitment date for options granted		2,446,918		-
Fair value mark to market adjustment - convertible debt		39,604,884		18,835,664
Fair value mark to market adjustment - warrants		(1,467,629)		446,471
Fair value at commitment date for warrants issued		4,963,451		-
Debt settlement on the derivative liability associated with interest		(180,783)		-
Reclassification of derivative liability to Additional Paid In Capital due to share reservation		(45,015,362)		-
Fair value mark to market adjustment for interest		1,251,167		-
Balance at end of period	$	25,016,860	$	24,157,838

	Commitment Date		RecommitmentDate
Expected dividends	0	%	0	%
Expected volatility	150	%	150	%
Expected term	2-5 years		0.00 – 3.24 years
Risk Free Interest Rate	.29%-2.61%		.21%-.88%

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Note 9 Debt Discount

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

Accumulated amortization of derivative discount amounted to $4,402,773 as of September 30, 2016 and $4,153,611 for the year ended December 31, 2015.

The Company recorded a change in the value of embedded derivative liabilities income/(expense) of ($3,183,183) and ($7,993,408) for the three months ended September 30, 2016 and 2015, respectively, and ($38,644,799) and ($7,357,719) for the nine months ended September 30, 2016 and 2015, respectively.

The Company recorded derivative expense of ($2,446,918) and $0 for the three months ended and ($7,410,369) and $0 for the nine months ended September 30, 2016 and 2015, respectively.

The Company recorded loss on disposition of debt as a result of conversion to Common Stock and Preferred Stock of ($22,121,217). The loss was a result of the conversion value of the shares received exceeded the face value of the note.

Note 10 Debt Issue Costs

	September 30, 2016		December 31, 2015
	(Unaudited)		(Audited)
Debt Issuance Costs	$	316,77	$	316,77
Total		316,77		316,77
Less: Accumulated Amortization		316,77		(302,192	)
Debt Issuance Costs	$	—	$	14,605

The Company recorded amortization expenseof $0and$39,441forthethreemonths endedSeptember30, 2016and2015,respectively, and$14,605and$117,098forthenine monthsendedSeptember30, 2016and2015,respectively.

Note 11 GE Royalty Obligation

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

The License Agreement is nontransferable and cannot be sublicensed. Various termination clauses are applicable, however, none were applicable as of September 30, 2016 and December 31, 2015.

InAugust2014,theCompany enteredintoa second amendment totheLicense Agreementpertainingtoitsroyaltyobligations.Under thetermsoftheamendment,theCompany agreed to pay atotal of $12,000,000 byNovember2018fortherights assigned intheoriginalcontract.IncasetheCompanydoesnotpayGEatotalofatleast$12,000,000incumulativeroyaltiesoverthetermoftheLicense Agreement,thedifferencebetween $12,000,000andtheamountofroyaltiesactually paidtoGEisowedin December2018.

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Payments are due quarterly based upon the prior quarters’ sales. The Company made payments of $319,170 and $170,699 for the nine months ended September 30, 2016 and 2015, respectively.

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

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

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

Note 12 Stockholders Deficit

(A) Common Stock

For the nine months ended September 30, 2016 and year ended December, 31 2015, the Company issued the following common stock:

Transaction Type		Quantity		Valuation		Range of Value per Share
2015 Equity Transactions
Common stock issued per Waiver and Conversion Agreement	(1)	$	1,718,585	$	429,646		$	0.25
Common stock issued per Employment Agreement of CEO	(2)		750,000		173,688			0.25
Common stock issued per Stock Rights Offering	(3)		3,782,666		2,210,032			0.60
Common stock issued per Stock Rights Offering- to be issued	(4)		500,000		500,000			1.00
December 31 2015			6,751,251	$	3,313,366		$	0.25-1.00
Common Stock issued Board of Directors Compensation	(5)		62,000		42,000			0.60-1.00
Common stock issued per Waiver and Conversion Agreement	(6)		1,790,092		822,524			0.25-.625
Common Stock offering	(7)		3,155,000		7,538,000			1.00-2.70
Common Stock Award	(8)		25,000		15,000			0.60
Common Stock Issued for Services	(9)		300,000		136,250			0.25-1.00
Common Stock Issued for Conversion of Debt	(10)		243,156		816,789
September 30, 2016			5,575,248	$	9,370,563		$	0.25-2.65

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

(1) Agreement and Waiver and Agreement toConvert

The Company issued1,718,585shares at $0.25 per share, representing$429,646inpenaltiesand interest, inconnection with theAgreement and Waiver andtheAgreement to Convert. For a complete descriptionoftheAgreement and Waiver andtheAgreement to Convert, seeNote7above.

(2) Shares Issued toChief ExecutiveOfficer

InNovember2014,theCompany enteredintoan Employment AgreementwithitscurrentChief ExecutiveOfficer,whichprovidedfor stock based compensationequalto750,000 ofrestricted shares,ofwhich250,000shares vested in May2015and500,000shares vested in December2015.These shares were issued at $0.25 per share and were issuedsubsequentto December31,2015.

(3) Shares Issued inConnection withStockOffering

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

(4) Shares Issued inConnection withStockOffering

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

(5) Shares issued to BoardofDirectors

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

(6) Shares Issued inConnection with the NotesorAgreements toConvert

Inconnection with theAgreement and Waiver and Agreement to Convert,as ofthenine months endedSeptember30,2016,theCompany issued anadditional2,343,191sharesof itscommon stock as payment forAdditionalInterest, InterestDue,Filing Default Damages and Effectiveness Default Damages, representing payment to Investorsof$585,798.

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(7) Shares Issued inConnection withOffering

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

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

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

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

(8) Shares Issued Pursuant to StockAwards.

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

(9) Shares Issued forServices

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

(10) Shares Issued in Conjunction with Retirement of Debt

In accordance with the Notes, 243,156 shares were issued for the retirement of debt during the period.

(B) Stock Options

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

					Weighted Average		Aggregate
			Weighted Average		Remaining Contractual Life		Intrinsic
	Options		Exercise Price		(In Years)		Value
Balance- December 31, 2014		200,000		0.375		2.18	$	324,829
Exercised		—		—		—		—
Granted		—		—		—		—
Forfeited/Cancelled		—		—		—		—
Balance- December 31, 2015		200,000		0.375		2.18	$	324,829
Exercised		—		—		—		—
Granted		1,150,000		0.835		1.38	$	1,700,000
Forfeited/Cancelled		—		—		—		—
Balance- September 30, 2016		1,350,000		0.835		1.38	$	1,700,000

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(C) WarrantsIssued

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

	Number of Warrants		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in Years)
Balance, December 31, 2014	9,728,984		0.375	3.9
Exercised	—		—	—
Cancelled/Forfeited	—		—	—
Balance, December 31, 2015	9,728,984	$	0.375	3.2
Issued	3,016,667	$	3.45	1.68
Exercised	—		—	—
Cancelled/Forfeited	—		—	—
Balance, September 30, 2016	12,745,651	$	1.1	3.37

(D) 2015 Stock Incentive Plan

On April 27, 2015, the Board approved the Company’s 2015 Stock Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, the Board has the sole authority to implement, interpret, and/or administer the Incentive Plan unless the Board delegates alloranyportion of its authorityto implement, interpret,and/oradministertheIncentive Plan to a committeeoftheBoard,or(ii)theauthorityto grant and administer awardsunder theIncentive Plan to an officeroftheCompany. The Incentive Plan relates totheissuanceof upto5,000,000sharesoftheCompany’s commonstock,subject to adjustment, and shallbeeffective for ten (10) years, unless earlier terminated. Certainoptionstobegranted to employeesunder theIncentive Plan areintendedto qualify as Incentive StockOptions(“ISOs”)pursuant to Section422oftheInternalRevenue Code of1986,as amended,while otheroptionsgrantedunder theIncentive Planwillbe nonqualifiedoptionsnot intendedto qualify as Incentive StockOptionsISOs(“Nonqualified Options”),either orbothasprovidedintheagreementsevidencing theoptionsdescribed.

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

(D) Issuance of Convertible Preferred Stock

During the quarter ended the Company offered current note holders the convert their shares to Preferred Stock (see Note 7 (C)). In conjunction with that offered the company issued 7,080,000 shares of Preferred Stock value of $24,072,000. The valuation was based on a share price of $3.40 which was the closing price on the OTC of the Company’s stock on September 1, 2016.

Note 13 Commitments

(A) Operating Lease

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

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

In October, 2014, the Company entered into a sublease agreement to sublease its previous office space through March 2017. In connection with the sublease, the Company collected $34,981 as a security deposit.

The minimum rent obligations are approximately as follows:

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		Minimum		Sublease		Net
Year		Obligation		Rentals		Obligation
2016		16,418		-		16,418
2017		65,700		-		65,700
2018		66,508		-		66,508
2019		22,384		-		22,384
Total	$	171,010	$	-	$	171,010

(B) Employment Agreement–ChiefExecutiveOfficer

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

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

For the nine months ended September 30, 2016 and 2015, Mr. Campi earned approximately $23,000 and $11,000respectively, under this agreement. No stock or options have been issued.

(C) Chairman Agreement

The Company has a 3 year consulting agreement with a director which expires in November 2016, and carries an annual payment of $150,000 cash, stock or 5 year options equal to one half of one percent (0.5%) of the Company’s annual net sales. For the nine months ended September 30, 2016 and 2015, Mr. Kohen earned approximately $28,000 and $11,000, respectively, under this agreement. No stock or options have been issued.

On September 1, 2016 the Company modified the above agreement. The compensation was changed to $250,000 per annum, an annual grant of the Company’s common stock of 340,000 shares which vest in its entirety January 1, 2019; Stock options equal to .005% of the Company’s gross revenue with 5 year vesting. In addition the Chairman was granted a “Sign On Bonus” of 120,000 shares of the Company’s common stock which will vest January 1, 2020 and a supplemental bonus of options which is tied to the stock performance of the Company.

(D)       Employment Agreement – President

On August 16, 2017 the Company entered into an Employment Agreement with Mark Wells, its new President. Mr. Wells receives a salary of $250,000; 1,025,000 shares in the Company’s common stock which will vest in its entirety January 1, 2019; 0.25% of the Company’s net revenue and a “Sign on Bonus” of 120,000 shares of the Company’s common stock which vests January 1, 2017. For the nine months ended September 30, 2016, Mr. Wells was issued 100,000 shares of the Company’s common stock and earned $10,000 in commissions pursuant to the terms of a Consulting Agreement, dated June 1, 2015, between the Company and Mr. Wells, whereby Mr. Wells provided independent sales consultant services.

(D) Employment Agreement – Chief Operating Officer

Effective July 1, 2016, the Company entered into an Executive Employment Agreement with Patricia Barron, its Chief Operations Officer. Ms. Barron receives a base salary of $120,000 per yearand incentive compensation equal to 0.25% of the Company’s net revenue paid in cash. For the nine months ended September 30, 2016, Ms. Barron earned approximately $5,100 under this agreement.

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Note 14 Subsequent Events

Since October 1, 2016, the Company has issued 5,576,936 shares of Preferred Stock, representing $1,394,234 in Note principal. In total from August 15, 2016 through November 14, 2016, the Company has issued 240,000 shares of its common stock, representing $60,000 in Note principal, and 12,656,936 shares of Preferred Stock, representing $3,164,234 in Note principal, in connection with the August 2016 Election. The Company will issue an additional 800,000 shares of Preferred Stock, representing $200,000 in Note principal, upon receipt of complete paperwork and original Notes (or in the alternative, a Declaration of Loss of Security) from the respective Investors. All issuances of capital stock in the August 2016 Election will be made only for principal balances due under the Notes, and all interest has been or will be paid directly to the Investors.

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

You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and related notes contained in Part I, Item 1 of this 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 by the use of a weight bearing power plug for electrical fixtures, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes. Our patented technology consists of a fixable socket and a revolving plug for conducting electric power and supporting an electrical appliance attached to a wall or ceiling. The socket is comprised of a non-conductive body that houses conductive rings connectable to an electric power supply through terminals in its side exterior. The plug, also comprised of a non-conductive body that houses corresponding conductive rings, attaches to the socket via a male post and is capable of feeding electric power to an appliance. The plug also includes a second structural element allowing it to revolve with a releasable latching which, when engaged, provides a retention force between the socket and the plug to prevent disengagement. The socket and plug can be detached by releasing the latch, disengaging the electric power from the plug. The socket is designed to replace the support bar incorporated in electric junction boxes, and the plug can be installed in light fixtures, ceiling fans and wall sconce fixtures. The combined socket and plug technology is referred to as the “SQL Technology” throughout this prospectus.

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

Also in furtherance of our business model, the Company has actively developed trade distribution channels with key retailers, undergone a corporate restructuring, established and obtained authorizations for our third party manufacturers to produce the SQL Technology, and raised the necessary capital resources to implement our business model over the next twelve months.

Results of Operations – For the Three-Months Ended September 30, 2016 Compared to the Three-Months Ended September 30, 2015

	September 30, 2016		September 30, 2015		$ Change		% Change
Revenue	$	1,932,312	$	262,897	$	1,669,415		635.0	%
Cost of sales		(1,593,926)		(248,675)		(1,345,251)		541.0	%
Gross loss		338,386		14,222		324,164		2279.3	%
General and administrative expenses		(1,613,880)		(1,220,844)		393,036		32.2	%
Loss from Operations		(1,275,494)		(1,206,622)		(68,872)		5.7	%
Other Income / (Expense)		(27,886,594)		(8,873,802)		(19,012,792)		214.3	%
Net Loss	$	(29,162,088)	$	(10,080,424)	$	(19,081,664)		189.3	%
								.
Net loss per share - basic and diluted		(0.62)		(0.25)		(0.37)		148.0	%

Revenue

We had revenue of $1,932,312 for the three-month period ended September 30, 2016, as compared to revenue of $262,897 for the three-month period ended September 30, 2015.

Cost of Sales

We had a cost of sales of $1,593,926 for the three-month period ended September 30, 2016, as compared to a cost of sales of $248,675 for the three-month period ended September 30, 2015. The increase is associated with the increase in sales.

Gross Profit

We had gross profit of $338,386 for the three-month period ended September 30, 2016, as compared to gross profit of $14,222 for the three-month period ended September 30, 2015. The increase in gross profit as a percent of sales of 17.5% for the current quarter compared with 5.4% in the previous year quarter is attributable to the mix of on-line sales as well as better pricing structure as the Company’s relationships with new customers evolve.

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General and Administrative Expenses

General and administrative expense increased to $1,613,880 during the three-month period ended September 30, 2016, from $1,220,884 for the three-month period ended September 30, 2015.

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

· $124,200 Commission expense associated with increased sales

· $ 63, 200 Warehouse and product quality/production oversite

· $ 51,000 Payroll and related expenses

· $ 49,100 Consulting associated with business and web activities

· $ 47,600 Tooling and trade for manufacturing quality reviews

· $ 15,732 Insurance for liability, Directors and Officers and Health

· $ 13,200 Increased travel

Loss from Operations

Loss from operations was $(1,275,494) for the three month period ended September 30, 2016 compared to $(1,206,662) for the same period in the prior year and represents the change in general and administrative expenses offset by the gross profit on sales for the periods presented.

Other Income (Expense)

Total other expenses increased $(19,012,792) to $(27,886,594) for the three-month period ended September 30, 2016, from $(8,873,802) for the three-month period ended September 30, 2015. The change is associated with a $(22,302,013) non-cash loss on the extinguishment of convertible debt to Preferred Stock. In the exchange, the value of the convertible debt and its derivatives was recognizedat that time. This was offset by a $4,180,225 reduction in the change in fair value of the embedded derivative liability of remaining notes and an increase of $(2,446,918) in non-cash derivative expense associated with an increase in the value of the Company’s commonstock from $0.60 to $2.70 per share. This increase was offset by a $740,470 decrease in interest expense.

Net Loss and Net Loss per Share

The Company’s net loss and net loss per share for the three-month period ended September 30, 2016 was approximately $(29,162,088) and $(10,080,424) per share, respectively, as compared to the three-month period ended September 30, 2015, where net loss was approximately $(0.62) and $(0.25) per share, respectively.

Net Loss and Net Loss per Share

The Company’s net loss and net loss per share for the three-month period ended September 30, 2016 was approximately $(29,162,088) and $(10,080,424) per share, respectively, as compared to the three-month period ended September 30, 2015, where net loss was approximately $(0.62) and $(0.25) per share, respectively.

Results of Operations – For the Nine-Months Ended September 30, 2016 Compared to the Nine-Months Ended September 30, 2015

	For the nine months ended
	September 30, 2016		September 30, 2015		$ Change		% Change
Revenue	$	5,534,741	$	2,482,035	$	3,052,706		123.0	%
Cost of sales		(4,848,476)		(2,195,655)		(2,652,821)		120.8	%
Gross loss		686,265		286,380		399,885		139.6	%
General and administrative expenses		4,550,323		3,741,198		809,125		21.6	%
Loss from Operations		(3,864,058)		(3,454,818)		(409,240)		11.8	%
Other Income / (Expense)		(69,070,279)		(9,631,670)		(59,438,609)		617.1	%
Net Loss	$	(72,934,337)	$	(13,086,489)	$	(59,847,848)		457.3	%
								.
Net loss per share - basic and diluted		(1.63)		(0.34)		(1.29)		379.4	%

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Revenue

We had recorded revenue of $5,534,741 for the nine-month period ended September 30, 2016, as compared to revenue of $2,482,035 for the nine-month period ended September 30, 2015. The 123.0% increase is due to an increase in business with existing customers and the addition of new customers.

Cost of Sales

We had a cost of sales of $4,848,476 for the nine-month period ended September, 30, 2016, as compared to a cost of sales of $2,195,655 for the nine-month period ended September 30, 2015. The increase is associated with the increase in sales.

Gross Profit

We had gross profit of $686,265 for the nine-month period ended September 30, 2016, as compared to gross profit of $286,380 for the nine-month period ended September 30, 2015. The increase in gross profit as a percent of sales to 12.4% compares with 11.4% for the same period in 2015 and is attributable to better pricing strategies and mix of on-line sales to large retailers.

General and Administrative Expenses

General and administrative expense increased $809,125 to $4,550,323 during the nine-month period ended September 30, 2016 from $3,741,198 for the nine-month period ended September 30, 2015.

The increases in the general and administrative expenses were due to the following significant items:

· $145,000 Warehouse and product quality/production oversite

· $132,700 increase in sales commissions

· $108,000 increase in China operations

· $93,600 Payroll and related expenses

· $75,500 Legal expenses associated with public company and offering activity

· $75,100 Consulting associated with business and web activities

· $72,800 Travel and Tooling for China operations

· $55,900 Insurance for liability, Directors and Officers and Health

· $26,800 Rent expense net of sub-lease

· $23,113 Increased travel associated with sales

Further, decreases in certain items of general and administrative expenses were attributable to the following:

· $(27,200) Marketing expenses

· $(18,900) Accounting fees

Loss from Operations

Loss from operations was $(3,864,058) for the nine month period ended September 30, 2016 compared to $(3,454,818) for the same period in the prior year and represents the increase in general and administrative expenses offset by the increase in gross profit on sales for the periods presented.

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Other Income (Expense)

Total other expenses increased $(59,847,848) to $(69,070,279) for the nine-month period ended September 30, 2016, from $(9,631,670) for the nine-month period ended September 30, 2015. The change is associated with a $(38,644,799) increase in the charge for fair value of the embedded derivative liability and an increase of $(7,410,369) non-cash derivative expense associated with an increase in the value of the Company’s common stock from $0.60 to 2.70 per share. The Company recorded a $(22,302,013) non-cash loss on extinguishment of debt. The Company’s recent private placement of common stock impacted the Black Scholes calculation of the intrinsic value of the equity component. This increase was offset by a $1,371,261 decrease in interest expense.

Net Loss and Net Loss per Share

The Company’s net loss for the nine-month period ended September 30, 2016 was $(72,934,337) or $(1.63) per share, as compared to a net loss of $(13,066,489) or $(0.34) per share for the same period in 2015. The net loss includes non-cash derivative related and debt extinguishment expenses of $(68,932,385) and $(7,357,719) for 2016 and 2015, respectively as detailed above.

Interest Expense

The following table details the Company’s interest expense components:

	For the nine months ended September 30,
	2016		2015
Interest accrued on Notes outstanding.	$	388,170	$	517,748
Interest on Notes Payable		25,632		17,848
TOTAL INTEREST EXPENSE – Notes Payable		413,802		535,596
Amortization of Debt Issue Cost		14,605		117,098
Amortization of Debt Discount		474,283		1,621,257
	$	902,690	$	2,273,951

Liquidity and Capital Resources

To date, the Company has not generated sufficient revenue to cover its operating costs and continues to operate with negative cash flow. As a result, the Company has raised additional funds through the sale of its common stock. The Company has also entered into a Line of Credit with a third party which will supply it with $10,000,000 to support its purchase orders, inventory and other working capital needs. As of September 30, 2016 the Company had $6,993,876 available under the Line of Credit. Management believes that with the stock sales consummated and the availability of the working capital Line of Credit, it has sufficient liquidity for the next twelve months.

For the nine-months ended September 30, 2016, the Company used $5,336,371 of cash for operations as compared with $2,865,936 used for the same period in 2015. The increase in cash used for operations was due to an increase in the Company’s net loss of $(72,934,337), offset by non-cash expenses of $38,644,799 change in derivative liability, $7,410,369 loss in derivative expense and $22,302,013 loss in early extinguishment of debt. Net funds used for working capital was $2,334,539 due to an increase in accounts receivable and inventory of $(3,509,844), partially offset by an increase of $1,533,106 in accounts payable.

For the nine-months ended September 30, 2016, cash flows used ($33,714) for investing activities as compared with ($31,355) used for the same period in 2015. The investments were for patents costs and fixed assets.

For the nine months ended September 30, 2016, cash flows provided from financing activities amounted to $9,916,860 in cash equivalents for the nine-months ended September 30, 2016, as compared with $2,323,277 in the same period in 2015.

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As a result of the above operating, investing and financing activities, the Company provided $4,546,775 in cash equivalents for the nine-months ended September 30, 2016, as compared with ($574,014) used during the same period in 2015. The Company had $4,997,643 in cash and cash equivalents at September 30, 2016 as compared to $667,473.

The Company had a working capital deficit of $(22,727,265) as of September 30, 2016, as compared to $(28,174,512) as of December 31, 2015 which includes $(25,016,860) in derivative liabilities and an increase in inventory and accounts receivable, offset by an increase in accounts payable.

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

For a discussion of our accounting policies and related items, please see the Notes to the Financial Statements, included in Part I, Item 1.

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.

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Recently Issued Accounting Pronouncements

In April 2015, the FASB issued Accounting Standards Update No. 201503, Interest—Imputation of Interest (Topic 83530): Simplifying the Presentation of Debt Issuance Costs (“ASU 201503”). ASU 201503 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 201503. ASU 201503 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company has reclassified debt issuance costs from prepaid expenses and other current assets and other assets as a reduction to debt in the condensed consolidated balance sheets.

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 201511, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 201511”), which applies guidance on the subsequent measurement of inventory. ASU 201511 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 201511 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 201511 and is currently evaluating ASU 201511 to determine the potential impact to its condensed consolidated financial statements and related disclosures.

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

Accounts Receivable and Allowance for Doubtful Accounts

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

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

Inventory

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

Valuation of Long-Lived Assets and Identifiable Intangible Assets

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

Property and Equipment

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

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

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

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Intangible Asset - Patent

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

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

Fair Value of Financial Instruments

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

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

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

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

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

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

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

Embedded Conversion Features

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

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

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

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Stock-Based Compensation - Employees

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

Income Tax Provision

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

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

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

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

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

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

The Company’s tax returns are subject to examination by the federal and state tax authorities for the years ended 2012 through 2015.

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting periods ended December 31, 2015, 2014 and 2013.

Related Parties

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

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

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

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Item 3. Quantitative & Qualitative Disclosures about Market Risks

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of September 30, 2016 (the “Evaluation Date”), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief 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 Chief 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 (the “SEC’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 Chief 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.

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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

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.

On September 22, 2016, the Company issued 100,000 shares of its common stock to Mark J. Wells, the Company’s President, which vested pursuant to the terms of a Consulting Agreement, dated June 1, 2015, between the Company and Mr. Wells, whereby Mr. Wells provided independent sales consultant services. The services were rendered prior to Mr. Well’s becoming the Company’s President.

On September 22, 2016, the Company issued 150,000 shares of its common stock to Mark J. Wells, the Company’s President, pursuant to an Executive Employment Agreement dated August 17, 2016, in exchange for a cash investment made by Mr. Wells of $405,000, for a price per share of $2.70. In connection with the investment, the Company granted purchase options to Mr. Wells to purchase up to 750,000 shares of its common stock exercisable at a price per share of $3.00, which will fully vest on January 1, 2017 and will expire on January 1, 2022.

On or about September 22, 2016, the Company entered into a securities subscription agreement with an accredited investor, as defined under Regulation D, Rule 501 of the Securities Act (the “August Subscription Package”), pursuant to which the Company sold (i) 30,000 shares of the Company’s common stock at a purchase price of USD $2.60 per share, (ii) an option to purchase an additional 30,000 shares of the Company’s common stock at a purchase price of USD $2.60 per share within 90 days of the initial closing, (iii) a three-year common stock purchase warrant to purchase up to 60,000 shares of the Company’s common stock (or 120,000 shares if the option in item (ii) is exercised) at an exercise price ranging between USD $3.00 and USD $3.50 per share (depending on the date of exercise), and (iii) a right to subsequently receive warrants to purchase up to 120,000 shares of the Company’s common stock at USD $3.00 per share, which will become issuable upon (a) the Company meeting specified thresholds based on the Company generating earnings before interest, taxes, depreciation and amortization (EBITDA) ranging from $26.9 million to $76.9 million in a fiscal year during the warrant term, (b) completion of a private placement of a minimum of $15,000,000 at pre-money valuation thresholds ranging from $350,000,000 to $1,000,000,000, or (c) the sale of at least fifty percent (50%) of its assets at pre-money valuation thresholds ranging from $350,000,000 to $1,000,000,000 (the “May 2016 Private Placement”). On September 22, 2016, the Company issued 30,000 shares of its common stock to an accredited investor in connection with the foregoing, and received a cash investment of $78,000. Net proceeds were used for the Company’s general working capital. Additional information concerning the use of proceeds from the Stock Offering can be found in the subsection titled “Liquidity and Capital Resources” found in Part I, Item 2 above, which is incorporated by reference into this Part II, Item 2.

The August 2016 Preferred Stock Election

In July 2016, the Company requested the holders of its Secured Convertible Promissory Notes dated November 26, 2013, May 8, 2014 and June 25, 2014 (each a “Note” and collectively, the “Notes”) to indicate its election (the “August 2016 Election”) to (i) redeem its Note, (ii) convert its Note into the Company’s common stock or (iii) the “Preferred Option” to convert its Note into shares of the Company’s Class A Convertible Preferred Stock (“Preferred Stock”), in each case by August 15, 2016.

Prior to the August 2016 Election, several holders of the Notes had previously elected to receive payment in cash, or convert their Notes into shares of the Company’s common stock, but most holders of the Notes had agreed to forbear making an election under their Notes until July 31, 2016, pursuant to one or more forbearance agreements, during such time interest under their respective Notes continued to accrue interest. Because the Company requested that holders make their August 2015 Election by August 15, 2016, the Company extended the period of interest accrual and repaid the interest accrued under such forbearance agreements through August 15, 2016. Pursuant to August 2016 Elections received, the Company thereafter issued shares of the Company’s common stock and Preferred Stock, as applicable, in exchange for the principal balance of the Notes.

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For those holders electing the Preferred Option, each holder received shares of the Preferred Stock on a 1 to 1 ratio to the number of shares of the Company’s common stock which were then convertible as unpaid principal under such holder’s respective Note. The Preferred Stock is convertible into shares of the Company’s common stock at the same conversion price as the Notes (i.e., USD $0.25 per share), and pay interest quarterly at a rate of six percent (6%). The Preferred Stock will be convertible upon the election of the holder thereof.

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

As of November 14, 2016, pursuant to all August 2016 Elections, the Company has issued the following:

· 240,000 registered shares of the Company’s common stock, representing $60,000 in outstanding Note principal balance.

· 12,656,935 shares of the Preferred Stock, representing $3,164,234 in outstanding Note principal balance.

Based on August 2016 Elections received, the Company will issue an additional 800,000 shares of Preferred Stock, representing $200,000 in Note principal, upon receipt of complete paperwork and original Notes (or in the alternative, a Declaration of Loss of Security) from the respective Note holders. Two individuals holding Notes representing an aggregate principal balance of $100,000 have not responded to the August 2016 Election. All issuances of capital stock in the August 2016 Election have been or will be made only for principal balances due under the Notes, and all interest under the Notes has been or will be paid directly to the Investors.

Item 3. Defaults upon Senior Securities

None. 

Item 5. Other Information

On November 7, 2016, the Company’s Board of Directors approved the terms and conditions of an Executive Employment Agreement, dated effective July 1, 2016, between Patricia Barron and the Company (the “COO Agreement”), whereby Ms. Barron will continue to serve as the Chief Operations Officer of the Company.

The COO Agreement provides that Ms. Barron will serve for an initial term of two years (the “Initial Term”), which may be renewed by the mutual agreement of Ms. Barron and the Company. Subject to other customary terms and conditions of such agreements, the COO Agreement provides that Ms. Barron will receive a base salary of $120,000 per year. As further consideration, the COO Agreement includes incentive compensation equal to one quarter of one percent of the Company’s net revenue paid in cash on an annual or quarterly basis. Pursuant to the CEO Agreement, if terminated without cause during the Initial Term, the Company shall pay to Ms. Barron (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 due but unpaid incentive compensation. For any other termination during the Initial Term, Ms. Barron shall receive payment of salary, at the then current rate, through the date termination is effective and any due but unpaid incentive compensation. The foregoing summary of the COO Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Wells COO Agreement, filed hereto and incorporated herein by reference.

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Ms. Barron has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K, has no family relationships required to be disclosed pursuant to Item 404(d) of Regulation S-K, and the Company has not entered into or adopted a material compensatory plan to which its principal executive officers participate or are a party.

Item 6. Exhibits

(b)       Exhibit Index

No.	Description of Exhibit
3.1	Articles of Incorporation of the Company, as amended.	(1)
3.2	The Company’s Bylaws	(2)
10.1	The Company’s Certificate of Designation	(5)
10.2	Form of November 2015 Forbearance Agreement.	(3)
10.3	Form of February 2016 Forbearance Agreement.	(4)
10.4	Form of May 2016 Forbearance Agreement.	(5)
10.5	Form of Amendment No. 1 to Secured Convertible Promissory Note	(5)
10.6	Form of Lock-Up Agreement	(5)
10.7	Executive Employment Agreement, dated August 17, 2016, between the Company and Mark J. Wells	(6)
10.8	Executive Employment Agreement, dated September 1, 2016, between the Company and John P. Campi	(6)
10.9	Chairman’s Agreement, dated September 1, 2016 between the Company and Rani Kohen	(6)
10.10	Executive Employment Agreement, dated July 1, 2016, between the Company and Patricia Barron	(1)
10.11	Form of Securities Subscription Agreement, including the terms to issue Volume Warrants, Form of Option Agreement, and form of Common Stock Purchase Warrant used in the August 2016 Private Placement.	(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 Accounting Officer as required by Rule 13a-14 or 15d-14 of the Exchange Act, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	(1)
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	(1)
32.2	Certification of Principal Accounting Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	(1)
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2016 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)

_______________________

(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 registration statement on Form S-1 filed with the SEC on January 11, 2016, and declared effective on January 20, 2016.

(4) Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2016.

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

(6) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2016.

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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)

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