Unless we have indicated otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to the “Company”, “we”, “us”, and “our” or similar terms are to “Safety Quick Lighting & Fans Corp.”
Statements in this report may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this report, including the risks described under “Risk Factors” and any risks described in any other filings we make with the SEC. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this report.
Management’s discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to useful lives of real estate assets, cost reimbursement income, bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.
ITEM 1. BUSINESS
Overview
We are a company engaged in the business of developing proprietary technology that enables a quick and safe installation by the use of a power plug for electrical fixtures, such as light fixtures and ceiling fans, into ceiling and wall electrical junction boxes. Our main technology consists of a fixable socket and a revolvable 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 and a releasable latching which, when engaged, provides a retention force between the socket and the plug to prevent disengagement. The socket and plug can be detached by releasing the latch, 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 report.
Products
We manufacture and sell ceiling fans and lighting fixtures branded with General Electric’s logo and manufactured under their strict guidance. Our ceiling fans and lighting fixtures offer unique designs, and are manufactured with and without the SQL Technology.
The SQL Technology is an attachment fitting plug and mounting receptacle used to install lighting fixtures and ceiling fans. The SQL Technology replaces the traditional mounting bar found in existing electrical junction boxes, converting the mounting system into a weight bearing plug with no exposed wires. Our technology could transform the lighting fixture and ceiling fan industry. Using the SQL Technology, anyone can safely install lighting fixtures and ceiling fans in minutes. Professional electricians as well as “Do it Yourself” installers will benefit from our technology. The SQL Technology is Underwriters Laboratories (UL) listed for USA and Canada and is licensed by General Electric Company (“GE”).
Our SQL Technology is comprised of two parts: a ‘female’ socket receptacle that is secured to existing electrical junction boxes, into which electrical and ground wires are simply inserted and secured into terminals on the device, and a ‘male’ plug fitting that is preinstalled on the lighting fixture or fan. The receptacle is easily attached to the junction box, and any lighting fixture or fan with the SQL Technology can be literally installed in seconds. Our manufacturing plan calls for the SQL Technology to be pre-installed in all types of lighting fixtures, including holiday themed lighting, and ceiling fans. Once attached to the electric junction box, the SQL Technology is certified to support light fixtures that are plugged-in weighing up to 50 pounds and ceiling fans that are plugged-in weighing up to 35 pounds, or up to the weight limit of the electric junction box, if lower than the certified weight.
We have been working with several well established factories producing ceiling fans and lights in China. Many of these factories have been in business for over 20 years and follow strict human rights and sustainability protocols.
Corporate History and Information
Safety Quick Light LLC was incorporated in the State of Florida on May 14, 2004. On November 6, 2012, the Company’s board of directors (our “Board”) converted Safety Quick Light LLC into the Company, Safety Quick Lighting & Fans Corp. Our principal executive offices are located at 4400 North Point Parkway, Suite 154, Alpharetta, Georgia, 30022 and our telephone number is (770)754-4711. Our web address is http://www.safetyquicklight.com.
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Strategy
Safety Quick Light LLC began marketing the SQL Technology in 2007 for installation of light fixtures and ceiling fans during manufacturing and as a kit for installing the SQL Technology in existing light fixtures and ceiling fans. Our management team determined that it could improve its gross margins if it were to market light fixtures and ceiling fans with its plug technology already installed on fixtures instead of marketing the SQL Technology as an add-on device (the “New Business Model”). During the first quarter of 2010, the Company’s management took the first of several steps toward implementing its New Business Model, and discontinued marketing the SQL Technology as an add-on device; however, existing orders were honored through 2010 and 2011, resulting in revenues through 2012.
Company management then took the next step in furtherance of its New Business Model and sought the endorsement of the SQL Technology from GE. During 2010 and 2011, GE tested the SQL Technology and in June 2011, GE and SQL Lighting & Fans, LLC, a subsidiary of the Company, entered into a trademark licensing agreement (the “License Agreement”) under which SQL Lighting & Fans, LLC was licensed to use the GE monogram logo on its devices and certain other trademarks on its ceiling fans and light fixtures through December 31, 2017. The License Agreement requires the Company to pay a percent of revenue generated on our products using the GE monogram logo as a license fee, including a minimum license fee payment during the term.
The License Agreement enables the Company to market ceiling fans and light fixtures with and without the SQL Technology using the GE logo. The License Agreement imposes certain manufacturing and quality control conditions that we must maintain. In addition to marketing ceiling fans and light fixtures under the GE logo and trademarks, the Company has the right to offer private label ceiling fans and light fixtures with its technology installed to retailers that market private label products.
In furtherance of its New Business Model, the Company sought to establish trade distribution channels with key retailers. In July 2012, the Company entered into a sales and marketing agreement with Design Solutions International, Inc. (“DSI”), a privately held, lighting industry design and marketing firm. In November 2013 and in May and June 2014, the Company obtained the capital resources necessary to implement its New Business Model through the Notes Offering. See Item 5, Recent Sales of Unregistered Securities, beginning on page 7.
The Company’s New Business Model entails the use of third party manufactures to produce the SQL Technology and the ceiling fans and light fixtures in which SQL Technology is imbedded. The manufacturers currently used by the Company are located in the Guangdong province of China and, as required by the Licensing Agreement with GE, must be approved by GE to ensure quality standards are met. To further ensure that quality specifications are maintained, the Company maintains an office in the Guangdong province staffed with GE trained auditors who will regularly inspect its products produced by the third party manufacturers.
Through 2014, we worked on the final steps to implement our New Business Model. The Company has obtained the necessary qualification and approval of the third party manufacturer’s facilities. The Company and DSI have also been actively presenting the Company’s product lines to key retailers during 2014. The Company continues to develop renderings and samples of new ceiling fan and light fixture designs with the SQL Technology embedded in the product for sale to retailers. The new items are being presented to the retailers as GE-branded fans and lighting, and the retailers are currently reviewing these new fan designs for inclusion into their upcoming programs. The Company is actively marketing and selling the SQL Technology via its New Business Model in 2015.
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Industry Overview
We currently face competition from traditional ceiling lighting and fan technologies. There are numerous traditional ceiling light and fan manufacturing companies, worldwide, many of which are significantly larger than us. Traditional ceiling lighting and fan technologies have the advantage of a long history of market acceptance and developed relationships with retailers and distributors. We will actively seek to educate our target markets as to the advantages of our technology compared to traditional installation methods, and we believe the achievement of this objective is critical to our future. Although our technology is proprietary and patent protected, there can be no assurance that a large conventional lighting company will not invent a competing technology that offers similar installation efficiencies and enter the market and utilize its resources to capture significant market share and adversely affect our operating results.
We believe our products with the SQL Technology can effectively compete against traditional lighting in the areas of installation, maintenance and safety. The SQL Technology offers the advantage of ease of installation and replacement. This feature is superior to other lighting systems, which can require the service of professional electricians to install and remove. Once SQL’s socket is correctly installed in a ceiling or wall electrical junction box, there is no exposure to live electrical wires resulting in an additional advantage in the area of safety. Furthermore, the installation of our socket, which weighs approximately four (4) ounces, requires significantly less work and exertion compared to traditional ceiling light or fan fixtures, which ordinarily weigh in excess of ten (10) pounds.
There is significant competition in the ceiling lighting and fan market place; however, we believe we have a competitive advantage due to the strength of our SQL Technology. This competitive advantage extends to customers both in the residential as well as the commercial markets. The SQL Technology is patented or trademarked in the United States of America, Canada, Mexico, Hong Kong, China, and Australia. The Company faces competitive forces from traditional approaches towards ceiling lighting and fans installations. While it is unclear whether SQL’s unique technology will gain significant market penetration, the Company believes that its safety and installation efficiency features will gain market acceptance since it significantly reduces the time necessary to install such fixtures and, after a one-time installation of the socket component, eliminates further exposure to electrical wires when used in conjunction with fixtures in which the plug is installed.
To further bolster the Company’s competitive position, it has engaged the support of DSI, a lighting design and marketing firm whose existing customer base includes Walmart, Costco, The Home Depot, BJ’s Wholesale Club, Sam’s Club and other major retailers throughout North America. DSI’s management boasts an average of 25-years’ experience in the lighting industry with leading manufacturers such as Catalina Lighting, Zellers, Dana Lighting and Lite Factory among others. DSI will provide sales and marketing support in North America and sourcing and production management support in China. In addition to DSI’s sales and marketing support, the Company’s products will also be sold through GE’s lighting sales group as a condition of it License Agreement. The Company believes the combination of DSI and GE sales support will enable it to effectively compete in the ceiling lighting and fan market.
Customers
We market our product to retailers and other customers who purchase large quantities of ceiling fans and lighting fixtures. This includes large “big box” retailers, such as Walmart, Costco, The Home Depot, Sam’s Club and BJ’s Wholesale Club. Our target customers initially place small orders of new products to determine the potential consumer demand. When our target customers are able to gauge consumer demand and, if it is assessed that consumer demand warrants larger orders, our target customers are expected to purchase additional products to accommodate anticipated consumer demand.
We also market our products to commercial property and institutional property managers and developers. We believe that this market will benefit from the time saved in installing fixtures and the safety features achieved from the elimination of exposed electrical wires once the SQL Technology socket is installed in the junction box.
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As the Company did not generate revenue during the years 2014 and 2013, no customer accounted for more than 10% of our sales; however, in 2012, as the Company was transitioning out of its previous business model, one customer represented the bulk of the Company’s revenue.
Intellectual Property
We have developed a proprietary technology, the SQL Technology, that we believe provides us with a competitive advantage in the lighting and ceiling fan fixture marketplace. We protect the SQL Technology through the use of an intellectual property protection strategy that is focused on patent protection. As of March 15, 2015, we have three issued U.S. patents relating to our quick connect device for electrical fixtures. We also have patents in China (two issued patents) and India (one issued patent and one pending patent application), which protect different aspects of the same SQL Technology as the three issued U.S. patents. The Company sought intellectual property protection of its SQL Technology in China due to its current manufacturing operations and prospective sales in China’s market, and sought protection in India in anticipation of future growth into India’s developing market, both with respect to the sales of SQL Technology and potential operations of the Company. We intend to maintain this intellectual property protection for the SQL Technology.
The issued patents are directed to various aspects of our plug and socket combination that comprise the quick connect device. The issued patents provide patent protection for our quick connect device, regardless of the electrical fixture used with the quick connect device. As further innovations are developed, we intend to seek additional patent protection to enhance our competitive advantage.
Employees
As of March 15, 2015, we had three full time employees in the United States of America and three full time employees in the Peoples Republic of China. We have not experienced any work stoppages and consider our relations with our employees to be good.
In addition to these salaried employees, the Company’s non-executive Chairman of the Board, Rani Kohen, serves as a paid consultant to the Company on operational activities. Mr. Kohen is the founder of Safety Quick Lighting & Fans Corp. and previously served as its Chief Executive Officer.
Seasonality
Retailers purchase ceiling fans for early spring and summer sales. As a result we will sell more of that product in the October through February time period. Our lighting products do not lend themselves to seasonal purchases. During periods of economic expansion or contraction our sales by quarter may vary significantly from this seasonal pattern.
Overview and Recent Developments
After our year ended December 31, 2014, we shipped our first products and recorded our first sales under the New Strategy. The sales were to a large retail operation and consisted of ceiling fans with the GE brand. These fans did not contain the SQL Technology, however it represented a significant milestone in the development of customer relationships with large retailers.
In February 2015, we received an updated Underwriters Laboratories (UL) Listing for the SQL Technology. This listing will expand the type of products that we will be able to use with the SQL Technology. This listing expanded the voltage and amperage that our product is rated for and will allow for additional fixtures, such as heating elements to be incorporated into our ceiling fans.
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Subsequent to year end, we entered into an Agreement and Waiver with most of the holders of our Notes (as defined in Item 5) dated November 26, 2013, whereby they agreed to extend the payment of interest due under the Notes through February 24, 2015, and in exchange received additional interest of 12% on the interest that was due to them through November 26, 2014. In January 2015, we also invited the holders of our Notes dated November 26, 2013 and May 8, 2014 to elect to convert interest due to them and certain other penalties into shares of the Company’s common stock at a price of $0.25 per share. As of March 15, 2015 the Company received elections from holders of the Notes to issue 1,601,243 shares of its common stock to Investors in exchange for the additional interest, the interest due and/or certain other penalties totaling $400,310. The ultimate objective of these actions was to conserve capital for ongoing operations and to satisfy and obtain customer purchase orders. See Item 5, Recent Sales of Unregistered Securities, beginning on page 7.
Government and Environmental Regulation
Our facilities and operations are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose strict, joint and several liabilities on certain persons for the cost of investigation or remediation of contaminated properties. These persons may include former, current or future owners or operators of properties and persons who arranged for the disposal of hazardous substances. Our leased real property may give rise to such investigation, remediation and monitoring liabilities under environmental laws. In addition, anyone disposing of certain products we distribute, such fluorescent lighting, must comply with environmental laws that regulate certain materials in these products.
We believe that we are in compliance, in all material respects, with applicable environmental laws. As a result, we do not anticipate making significant capital expenditures for environmental control matters either in the current year or in the near future.
Emerging Growth Company
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies.
Section 107(b) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues are $1 billion, as adjusted, or more, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
ITEM 1A. RISK FACTORS
As a “smaller reporting company”, we are not required to provide the information required by this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
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ITEM 2. PROPERTIES
Our corporate offices are located at 4400 North Point Parkway, Suite 154, Alpharetta, Georgia. The monthly rent related to our lease is $957 per month, subject to increases in subsequent years. The Company had previously rented office space located at One Buckhead Plaza, 3060 Peachtree Road, Suite 390, Atlanta, Georgia 30305. The Company is currently subleasing this space through March 31, 2017. We do not own any property or land. We believe that our facilities are adequate for our current needs and that, if required, we will be able to locate suitable new office space and obtain a suitable replacement for our executive and administrative headquarters
ITEM 3. LEGAL PROCEEDINGS
We are not party, nor is our property
subject, to any material pending legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
There is no public market for our common stock. Although our common stock is not currently listed on a public exchange, we have applied to have our common stock quoted on an over-the-counter marketplace. Although we anticipate receiving approval shortly, there can be no assurance that our application for quotation will be approved. In the event our application is approved, we will need to comply with ongoing reporting requirements.
Our common stock may never be quoted on an over-the-counter marketplace or, even if quoted, a liquid or viable market may not materialize. There can be no assurance that an active trading market for our shares will develop, or, if developed, that it will be sustained.
As of March 15, 2015, there were approximately 48 holders of record of the Company’s common stock.
As of March 15, 2015, 500,000,000 shares of common stock, no par value per share, and 20,000,000 shares of preferred stock, no par value per share, were authorized. As of March 15, 2015, there were 35,750,000 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding.
As of March 15, 2015, 27,785,919 shares of our common stock were subject to convertible notes or warrants to purchase our common stock. 750,000 shares of our common stock were restricted subject to vesting; 200,000 shares of common stock issuable upon the exercise of options which had not vested as of the date of this report and will not vest within 60 days and/or contain performance-based vesting conditions, are not covered by this report.
Dividend Policy
We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our Board.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
On November 26, 2013, May 8, 2014 and June 25, 2014 we concluded closings of the offering of our 12% Secured Convertible Promissory Notes (the “12% Notes”) in the aggregate principal amount of $4,240,100 and/or our 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 (collectively, the “Notes Offering”). The entire aggregate principal amount of the Notes of $4,270,100 was outstanding as of March 15, 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 June 25, 2014, respectively.
In addition to the terms customarily included in such instruments, the Notes began accruing interest on the date that each Investor submitted the principal balance of such Investor’s Note, with the interest thereon becoming due and payable on the one year anniversary of said date, and quarterly thereafter. Upon a default of the Notes, the interest rate will increase by 2%. The principal balance of each Note and all unpaid interest will become due and payable twenty-four (24) months after the date of issuance. The Notes may be prepaid with or without a penalty depending on the date of the prepayment. The principal and interest under the Notes are convertible into shares of our common stock at $0.25 per share and are secured by a first priority lien (subject only to an existing note with Signature Bank of Georgia on our intellectual property and all substitutes, replacements and proceeds of such intellectual property) pursuant to the terms of a Security Purchase Agreement, dated as of November 26, 2013, May 8, 2014 and June 25, 2014, as applicable, by and between us and each Investor (the “Security Agreement”).