SKYX Platforms Corp. (SKYX)

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

You
should read the following discussion and analysis of our financial condition and results of operations together with our financial statements
and the related notes appearing elsewhere in this Form 10-K. This discussion and other parts of this Form 10-K contain forward-looking
statements that involve risks and uncertainties, such as statements regarding our plans, objectives, strategy, expectations, outlook,
intentions, and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors”
section of this Form 10-K. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements” contained
in this Form 10-K.

Overview

We
have a series of advanced-safe-smart platform technologies. Our first and second-generation technologies enable light fixtures, ceiling
fans and other electrically wired products to be installed safely and plugged in to a ceiling’s electrical outlet box within seconds,
and without the need to touch hazardous wires. The plug and play technology method is a universal power-plug device that has a matching
receptacle that is simply connected to the electrical outlet box on the ceiling, enabling a safe and quick plug and play installation
of light fixtures and ceiling fans in just seconds. The plug and play power-plug technology eliminates the need of touching hazardous
electrical wires while installing light fixtures, ceiling fans and other hard wired electrical products. In recent years, we have expanded
the capabilities of our power-plug product to include advanced-safe and quick universal installation methods, as well as advanced-smart
capabilities. The smart features include control of light fixtures and ceiling fans by the SkyHome App, through WIFI, Bluetooth Low Energy
and voice control. It allows scheduling, energy savings eco mode, dimming, back-up emergency light, night light, light color changing
and much more. Our third-generation technology is an all-in-one safe and smart-advanced platform that is designed to enhance all-around
safety and lifestyle of homes and other buildings. Our products are designed to improve all around home and building safety and lifestyle.
We are continuing to refine our products and began manufacturing certain advanced and smart products in 2023 and expect additional products,
including the third-generation smart-advanced platform to be available in 2025. We expect to manufacture the additional product offerings
within the next six months. We hold over 96 U.S. and global patents and patent applications and have received a variety of final electrical
code approvals, including UL, United Laboratories of Canada (cUL) and Conformité Européenne (CE), and 2017 and 2020 inclusion
in the NEC Code Book.

We
believe our total addressable market in the United States exceeds $500 billion, based on the Company’s internal calculations derived
from the estimation of the total target user pool, projected average selling price, and projected units per household. We believe there
are billions of installations of light and other electrical fixtures globally. Our estimates of the addressable market for our products
may prove to be incorrect. The projected demand for our products could differ materially from actual demand. Even if the total addressable
market for our products is as large as we have estimated and even if we are able to gain market awareness and acceptance, we may not
be able to penetrate the existing market to capture additional market share.

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Inflation
and related risk of recession increased during 2022 and continue to impact operations. Inflationary factors,
such as increases in interest rates, supply and overhead costs and transportation costs, may adversely affect our operating results,
and we may not be able to offset increased costs with increased sales price per unit, particularly as we work toward commercial manufacturing
of our products. Although we do not believe that inflation has had a material impact on our financial position or results of operations
to date, we may experience some effect in the near future (especially if inflation rates continue to rise). In addition, we may be negatively
impacted because of supply chain constraints, consequences associated with government regulations, ongoing and potential geopolitical
conflicts, instability in the global banking system, employee availability and wage increases.

The
conflicts in the Middle East may adversely impact our operations in the near future. We have a number of developers working in Israel.
If such individuals are called for service or this war escalates regionally, it may create work interruptions leading to longer periods
between releases of offering improvements and increased costs.

During
April 2023, we completed the previously announced acquisition of all the issued and outstanding shares of Belami, a strategic e-commerce
lighting and home décor conglomerate. The Company paid cash and issued an aggregate of 3,776,706 shares of our common stock as
consideration for the acquisition. The Company expects that Belami will serve as a marketing and growth platform and should provide several
distribution channels for our products, including to retail customers, builders, and professionals.

In
connection with the acquisition, the Company engaged in private placements of its securities during the first quarter of 2023, pursuant
to which the Company issued and sold (i) subordinated secured convertible promissory notes in the aggregate principal amount of $10.35
million and (ii) warrants to purchase an aggregate of up to 1,391,667 shares of the Company’s common stock. The proceeds were used
to fund the cash component of the Belami acquisition and to pay certain transaction expenses in connection with the acquisition and the
private placements.

Recent
Developments

In
March 2024, the Company and the Belami sellers entered into a letter agreement modifying certain obligations under the stock purchase
agreement for the acquisition of Belami. In connection with the letter agreement, the Company issued convertible promissory notes to
each of the sellers (the “Seller Note(s)”) in substitution of an aggregate of $3,117,408 in cash due to the sellers on the
first anniversary of the closing of the Belami acquisition. Each seller received a Seller Note in an amount of $1,039,303 on the same
date. In addition to other customary terms, the Seller Notes bear annual interest at 10%, with interest and principal coming due on May
16, 2025, and can be converted by the sellers into shares of our common stock at any time at $3.00 per share of our common stock. The
Seller Notes include customary events of default accelerating maturity, including a breach of the Company’s covenants, representations,
and warranties under the Belami stock purchase agreement and a change of control of Belami. The letter agreement further provided that
the Company would perform all other obligations arising on the first anniversary of the closing, including issuance of shares of common
stock due to sellers, and that on such date the non-fundamental representations and warranties will expire, and the Company would release
$750,000 held in escrow. In April 2024, the Company issued an aggregate of 1,853,421 shares of common stock to the sellers and released
the escrow amount.

On
April 11, 2024, the Company entered into an amendment to the letter agreement previously entered into with GE-TL in December 2023, which
extended the deadline for the Company to issue the convertible note to GE-TL to May 1, 2024, and also issued a three-year, $1.0 million
convertible note to GE-TL, thereby reducing obligations due in 2027 by $400,000. The note does not bear interest, and the principal amount
of the note is convertible into shares of the Company’s common stock at any time at the option of the holder at $1.07 per share.

During
the second quarter of 2023, we began our at the market offering (“ATM”) pursuant to which we may sell up to $20 million of
shares of our common stock.

During
October 2024, the Company completed its authorization of the issuance of 440,000 shares each of newly authorized Series A Preferred Stock
and Series A-1 Preferred Stock which generated proceeds of $11.0 million. The Company sold an additional 40,000 shares of Series A-1 Preferred Stock for proceeds of $1.0 million during March
2025. The designations of each class of preferred stock are as follows:

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Results
of Operations

Years
Ended December 31, 2024 and 2023

Revenue

The
increase in revenues is primarily due to revenues from products marketed by Belami which was acquired on April 28, 2023.

We
believe that revenues will be higher in 2025 than in 2024, primarily resulting from revenues the sale of our advanced products.

Cost
of Revenues

42

The
cost of revenues consists primarily of costs associated with selling the products marketed by Belami. The increase is primarily due to
costs associated with revenues from products marketed by Belami which was acquired on April 28, 2023, commensurate with the increase
in revenues.

We
believe that the cost of revenues will increase in 2025 compared to 2024, in similar proportions to the anticipated increase in revenues.

Selling
and Marketing Expenses

Selling
and marketing expenses consist primarily of sales and marketing compensation as well as sales and marketing programs.

The
increase in selling and marketing expenses is primarily due to such expenses increasing following the acquisition of Belami on April
28, 2023

We
believe that our selling and marketing expenses will be higher during 2025 when compared to 2024 as we continue to invest to support
our anticipated growth.

General
and Administrative Expenses

General
and administrative expenses consist primarily of an allocation of product development, finance, legal, human resources, including salaries,
wages, and benefits, and depreciation and amortization, including share-based payments.

The
decrease in general, and administrative expenses during 2024 when compared to 2023, primarily due to the following:

We
believe that our operating expenses will be higher during 2025 when compared to 2024 as we continue to invest to support our anticipated
growth which now includes such expenses related to Belami’s operations following its acquisition.

Other
Income (Expense)

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The
increase in interest expense resulted primarily from interest charges related to increased interest-bearing weighted average debt in
the current periods when compared to the prior year periods.

The
decrease in gain on extinguishment of debt is due to non-recurring gain on extinguishment of debt which occurred during the respective
periods.

Liquidity
and Capital Resources

As
of December 31, 2024 and 2023, we had $15.5 million and $22.4 million in cash and cash equivalents, restricted cash, respectively.

Historically, we have raised funds through the issuances of common stock, securities convertible into common stock
and notes payable. We
have raised funds through the sale of our common stock and preferred stocks for gross proceeds of $15.4 million pursuant to
placements and offerings during 2024. We also generated gross proceeds of $1.0 pursuant to the issuance of 40,000 shares of our Series A-1 Preferred Stock
in March 2025.

These
offerings included shares sold pursuant to our ATM offering program which provides us with additional access to capital, as needed, subject
to market conditions. During 2024, we t issued 3,535,067 shares of common stock under such program.
From inception through December 31, 2024, we issued 7,894,899 shares of common stock under such a program for net proceeds of $13,795,059,
net of brokerage fees and legal fees of $619,415. As of March 13, 2025, the remaining amount to be used under the ATM offering program
is $5.4 million.

Between
October, 2024 and March 2025, we sold an aggregate of 480,000 shares of two series of preferred stock, resulting in total gross
proceeds of $12.0 million, pursuant to (i) a Securities Purchase Agreement entered into with an accredited investor, pursuant to
which such investor purchased an aggregate of 200,000 shares of Series A Preferred Stock, at a purchase price of $25.00 per share,
and (ii) a Securities Purchase Agreement entered into with certain accredited investors, pursuant to which such investors purchased
an aggregate of 280,000 shares of Series A-1 Preferred Stock, at a purchase price of $25.00 per share.

Our
future capital requirements will depend on many factors, including the Belami integration of operations, our revenue
growth rate, expenditures related to our headcount growth and manufacturing, the timing and the amount of cash received from customers,
the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the price at which
we are able to purchase parts to incorporate in our product offerings, the introduction of platform enhancements, and the market adoption
of our platforms. We may continue to enter arrangements to acquire or invest in complementary businesses, products, and technologies.
We may, because of those arrangements, or the general expansion of our business, be required to seek additional equity or debt financing.
If we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable
to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not
be able to compete successfully, which would harm our business, results of operations, and financial condition.

We
owe approximately $15.6 million under fixed rate obligations as of December 31, 2024. In addition, we owe GE certain minimum royalty
payments under a license agreement and other accrued expenses which amounted to $1.7 million as of December 31, 2024.

On
March 29, 2024, we entered into a letter agreement with Belami sellers, modifying certain obligations under the Stock Purchase Agreement.
In connection with the letter agreement, the Company issued convertible promissory notes to each of the Sellers (the “Seller Note(s)”)
in substitution of an aggregate of $3,117,408 in cash due to the Sellers on the first anniversary of the Closing. Each Seller received
a Seller Note in the amount of $1,039,303 on the same date. In addition to other customary terms, the Seller Notes bear annual interest
at 10%, with interest and principal coming due on May 16, 2025, and can be converted by the Sellers at any time at $3.00 per share of
our common stock.

44

On
September 23, 2024, the Company, through its wholly owned subsidiary, Belami, entered into a $3.5 million secured revolving line of credit
(the “line of credit”) with a commercial bank, increasing, and renewing its previous revolving line of credit with such bank.
The line of credit bears interest at a variable rate per annum equal to The Wall Street Journal Prime Rate, subject to a floor of 7.5%
and ceiling of the maximum rate allowed under applicable law, payable monthly, and matures September 5, 2025. The line of credit is subject
to customary default and acceleration provisions and to certain financial covenants, including working capital in excess of $1.75 million
and a debt service coverage ratio in excess of 1.25 to 1.00 (calculated as described in the business loan agreement governing the line
of credit). In addition, the Company agreed to guarantee Belami’s obligations under the line of credit, pursuant to a commercial
guaranty agreement.

As
common with companies having a similar cash conversion cycle as ours, when sales are converted into cash rapidly, often referred to as
the “Dell Working Capital Model,” we leverage our trades payable to finance our operations to lower our cost of capital,
and accordingly, we may have negative working capital. This negative working capital is partly inherent to the relatively quick turnaround
of finished goods inventory, quicker collection of accounts receivables, and longer payment cycle of trades payable. Our accounts receivable,
inventory, net of trades payable, amounted to $(6.1) million and $(6.8) million as of December 31, 2024, and 2023, respectively.

The designations of each class of
Series A and A-1 Preferred stock are as follows:

Series
A Preferred Stock:

Series
A-1 Preferred Stock:

45

Please
see below a summary of the primary components of our cash used in or provided by operating investing and financing activities during
2024 and 2023

The
changes in working capital, net are primarily attributable to timing differences in accounts receivable, trade accounts payable and deferred
revenues.

Going
Concern

The
Company’s liquidity sources include $ 15.5 million in cash and cash equivalents, including restricted cash of $2.9 million held
for long-term purposes, and $ 5.7 million of working capital deficit as of December 31, 2024. The Company has a history of recurring
operating losses, and its net cash used in operating activities amounted to $18.3 million and $13.0 million during the year ended December
31, 2024, and 2023, respectively. The Company has also generated net cash provided by financing activities of $13.1 million and $22.7
million during 2024, and 2023, respectively. Accordingly, the Company’s management cannot ascertain that there is no substantial
doubt that it will be able to meet its obligations as they become due within one year after the date that its financial statements are
issued.

Management
intends to mitigate such conditions by continuing to support its continued growth by decreasing its cash used in operating activities
through increased revenues and increased margins from products sold to large retailers and its internet portals, and to the extent necessary,
generating cash provided by financing activities through it’s at the market offering or other equity or debt financing means.

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Non-GAAP
Financial Measures

Management
considers earnings (loss) before interest, taxes, depreciation and amortization, or EBITDA, as adjusted, an important indicator in
evaluating our business on a consistent basis across various periods. Due to the significance of non-recurring items, EBITDA, as
adjusted, enables our management to monitor and evaluate our business on a consistent basis. We use EBITDA, as adjusted, as a
primary measure, among others, to analyze and evaluate financial and strategic planning decisions regarding future operating
investments and potential acquisitions. We believe that EBITDA, as adjusted, eliminates items that are not part of our core
operations, such as interest expense and amortization and impairment expense associated with intangible assets, or items that do not
involve a cash outlay, such as share-based payments and non-recurring items, such as transaction costs. EBITDA, as adjusted, should
be considered in addition to, rather than as a substitute for, pre-tax income (loss), net income (loss) and cash flows used in
operating activities. This non-GAAP financial measure excludes significant expenses that are required by GAAP to be recorded in our
financial statements and is subject to inherent limitations. Investors should review the reconciliation of this non-GAAP financial
measure to the comparable GAAP financial measure included below. Investors should not rely on any single financial measure to
evaluate our business.

Off
Balance Sheet Arrangements

We
do not have any off-balance sheet arrangements.

Critical
Accounting Policies

Our
significant accounting policies are disclosed in Note 2 to our consolidated financial statements for the year ended December 31,
2024, contained in this Annual Report on Form 10-K for the year ended December 31, 2024. The following is a summary of those
accounting policies that involve significant estimates and judgment of management.

Use
of Estimates

The
preparation of financial statements in conformity with GAAP 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.

Fair
Value of Financial Instruments

Disclosures
about fair value of financial instruments require disclosure of the fair value information, whether recognized in the balance sheet,
where it is practicable to estimate that value. As of December 31, 2024 and 2023, we believe the amounts reported for cash,
prepaid expenses, accounts payable and accrued expenses and other current liabilities, accrued interest, notes payable and
convertible note payable approximate fair value because of their short maturities.

Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

47

Stock-Based
Compensation

Stock-based
compensation is accounted for based on the requirements of ASC 718 - “Compensation-Stock Compensation”, which requires
recognition in the financial statements of the cost of employee, non-employee and director services received in exchange for an award
of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively,
the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award
based on the grant-date fair value of the award.

Stock-based
compensation is measured at the grant date based on the value of the award granted using the Black- Scholes option pricing model based
on projections of various potential future outcomes and recognized over the period in which the award vests. For stock awards no longer
expected to vest, any previously recognized stock compensation expense is reversed in the period of termination. The stock-based compensation
expense is included in general and administrative expenses.

Revenue
Recognition

We
account for revenues in accordance with Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers”
(Topic 606).

Under
Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects
the consideration we expect to be entitled to in exchange for those goods or services.

We
determine revenue recognition through the following steps:

Recent
Accounting Pronouncements

Although
there are new accounting pronouncements issued or proposed by the Financial Accounting Standards Board, which we have adopted or will
adopt, as applicable, we do not believe any of these accounting pronouncements has had or will have a material impact on our financial
position or results of operations.

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

You
should read the following discussion and analysis of our financial condition and results of operations together with our financial statements
and the related notes appearing elsewhere in this Form 10-K. This discussion and other parts of this Form 10-K contain forward-looking
statements that involve risks and uncertainties, such as statements regarding our plans, objectives, strategy, expectations, outlook,
intentions, and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors”
section of this Form 10-K. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements” contained
in this Form 10-K.

45

Overview

We
have a series of advanced-safe-smart platform technologies. Our first-and second-generation technologies enable light fixtures, ceiling fans
and other electrically wired products to be installed safely and plugged in to a ceiling’s electrical outlet box within
seconds, and without the need to touch hazardous wires. The plug and play technology method is a universal power-plug device that
has a matching receptacle that is simply connected to the electrical outlet box on the ceiling, enabling a safe and quick plug and
play installation of light fixtures and ceiling fans in just seconds. The plug and play power-plug technology eliminates the need of
touching hazardous electrical wires while installing light fixtures, ceiling fans and other hard wired electrical products. In
recent years, we have expanded the capabilities of our power-plug product to include advanced-safe and quick universal installation
methods, as well as advanced-smart capabilities. The smart features include control of light fixtures and ceiling fans by the
SkyHome App, through WIFI, BLE and voice control. It allows scheduling, energy savings eco mode, dimming, back-up emergency light,
night light, light color changing and much more. Our third-generation technology is an all-in-one safe and smart-advanced platform
that is designed to enhance all-around safety and lifestyle of homes and other buildings. Our products are designed to improve all
around home and building safety and lifestyle. We are continuing to refine our products and began manufacturing certain advanced and
smart products in 2023, and expect additional products, including the Sky Smart Platform, to be available in 2024. We hold over 96 U.S. and global patents and patent
applications and have received a variety of final electrical code approvals, including UL, United Laboratories of Canada (cUL) and
Conformité Européenne (CE), and 2017 and 2020 inclusion in the NEC Code Book.

We
believe our total addressable market in the United States exceeds $500 billion, based on the Company’s internal calculations derived
from the estimation of the total target user pool, projected average selling price, and projected units per household. We believe there
are billions of installations of light and other electrical fixtures globally. Our estimates of the addressable market for our products
may prove to be incorrect. The projected demand for our products could differ materially from actual demand. Even if the total addressable
market for our products is as large as we have estimated and even if we are able to gain market awareness and acceptance, we may not
be able to penetrate the existing market to capture additional market share.

Inflation
continued to increase during 2023 and is expected to continue to increase during 2024. Inflationary factors, such as increases in
interest rates, supply and overhead costs and transportation costs, may adversely affect our operating results and we may not be
able to offset increased costs with increased sales price per unit, particularly as we continue to work toward commercial
manufacturing and sale of our products. Although we do not believe that inflation has had a material impact on our financial position or
results of operations to date, we may experience some effect in the foreseeable future (especially if inflation rates continue to
rise). In addition, we may be negatively impacted because of supply chain constraints, consequences associated with government
regulations, ongoing and potential geopolitical conflicts, employee availability and wage increases. In addition, the Israel-Hamas war may adversely impact our operations in the near future. We have a number of developers working in Israel. If such individuals are called for service or this war escalates regionally, it may create work interruptions leading to longer periods between releases of offering improvements and increased costs.

On
April 28, 2023, we completed our acquisition (the “Closing”) of all of the issued and outstanding shares of Belami, an
online retailer and e-commerce provider specializing in home lighting, ceiling fans, and other home furnishings. We expect these 60
websites will serve as a marketing and growth platform for our smart products and should provide several distribution channels,
including to retail customers, builders, and professionals. For additional information regarding the Acquisition, see “Item 1.
Business—Overview-E-Commerce.”

46

Results
of Operations

Years
Ended December 31, 2023 and 2022

NM:
Not meaningful

Revenue

The
increase in revenues during 2023, when compared to 2022, is primarily due to revenues from products marketed by Belami which was acquired
on April 28, 2023.

We
believe that revenues will be higher in 2024 than in 2023, primarily resulting from revenues from Belami, which was acquired in April
2023, and the sale of our advanced and smart products.

Cost
of Revenues

The
cost of revenues consists primarily of costs associated with selling the products marketed by Belami. The increase in cost of revenues
during 2023 when compared to 2022, is primarily due to costs associated with revenues from products marketed by Belami which was acquired
on April 28, 2023.

We
believe that cost of revenues will increase in 2024 compared to 2023, commensurate with an anticipated increase in revenues.

47

Selling
and Marketing Expenses

Selling
and marketing expenses consist primarily of sales and marketing compensation as well as sales and marketing programs.

The
increase in selling and marketing expenses during 2023 when compared to 2022 is primarily due to such expenses following the acquisition
of Belami aggregating $11.1 million during 2023.

We
believe that our selling and marketing expenses will be higher during 2024 when compared to 2023 as we continue to invest to support
our anticipated growth and now includes such expenses related to Belami’s operations following its acquisition.

General
and Administrative Expenses

General
and administrative expenses consist primarily of an allocation of product development, finance, legal, human resources, including salaries,
wages, and benefits, and depreciation and amortization, including share-based payments.

The
increase in general, and administrative expenses during 2023 when compared to 2022 was primarily due to the following:

We
believe that our operating expenses may be higher during 2024 when compared to 2023 as we continue to invest to support our
anticipated growth and now includes such expenses related to Belami’s operations following its acquisition.

Other
Income (Expense)

The
increase in interest expense during 2023 when compared to 2022 is primarily due to interest imputed pursuant to operating lease liabilities
and debt which were entered into the latter part of 2022 and convertible debt (including amortization of debt discount, which were entered
into the first quarter of 2023. The debt discount is related to inducements the Company granted to holders of convertible debt.

The
variations in gain on extinguishment debt is due to two separate non-recurring transactions: the forgiveness of the PPP loan recognized
during 2022 and a gain on forgiveness of debt in April 2023 as the debt forgiven to a lender exceeded the consideration we paid.

Liquidity
and Capital Resources

As
of December 31, 2023 and 2022, we had $22.4 million and $16.8 million in cash and cash equivalents, restricted cash, and investments
in debt securities, respectively.

We
have raised additional funds through the sale of our common stock and securities convertible into our common stock and issuance of
debt, including completing our initial public offering in February 2022 for gross proceeds of $23.1 million and engaging in
private placements and offerings during, 2023 of a combination of convertible notes payable and shares of our common stock
aggregating $19.6 million.

These
offerings included shares sold pursuant to our ATM offering program which provides us with additional access to capital, as needed, subject
to market conditions. During the three months ended December 31, 2023, we issued 783,374 shares of common stock under such program for
net proceeds of $1,228,000, net of brokerage fees and legal expenses of approximately $25,000. In aggregate, from the start of the ATM
offering program through December 31, 2023, we sold 4,359,832 shares of common stock, generating approximately $9.4 million of proceeds,
net of brokerage fees and legal expenses of $604,000. As of March 21, 2024, we had the remaining capacity to issue shares of common stock
with a consideration of up to $6.5 million under the offering program.

48

Our future capital requirements will depend on many factors, including the Belami acquisition
and integration of operations, our revenue growth rate, expenditures related to our headcount growth and manufacturing, the timing and
the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support
development efforts, the price at which we are able to purchase parts to incorporate in our product offerings, the introduction of platform
enhancements, and the market adoption of our platforms. We may continue to enter arrangements to acquire or invest in complementary businesses,
products, and technologies. We may, because of those arrangements, or the general expansion of our business, be required to seek additional
equity or debt financing. If we require additional financing, we may not be able to raise such financing on terms acceptable to us or
at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued
innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition.

During
April and May 2023, the Company repaid in full approximately $6.2 million due to a lender by issuing 574,713 shares of the Company’s
common stock and paying $2.0 million in cash. The Company also obtained an aggregate $6.5 million in revolving lines of credits and a
term loan with two financial institutions during 2023. The lines of credit mature in 2024 and the term loan matures in 2026.

During
2022, we entered into certain lease and sublease agreements, including (i) a sublease agreement entered into during April 2022, pursuant
to which we agreed to sublease approximately 3,400 square feet of office space located on the 54th floor of Carnegie Hall Tower, located
at 152 West 57th Street, New York, New York, at a fixed monthly base rent starting at $26,893 for the first year of the sublease, and
(ii) a lease agreement entered into during September 2022, pursuant to which we agreed to lease approximately 32,200 square feet located
at 400 Biscayne Boulevard, Miami, Florida, at a fixed minimum monthly base rent of $214,480 during the first full year of the lease.
The Miami, Florida lease provides for rent abatements of a minimum of 10 months, as well as for the lessor’s leasehold improvements
of up to $2.3 million. We also issued a letter of credit of $2.7 million to one of the lessors as collateral for certain obligations
related to the lease.

On
February 10, 2023, we entered into a Managed Client Agreement and, as subsequently amended (as amended, the “Office Management
Agreement”) with RGN-MCA Miami II, LLC (“Spaces”), having a term commensurate with the Miami lease, pursuant to which
Spaces will manage one floor of the Miami office for the Company, renting co-working office spaces and providing support services, following
completion of the office construction. The Office Management Agreement is subject to final approval by the landlord under the Miami lease.
The Company will receive net revenues from the rentals, after deducting up to 16% in platform and management fees and certain operating
expenses. The Company projects to receive net revenues to offset a significant portion of the costs of the Miami lease.

We
owe approximately $11.5 million under fixed rate obligations as of December 31, 2023. In addition, we owe GE certain minimum royalty
payments under a license agreement which amounted to $3.9 million as of December 31, 2023.

49

2023

During
2023, we used $13.0 million in our operating activities, which consisted of our net loss of $38.0 million adjusted for non-cash equity
compensation of $18.0 million as well as an increase of accounts payable and accrued expenses
of $5.5 million. We are managing our accounts payable based on vendor terms.

Our
net cash provided by investing activities amounted to $3.2 million and consisted primarily of disposition of debt securities of $7.6
million offset by cash used to acquire Belami, net of acquired cash of $4.2 million.

We
generated $22.7 million in financing activities, of which $19.6 million was generated from a combination of issuance of convertible
notes and proceeds from issuance of shares of common stock at the market.and $6.5 million proceeds from lines of credit lines term
loan and offsetting term loan repayment of debt of $3.4 million.

2022

During
2022, we used $13.8 million in our operating activities, which consisted of our net loss of $527.0 million adjusted for non-cash equity
compensation of $13.9 million.

We
used $8.1 million in our investing activities, which primarily consisted of purchase of debt securities of $7.4 million.

We
generated $20.9 million in financing activities, which consisted primarily of proceeds from the issuance of our shares of common
stock of $23.1 million.

Going
Concern

The
Company’s liquidity’s sources include $22.4 million in cash and cash equivalents and $3.1 million of working capital. However,
the Company has a history of recurring operating losses and its net cash used in operating activities amounted to $13.0 million and $13.8
million during 2023 and 2022, respectively. The Company has also generated net cash provided by financing activities of $22.7 million
and $20.9 million during 2023 and 2022, respectively. Accordingly, the Company’s management cannot ascertain that there is no substantial
doubt that it will be able to meet its obligations as they become due within one year after the date that its financial statements are
issued.

Management
intends to mitigate such conditions by continuing to support its continued growth by decreasing its cash used in operating
activities through increased revenues and increased margins from products sold to large retailers and its internet portals, and to
the extent necessary, generating cash provided by financing activities through it’s at the market offering or other equity or
debt financing means.

Non-GAAP
Financial Measures

Management
considers earnings (loss) before interest, taxes, depreciation and amortization, or EBITDA, as adjusted, an important indicator in evaluating
our business on a consistent basis across various periods. Due to the significance of non-recurring items, EBITDA, as adjusted, enables
our management to monitor and evaluate our business on a consistent basis. We use EBITDA, as adjusted, as a primary measure, among others,
to analyze and evaluate financial and strategic planning decisions regarding future operating investments and potential acquisitions.
We believe that EBITDA, as adjusted, eliminates items that are not part of our core operations, such as interest expense and amortization
expense associated with intangible assets, or items that do not involve a cash outlay, such as share-based payments and non-recurring
items, such as transaction costs. EBITDA, as adjusted, should be considered in addition to, rather than as a substitute for, pre-tax
income (loss), net income (loss) and cash flows used in operating activities. This non-GAAP financial measure excludes significant expenses
that are required by GAAP to be recorded in our financial statements and is subject to inherent limitations. Investors should review
the reconciliation of this non-GAAP financial measure to the comparable GAAP financial measure included below. Investors should not rely
on any single financial measure to evaluate our business.

Off
Balance Sheet Arrangements

We
do not have any off-balance sheet arrangements.

50

Critical
Accounting Policies

Our
significant accounting policies are disclosed in Note 2 to our consolidated financial statements for the year ended December 31, 2023,
contained in our Annual Report on Form 10-K for the year ended December 31, 2023. The following is a summary of those accounting policies
that involve significant estimates and judgment of management.

Use
of Estimates

The
preparation of financial statements in conformity with GAAP 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.

Fair
Value of Financial Instruments

Disclosures
about fair value of financial instruments require disclosure of the fair value information, whether recognized in the balance sheet,
where it is practicable to estimate that value. As of December 31, 2023 and 2022, we believe the amounts reported for cash,
prepaid expenses, accounts payable and accrued expenses and other current liabilities, accrued interest, notes payable and convertible
note payable approximate fair value because of their short maturities.

Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

51

Stock-Based
Compensation

Stock-based
compensation is accounted for based on the requirements of ASC 718 – “Compensation–Stock Compensation”,
which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange
for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award
(presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange
for an award based on the grant-date fair value of the award.

Stock-based
compensation is measured at the grant date based on the value of the award granted using the Black- Scholes option pricing model based
on projections of various potential future outcomes and recognized over the period in which the award vests. For stock awards no longer
expected to vest, any previously recognized stock compensation expense is reversed in the period of termination. The stock-based compensation
expense is included in general and administrative expenses.

Revenue
Recognition

We
account for revenues in accordance with Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers”
(Topic 606).

Under
Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects
the consideration we expect to be entitled to in exchange for those goods or services.

We
determine revenue recognition through the following steps:

Recent
Accounting Pronouncements

Although
there are new accounting pronouncements issued or proposed by the Financial Accounting Standards Board, which we have adopted or will
adopt, as applicable, we do not believe any of these accounting pronouncements has had or will have a material impact on our financial
position or results of operations.

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

You
should read the following discussion and analysis of our financial condition and results of operations together with our financial statements
and the related notes appearing elsewhere in this Form 10-K. This discussion and other parts of this Form 10-K contain forward-looking
statements that involve risks and uncertainties, such as statements regarding our plans, objectives, strategy, expectations, outlook,
intentions and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors”
section of this Form 10-K. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements” contained
in this Form 10-K.

45

Overview

We
have a series of advanced-safe-smart platform technologies. Our first-generation technologies enable light fixtures, ceiling fans
and other electrically wired products to be installed safely and plugged in to a ceiling’s electrical outlet box within
seconds, and without the need to touch hazardous wires. The plug and play technology method is a universal power-plug device that
has a matching receptacle that is simply connected to the electrical outlet box on the ceiling, enabling a safe and quick plug and
play installation of light fixtures and ceiling fans in just seconds. The plug and play power-plug technology eliminates the need of
touching hazardous electrical wires while installing light fixtures, ceiling fans and other hard wired electrical products. In
recent years, we have expanded the capabilities of our power-plug product to include advanced-safe and quick universal installation
methods, as well as advanced-smart capabilities. The smart features include control of light fixtures and ceiling fans by the
SkyHome App, through WIFI, BLE and voice control. It allows scheduling, energy savings eco mode, dimming, back-up emergency light,
night light, light color changing and much more. Our second-generation technology is an all-in-one safe and smart-advanced platform
that is designed to enhance all-around safety and lifestyle of homes and other buildings. Our products are designed to improve all
around home and building safety and lifestyle. While we have developed and created working prototypes of our advanced and smart
products, we are continuing to refine the product prototypes and expect to begin manufacturing during 2023 for the advanced
products and the smart universal power-plug, ceiling fans and lighting products and for the Smart Sky Platform. We hold over 60 U.S.
and global patents and patent applications and have received a variety of final electrical code approvals, including UL, United
Laboratories of Canada (cUL) and Conformité Européenne (CE), and 2017 and 2020 inclusion in the NEC Code
Book.

We
believe our total addressable market in the United States exceeds $500 billion, based on the Company’s internal calculations derived
from the estimation of the total target user pool, projected average selling price, and projected units per household. We believe there
are billions of installations of light and other electrical fixtures globally. Our estimates of the addressable market for our products
may prove to be incorrect. The projected demand for our products could materially differ from actual demand. Even if the total addressable
market for our products is as large as we have estimated and even if we are able to gain market awareness and acceptance, we may not
be able to penetrate the existing market to capture additional market share.

During
April 2022, we entered into a sublease agreement, pursuant to which we agreed to sublease approximately 3,400 square feet of office space
located on the 54th floor of Carnegie Hall Tower, located at 152 West 57th Street, New York, New York, at a fixed monthly base rent starting
at $26,893 for the first year of the sublease. The New York office space supports our general and administrative functions, sales and
marketing, and business development.

During
September 2022, we entered into a lease agreement, pursuant to which we agreed to lease approximately 32,200 square feet located at 400
Biscayne Boulevard, Miami Florida. The fixed minimum monthly base rent amounts to $214,480 during the first full year. The lease provides
for rent abatements of a minimum of 10 months. The lease also provides for the lessor’s leasehold improvements of up to $2.3 million.
The Miami office space will support our headquarters, general and administrative functions, sales and marketing, and business development.

Inflation
and related risk of recession has increased during 2022 and is expected to continue to increase during 2023. Inflationary factors, such
as increases in interest rates, supply and overhead costs and transportation costs, may adversely affect our operating results and we
may not be able to offset increased costs with increased sales price per unit, particularly as we work toward commercial manufacturing
of our products. Although we do not believe that inflation has had a material impact on our financial position or results of operations
to date, we may experience some effect in the foreseeable future (especially if inflation rates continue to rise). In addition, we may
be negatively impacted as a result of supply chain constraints, consequences associated with government regulations, ongoing and
potential geopolitical conflicts, employee availability and wage increases.

During
February 2023, we announced the Acquisition, pursuant to which we agreed to acquire all of the issued and outstanding shares of Belami,
a strategic e-commerce lighting and home décor conglomerate. The Company will pay both cash and common stock as consideration
for the Acquisition. The Acquisition is expected to close during the second quarter of 2023. The Company expects that Belami will serve
as a marketing and growth platform and will provide several distribution channels, including to retail customers, builders and professionals.
For additional information regarding the Acquisition, see “Item 1. Business—Recent Developments.”

46

In
connection with the Acquisition, the Company closed the Private Placements, pursuant to which the Company issued and sold (i) subordinated
secured convertible promissory notes in the aggregate principal amount of $10.35 million and (ii) warrants to purchase an aggregate of
up to 1,391,667 shares of the Company’s common stock for investors. The proceeds will be used for the cash component of the Acquisition consideration and to pay certain
transaction expenses in connection with the Acquisition and the Private Placements.

In
addition, in March 2023, the Company acquired 50% of the equity of a strategic e-commerce private label lighting website, for $225,000.
The other 50% of the equity is owned by Belami. The Company expects that this acquisition will serve as another marketing and growth
platform for the Company and will provide additional distribution to both professional and retail channels for the Company’s products.

Results
of Operations

Years
Ended December 31, 2022 and 2021

NM:
Not meaningful

Revenue

The
decrease in revenues was directly related to the planned reduction of discontinued inventory as we continued to shift our focus to the
development of our new patented “Smart” platforms and technologies. During 2022 and 2021, we opted to sell through our existing
inventory of discontinued products to facilitate our planned transition into our new product lines.

We
believe that revenues will be higher in 2023 than in 2022, since we launched the marketing of our advanced and smart products in late
2022 and expect to begin commercial sales in 2023. We also expect the pending Acquisition to increase our revenues, assuming the Company
successfully consummates the Acquisition.

Cost
of Revenues

During
2022 and 2021, revenues were mostly derived from the sale of a small number of replacement parts and standard canopy kits. The inventory
and related costs of such products are not significant and are not reflected on our balance sheet nor in the cost of revenues. The reduction
in cost of revenues was related to the decrease in sales, which resulted from our decision to discontinue our old products and transition
to our patented “Smart” platforms and technologies.

We
believe that cost of revenues will increase in 2023 compared to in 2022, commensurate with an anticipated increase in revenues.

47

Selling,
General and Administrative Expenses

Selling,
general and administrative expenses consist primarily of an allocation of product development, sales, finance, legal, human resources,
including salaries, wages, and benefits, and depreciation and amortization, including non-cash equity-based compensation.

The
increase in selling, general, and administrative expenses during 2022 when compared to the prior year was primarily due to the following:

We
believe that our selling, general, and administrative expenses will be higher during 2023 when compared to 2022 as we continue to invest
to support our anticipated growth.

Other
Income (Expense)

The
increase in interest expense in 2022 when compared to the prior year was primarily due to higher weighted-average interest-bearing obligations
during 2022, resulting from the compounding of accrued interest.

The
increase in other income - loan forgiveness during 2022 when compared to the prior year was due the forgiveness of a PPP loan during
the first quarter of fiscal 2022, which did not occur during 2021.

We
believe that interest expenses will increase during fiscal 2023 when compared to 2022, primarily as a result of increased operating lease
liabilities.

Liquidity
and Capital Resources

As
of December 31, 2022 and 2021, we had $16.8 million and $10.4 million in cash and cash equivalents, restricted cash, and investments
in debt securities, respectively. As we develop our revenue base, we have raised additional funds through the sale of our common
stock and securities convertible into our common stock and issuance of debt, including completing our initial public offering in
February 2022 for gross proceeds of $23.1 million and the Private Placements in February and March 2023 for gross proceeds of $10.35
million, pursuant to which we issued convertible notes and warrants. We believe that our existing cash and debt securities will be
sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Our future capital
requirements will depend on many factors, including consummation of the Acquisition, our revenue growth rate, expenditures related
to our headcount growth, the timing and the amount of cash received from customers, the expansion of sales and marketing activities,
the timing and extent of spending to support development efforts, the price at which we are able to purchase parts to incorporate in
our product offerings, the introduction of platform enhancements, and the market adoption of our platforms. We may continue to enter
in arrangements to acquire or invest in complementary businesses, products, and technologies. We may, because of those arrangements,
including the pending Acquisition, or the general expansion of our business, be required to seek additional equity or debt
financing. If we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we
are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation,
we may not be able to compete successfully, which would harm our business, results of operations, and financial
condition.

During
2022, we entered into certain lease and sublease agreements, including (i) a sublease agreement entered into during April 2022, pursuant
to which we agreed to sublease approximately 3,400 square feet of office space located on the 54th floor of Carnegie Hall Tower, located
at 152 West 57th Street, New York, New York, at a fixed monthly base rent starting at $26,893 for the first year of the sublease, and
(ii) a lease agreement entered into during September 2022, pursuant to which we agreed to lease approximately 32,200 square feet located
at 400 Biscayne Boulevard, Miami, Florida, at a fixed minimum monthly base rent of $214,480 during the first full year of the lease.
The Miami, Florida lease provides for rent abatements of a minimum of 10 months, as well as for the lessor’s leasehold improvements
of up to $2.3 million. We also issued a letter of credit of $2.7 million to one of the lessors as collateral for certain obligations
related to the lease.

48

We
owe approximately $5.5 million under fixed rate obligations and $1.3 million under convertible notes as of December 31, 2022. We issued
an additional $8.1 million in convertible notes during the first quarter of 2023. In addition, we owe GE certain minimum royalty payments
under the License Agreement which amounted to $2.6 million as of December 31, 2022.

2022

During
2022, we used $13.8 million in our operating activities, which consisted of our net loss of $27.0 million adjusted for non-cash equity
compensation of $14.0 million and an increase of inventory of $1.0 million. We have recently increased our inventory in preparation for
the anticipated launch of commercial sales of our advanced and smart products during 2023.

Our
net cash used in investing activities amounted to $8.1 million and consisted primarily of purchases of debt securities of $7.4 million.

We
generated $20.9 million in financing activities, of which $20.6 million was generated from our initial public offering.

2021

During
2021, we used $4.6 million in our operating activities, which consisted of our net loss of $5.7 million adjusted for non-cash equity
compensation of $1.5 million.

We
generated $12.9 million in financing activities, which consisted primarily of proceeds from issuance of our shares of common stock of
$13.0 million.

Non-GAAP
Financial Measures

Management
considers selling, general, and administrative expenses, adjusted for non-cash stock compensation, an important indicator in consistently
evaluating our business operations and the use of cash in our operating activities. We use such measure to analyze and evaluate our liquidity
and capital resources and intend to continue using such measure until we generate revenues. Such measure eliminates significant items
that do not involve cash outlay. This measure should be considered in addition to, rather than as a substitute, for selling, general
and administrative expenses. This non-GAAP financial measure excludes significant expenses that are required by GAAP to be recorded in
our financial statements and is subject to inherent limitations. Investors should review the reconciliation of this non-GAAP financial
measure to the comparable GAAP financial measure included below. Investors should not rely on any single financial measure to evaluate
our business.

Off
Balance Sheet Arrangements

We
do not have any off-balance sheet arrangements.

Critical
Accounting Policies

Our
significant accounting policies are disclosed in Note 2 to our 2022 consolidated financial statements. The following is a summary of
those accounting policies that involve significant estimates and judgment of management.

49

Use
of Estimates

The
preparation of financial statements in conformity with GAAP 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.

Fair
Value of Financial Instruments

Disclosures
about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance
sheet, where it is practicable to estimate that value. As of December 31, 2022 and 2021, we believe the amounts reported for cash, prepaid
expenses, accounts payable, accounts payable – related party, accrued expenses and other current liabilities, accrued interest,
notes payable and convertible note payable approximate fair value because of their short maturities.

Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

Stock-Based
Compensation

Stock-based
compensation is accounted for based on the requirements of ASC 718 – “Compensation–Stock Compensation”,
which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange
for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award
(presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange
for an award based on the grant-date fair value of the award.

Stock-based
compensation is measured at the grant date of options based on the value of the award granted using the Black- Scholes option pricing
model based on projections of various potential future outcomes and recognized over the period in which the award vests. Expected volatility
is the assumption having the greatest impact on the fair value of options. Our expected volatility is based on the historical volatility
of comparable companies. For stock awards no longer expected to vest, any previously recognized stock compensation expense is reversed
in the period of termination. The stock-based compensation expense is included in general and administrative expenses.

50

Revenue
Recognition

We
account for revenues in accordance with Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers”
(Topic 606).

Under
Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects
the consideration we expect to be entitled to in exchange for those goods or services.

We
determine revenue recognition through the following steps:

Recent
Accounting Pronouncements

Although
there are several new accounting pronouncements issued or proposed by the Financial Accounting Standards Board, which we have adopted
or will adopt, as applicable, we do not believe any of these accounting pronouncements has had or will have a material impact on our
financial position or results of operations.

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

You
should read the following discussion and analysis of our financial condition and results of operations together with our financial statements
and the related notes appearing elsewhere in this Form 10-K. This discussion and other parts of this Form 10-K contain forward-looking
statements that involve risks and uncertainties, such as statements regarding our plans, objectives, strategy, expectations, outlook,
intentions and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors”
section of this Form 10-K.

Overview

We
have a series of advanced-safe-smart platform technologies. Our first-generation technologies enable light fixtures, ceiling fans and
other electrically wired products to be installed safely and plugged-in into a ceiling’s electrical outlet box within seconds,
and without the need to touch hazardous wires. The plug and play technology method is a universal power-plug device that has a matching
receptacle that is simply connected to the electrical outlet box on the ceiling, enabling a safe and quick plug and play installation
of light fixtures and ceiling fans in just seconds. The plug and play power-plug technology eliminates the need of touching hazardous
electrical wires while installing light fixtures, ceiling fans and other hard wired electrical products. In recent years, we have expanded
the capabilities of our power-plug product to include advanced safe and quick universal installation methods, as well as advanced smart
capabilities. The smart features include control of light fixtures and ceiling fans by the SkyHome App, through WIFI, BLE and voice control.
It allows scheduling, energy savings eco mode, dimming, back-up emergency light, night light, light color changing and much more. Our
second-generation technology is an all-in-one safe and smart advanced platform that is designed to enhance all-around safety and lifestyle
of homes and other buildings. Our products are designed to improve all around home and building safety and lifestyle. While we have developed
and created working prototypes of our advanced and smart products, we are continuing to refine the product prototypes and expect to begin
commercial manufacturing and marketing in the first half of 2022 for the advanced products and the smart universal power-plug, ceiling
fans and lighting products and the second half of 2022 for the Smart Sky Platform. We hold over 60 U.S. and global patents and patent
applications and have received a variety of final electrical code approvals, including UL, United Laboratories of Canada (cUL) and Conformité
Européenne (CE), and 2017 and 2020 inclusion in the NEC Code Book.

The
ongoing COVID-19 pandemic has caused significant disruption in the international and United States economies and financial markets. We
have been following the recommendations of local health authorities to minimize exposure risk for our employees, including the temporary
closures of our offices and having employees work remotely to the extent possible, which has to an extent adversely affected their efficiency.
In addition, the cancellation of in-person meetings and conferences has had an adverse impact on our business and financial condition
and has hampered our ability to meet with customers to promote products, generate revenue and access usual sources of liquidity on reasonable
terms, which in turn has negatively impacted our financial performance. As the situation continues to evolve, we will continue to closely
monitor market conditions and respond accordingly.

In
March 2020, the CARES Act was enacted. Among other things, the CARES Act established the PPP, which funded eligible businesses through
federally guaranteed loans. Under the PPP, companies are eligible for forgiveness of principal and accrued interest if the proceeds are
used for eligible costs, which include, but are not limited to, payroll, benefits, mortgage, lease, and utility expenses. We have applied
for and received certain financial assistance under the CARES Act, as described further below.

46

Results
of Operations

Comparison
of the Years Ended December 31, 2021 and 2020

NM:
Not meaningful

Revenue

The
decrease in revenues was directly related to the planned reduction of discontinued inventory as we continued to shift our focus to the
development of our new patented “Smart” platforms and technologies. During 2021 and 2020, we opted to sell through our existing
inventory of discontinued products to facilitate our planned transition into our new patented product lines.

Cost
of Revenues

The
reduction in cost of revenues was related to the decrease in sales, which resulted from our decision to discontinue our old products
and transition to our patented “Smart” platforms and technologies.

Selling,
General and Administrative Expenses

Selling,
general and administrative expenses consist primarily of an allocation of product development, sales, finance, legal, human resources,
including salaries, wages, and benefits, and depreciation and amortization, including non-cash equity-based compensation

The
decrease in selling, general, and administrative expenses during 2021 when compared to the prior period was primarily due to a decrease
in stock-based compensation of $3.6 million during 2021. The decrease in stock-based compensation during 2021 was primarily due to fewer
options and shares of common stock granted during 2021.

Other
Income (Expense)

The
increase in interest expense in 2021 when compared to the prior period was primarily due to higher weighted-average interest-bearing
obligations during 2021, resulting from the compounding of accrued interest.

The
decrease in other income loan forgiveness during 2021 when compared to 2020 was primarily due to a non-recurring forgiveness of a PPP
loan during 2020, which did not occur during 2021.

47

Liquidity
and Capital Resources

As
of December 31, 2021 and December 31, 2020, we had $10,426,249 and $2,308,871 in cash and cash equivalents, respectively. As we develop
our revenue base, we have raised additional funds through the sale of our common stock and issuance of debt, including completing our
initial public offering in February 2022 for gross proceeds of $23.1 million. We believe that our sources of liquidity and capital will
be sufficient to finance our continued operations for at least the next 12 months. Our debt previously included a $10,000,000 secured
loan, arranged in April 2016 pursuant to a promissory note between us and NBG, to support our working capital needs. As of December 31,
2020, we had $5,458,642 outstanding under the note (exclusive of interest). On December 14, 2021, we entered into a new secured promissory
note with NBG, in the amount of approximately $5.9 million, which amended and replaced the April 2016 promissory note. The unpaid principal
accrues interest at the Wall Street Journal prime rate plus 1.75% per year. The amended note will mature sixty months following the date
of issuance. The Company agreed to make the following payments to NBG: on the date of issuance, $243,000; on December 30, 2021, an amount
equal to all accrued and unpaid interest as of such date, plus $100,000; and on each of July 1, 2022, December 30, 2022, July 1, 2023
and December 30, 2023, an installment payment in an amount equal to all accrued and unpaid interest as of the respective date, plus $200,000.
Commencing January 15, 2024, the Company will begin paying equal monthly installments of $144,176 in principal, plus all accrued and
unpaid interest as of the payment date. The Company may prepay the amounts due under the amended note at any time and from time to time.
The note contains customary events of default and, in the event that an event of default occurs, the amended note and all accrued interest
will become immediately due and payable. The amended note is secured by the existing pledge and security agreement and by a first priority
security interest in substantially all of the Company’s assets.

In
addition, we have agreed to pay GE certain minimum royalty payments under the License Agreement. In December 2020, we agreed to pay a
total of approximately $5.1 million to GE in quarterly installments through December 2023. As of December 31, 2021, the outstanding balance
of such royalty payments was approximately $3.8 million.

The
following is a summary of our cash balances and cash flows as of and for the years ended December 31, 2021 and 2020:

Fiscal
2021

During
2021, we used $4.6 million in our operating activities, which consisted of our net loss of $5.7 million adjusted for non-cash equity
compensation of $1.5 million and a decrease of accounts payable and other obligations of approximately $600,000. We also incurred approximately
$179,000 in payments related to our patents pursuant to our investing activities. There were no changes to our inventory carrying
values at December 31, 2021 when compared to the prior year measurement date. Our inventory consists primarily of analog components that
we intend to use in the manufacturing of our products upon launch in 2022.

We
generated $12.9 million in financing activities, of which $13.2 million was generated from the issuance of our shares of common stock
and approximately $178,000 from the issuance of a note payable pursuant to the PPP, offset by principal repayments of a note payable
of $343,000.

Fiscal
2020

During
2020, we used $3.1 million in our operating activities, which consisted of our net loss of $9.2 million adjusted for non-cash equity
compensation of $5.1 million, as well as a decrease in accounts receivable and inventory of approximately $418,000 and $325,000, respectively,
and an increase of accounts payable and other obligations of approximately $376,000.

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We
also incurred approximately $95,000 in payments related to our patents pursuant to our investing activities.

We
generated $3.7 million in financing activities, of which $2.1 million and $1.3 million were generated from the issuance of our shares
of common stock and convertible notes, respectively, and approximately $280,000 from the issuance of a note payable pursuant to the Paycheck
Protection Program.

Working
capital

We
had working capital of $8,751,934 as of December 31, 2021, as compared to $1,018,361 as of December 31, 2020. Working capital improved
by approximately $7.7 million, which was primarily attributable to an increase in cash proceeds from stock issuances, which was offset,
in part, by an increase in accrued expenses and the current portion of notes payable.

A
majority of our sales do not require us to take delivery of inventory. Production of the Sky technology and products 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. Our sales were impacted during the years ended December 31, 2021 and 2020 as we executed the liquidation
of discontinued inventory as we continued the development of our new patented “Smart” platforms and technologies.

Non-GAAP
Financial Measures

To
supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles
in the United States of America (“GAAP”), management uses adjusted net income (loss) to evaluate operating and financial
performance and believes the measure is useful to investors because it eliminates the impact of certain noncash and/or other items that
management does not consider to be indicative of our performance from period to period. Management also believes this non-GAAP measure
is useful to investors to evaluate and compare our operating and financial performance across periods, as well as facilitating comparisons
to others in our industry, although other companies may calculate this non-GAAP measure differently, which may limit the usefulness of
this measures for comparative purposes.

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

These
non-GAAP measures should not be considered in isolation or as a substitute for, or superior to, financial measures calculated in accordance
with GAAP. These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in our
financial statements and are subject to inherent limitations. Investors should review the reconciliations of these non-GAAP financial
measures to the comparable GAAP financial measures that are included below. Investors should not rely on any single financial measure
to evaluate our business.

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

Off
Balance Sheet Arrangements

We
do not have any off-balance sheet arrangements.

Future
Impact of COVID-19

The
negative impact of the COVID-19 pandemic on companies continues and we are currently unable to assess with certainty the broad effects
of COVID-19 on our future business. As of December 31, 2021, we had no material assets that would be subject to impairment or change
in valuation due to COVID-19.

Critical
Accounting Policies

Our
significant accounting policies are disclosed in Note 2 to our consolidated financial statements for the year ended December 31, 2021.
The following is a summary of those accounting policies that involve significant estimates and judgment of management.

Use
of Estimates

The
preparation of financial statements in conformity with GAAP 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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Fair
Value of Financial Instruments

Disclosures
about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance
sheet, where it is practicable to estimate that value. As of December 31, 2021 and 2020, we believe the amounts reported for cash, prepaid
expenses, accounts payable, accounts payable – related party, accrued expenses and other current liabilities, accrued interest,
notes payable and convertible note payable approximate fair value because of their short maturities.

Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

Stock-Based
Compensation

Stock-based
compensation is accounted for based on the requirements of ASC 718 – “Compensation–Stock Compensation”,
which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange
for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award
(presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange
for an award based on the grant-date fair value of the award.

Stock-based
compensation is measured at the grant date based on the value of the award granted using the Black- Scholes option pricing model based
on projections of various potential future outcomes and recognized over the period in which the award vests. For stock awards no longer
expected to vest, any previously recognized stock compensation expense is reversed in the period of termination. The stock-based compensation
expense is included in general and administrative expenses.

Revenue
Recognition

We
account for revenues in accordance with Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers”
(Topic 606).

Under
Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects
the consideration we expect to be entitled to in exchange for those goods or services.

We
determine revenue recognition through the following steps:

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Recent
Accounting Pronouncements

Although
there are several new accounting pronouncements issued or proposed by the Financial Accounting Standards Board, which we have adopted
or will adopt, as applicable, we do not believe any of these accounting pronouncements has had or will have a material impact on our
financial position or results of operations.

See
the notes to the consolidated financial statements for the year ended December 31, 2021 included elsewhere in this Form 10-K for additional
discussion regarding recent accounting pronouncements.