SKYX Platforms Corp. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The company develops safe-installation and smart-home electrical products and acquired lighting and home-furnishings e-commerce retailer Belami on April 28, 2023; reported results include Belami only from the acquisition date.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $14.98 million | $7,389 | $14.99 million | $14,360 |
| Gross profit | $4.70 million | $1,267 | $4.70 million | $2,598 |
| Gross margin | 31.3% | 17.1% | 31.4% | 18.1% |
| Operating loss | $12.25 million | $4.56 million | $19.49 million | $16.51 million |
| Net loss | $12.27 million | $4.65 million | $20.23 million | $16.50 million |
| Adjusted EBITDA (non-GAAP) | Loss of $2.71 million | Loss of $2.12 million | Loss of $6.10 million | Loss of $5.09 million |
- Q2 basic and diluted loss per share was $0.14, versus $0.06 in Q2 2022. Six-month loss per share was $0.24, versus $0.22.
- Operating cash use was $6.64 million in the first half, compared with $6.20 million in the prior-year period. Investing activities provided $3.23 million, primarily from sales of debt securities, net of Belami acquisition cash paid. Financing activities provided $17.65 million, principally from convertible notes and equity issuance.
- At June 30, cash and cash equivalents were $18.09 million and restricted cash was $5.61 million. Current assets were $28.74 million; current liabilities were $32.48 million. The resulting balance-sheet working-capital deficit is approximately $3.74 million. Management separately reports working capital of $1.9 million after an adjustment for $5.6 million of acquisition consideration payable in shares; investors should reconcile these measures.
- Total liabilities were $59.40 million. Debt principal was $14.80 million, or $9.66 million net of unamortized debt discount; current debt included $3.00 million of notes and $1.30 million of convertible notes. Operating lease liabilities totaled approximately $25.06 million, current and long term.
Material changes and unusual items
- The Belami acquisition contributed substantially to reported revenue and increased expenses. Belami’s initial purchase-price allocation included $15.25 million of goodwill and $8.40 million of customer-relationship and e-commerce-platform intangibles; the allocation remains subject to adjustment through April 2024. Acquisition consideration included cash, shares, and amounts payable.
- Q2 SG&A increased $12.38 million year over year, to $16.95 million. The company attributed the increase mainly to $5.2 million of additional share-based payments, Belami-related sales and marketing and general expenses, and higher depreciation and amortization. First-half SG&A rose 53% to $24.19 million.
- Interest expense increased, reflecting convertible debt, debt-discount amortization, and lease liabilities. A $1.20 million gain on extinguishment of debt partly offset expenses; the company reported repaying a secured note with $2.0 million cash and 574,713 shares.
- First-half share-based payment expense was $10.64 million. The company had 34.23 million options and 2.06 million warrants outstanding at quarter-end; potential dilution is material. Common shares outstanding were 90.66 million at June 30 and 91.85 million as of August 3.
- The company changed product revenue recognition from shipment to delivery during Q2, stating the change did not significantly affect historical revenue. Belami’s results are presented prospectively from acquisition; unaudited pro forma results assuming acquisition on January 1 show Q2 revenue of $20.42 million and net loss of $10.36 million.
Outlook, risks and contingencies
- Management expects 2023 revenue to exceed 2022 levels, citing launches of advanced and smart products and the Belami acquisition; it also expects cost of revenue and SG&A to increase. Management says existing cash, cash equivalents and restricted cash should fund working capital and capital expenditures for at least 12 months, while noting future needs depend on integration, growth, manufacturing, and customer adoption. Additional financing may be needed and may not be available on acceptable terms.
- The company began a $20 million at-the-market equity program. It reported $12.0 million of remaining capacity as of August 9, 2023. The $2.0 million secured revolving credit line matures May 1, 2024.
- Debt maturities include $2.30 million for the remainder of 2023 and $2.01 million in 2024; most remaining principal is due in 2026. Certain convertible notes mature between September 2023 and March 2026 and carry conversion prices ranging from $3 to $15 per share.
- A $2.64 million GE minimum royalty obligation is payable by December 31, 2023. The GE brand license expires in November 2023, subject to the agreement’s terms and renewal or continuation arrangements.
- Management cites risks involving Belami integration, discretionary consumer demand and e-commerce competition, inflation and recession, supply-chain and manufacturing dependence, financing and debt repayment, product adoption, and maintaining the GE license. No material legal proceedings were pending as of the filing. Management concluded disclosure controls were effective at June 30, 2023.
Key investor verification points
- Reconcile the reported $1.9 million adjusted working-capital figure with the approximately $3.74 million deficit implied by balance-sheet current assets and liabilities, including the treatment of acquisition consideration payable in shares.
- Track unrestricted cash, restricted cash, operating cash burn, and the assumptions supporting management’s 12-month liquidity outlook.
- Review Belami’s post-acquisition revenue, margins, cash contribution, integration costs, and final purchase-price allocation.
- Confirm repayment or refinancing plans for near-term debt and the GE royalty obligation, and the status of the GE license after November 2023.
- Assess dilution from the ATM program, convertible notes, warrants, options, and acquisition-related share consideration.