Business context and reporting period
This is an unaudited Form 10-Q for the quarter and six months ended June 30, 2016. The filing identifies the issuer as SQL Technologies Corp., formerly Safety Quick Lighting & Fans Corp.; it describes patented quick-install electrical-fixture technology and GE-branded lighting and ceiling fans. The company name change became effective August 12, 2016.
Important identity discrepancy: The request identifies SKYX Platforms Corp., but the supplied filing is for SQL Technologies Corp. (formerly Safety Quick Lighting & Fans Corp.). Investors should verify the issuer and filing before relying on this summary.
Financial performance and position
| Metric | Q2 2016 | Six months 2016 |
|---|---|---|
| Revenue | $1.85 million, up 131.8% | $3.60 million, up 62.3% |
| Gross profit | $163,863; 8.8% margin | $347,879; 9.7% margin |
| Operating loss | $1.34 million | $2.59 million |
| Net loss | $44.16 million | $43.77 million |
| Net loss per share | $0.98 | $1.00 |
| Operating cash flow | Not presented quarterly | -$4.47 million |
Compared with the six months ended June 30, 2015, revenue increased from $2.22 million and gross profit from $272,157, while gross margin declined from approximately 12.3% to 9.7%. Operating loss widened from $2.26 million. The much larger net loss primarily reflects noncash derivative-related charges: a $35.46 million fair-value charge and $4.96 million derivative expense for the six-month period. Management attributed the valuation increase to the rise in the company’s share price, including a private placement. Interest expense declined to $762,766 from $1.39 million.
At June 30, cash was $5.06 million; current assets were $8.86 million and current liabilities $69.85 million, including $64.58 million of derivative liabilities. Working capital deficit was $60.99 million, versus $28.17 million at December 31, 2015. Total liabilities were $84.19 million against total assets of $15.06 million; stockholders’ deficit was $69.14 million. Convertible debt carrying value was $3.57 million, due within twelve months, and the company also reported a $2.65 million line-of-credit balance. A separate bank note totaled $245,910.
Financing cash flow was $9.11 million, including $7.06 million from stock issuance; investing cash outflow was $30,292. Cash increased by $4.61 million during the six months. The $10 million secured working-capital line carried 8% interest, matured December 31, 2017, and had $7.35 million available at June 30. Shares outstanding were 46,553,343 at June 30 and August 10, 2016.
Material changes, outlook, and risks
- Management attributed sales growth to new and expanded customer accounts. It said gross margin pressure reflected large-retailer sales and the timing of returns. Higher general and administrative costs included warehouse and product-quality oversight, legal, insurance, payroll, consulting, and sales commissions.
- Management said it expected approximately $10 million in 2016 revenue and remained on target, but described projections as speculative; some retailer expansion had been delayed. It estimated year-end break-even revenue at $8 million to $10 million and expected profits in 2017. These are management expectations, not assurances.
- The company planned to add 20–30 SKUs by year-end, develop a “Smart SQL” product line, and expand sales channels and engineering staff. Management cited potential retailer order growth and a broader lighting mix, but noted that sales to date were majority ceiling fans and subject to seasonality.
- Convertible notes bearing 12%–15% interest had been extended under forbearance through July 31, 2016. A subsequent offer asked noteholders to redeem, convert to common stock, or convert into Series A preferred stock, subject to majority-holder consent. The proposed preferred shares carry 6% annual interest, convert at $0.25 per share, and include specified repurchase and holder put rights.
- The GE license requires a minimum cumulative $12 million payment, with any shortfall due in December 2018. The license expires in November 2018. The company reported $11.55 million of GE royalty obligation at June 30.
- Management stated that stock-sale proceeds and available line-of-credit capacity should provide liquidity for the next twelve months, despite continuing operating cash outflows and a large working-capital deficit. Risks disclosed include commercialization and sales uncertainty, competition, economic conditions, product costs, regulatory changes, and potential business failure. No pending legal proceedings were reported.
- Derivative-liability valuation is Level 3 and depends on unobservable assumptions, including volatility. The resulting charges materially affect reported earnings and liabilities. The filing reported no material quarterly change in internal control over financial reporting and said disclosure controls were effective.
Most important facts for investors to verify
- Confirm that this SQL Technologies/Safety Quick filing is the intended filing for the requested company; the issuer name does not match SKYX Platforms Corp.
- Check subsequent filings for the outcome of the noteholder elections, preferred-stock conversions, and any remaining note defaults, maturities, or cash obligations.
- Verify actual sales against the $10 million 2016 outlook, retailer expansion assumptions, gross-margin trends, and management’s stated break-even range.
- Assess liquidity and financing access, including use and terms of the secured credit line, operating cash burn, and the $60.99 million working-capital deficit.
- Review the assumptions and sensitivity underlying the $64.58 million derivative liability and the dilution potential from convertible debt, warrants, and options.
- Track GE royalty payments and the minimum-payment shortfall due under the license, as well as inventory realization and customer returns.