SKYX Platforms Corp. quarterly report, Q1 FY2024

Business context and reporting period

SKYX Platforms Corp. filed this unaudited Form 10-Q for the quarter ended March 31, 2024. The company develops safety and smart-home technologies for lighting, ceiling fans, and other electrical products, and also sells third-party home furnishings through Belami, acquired in April 2023. Consequently, reported Q1 2024 revenue includes Belami, while reported Q1 2023 revenue does not.

Financial results and liquidity

Operating expenses were $14.47 million, including $6.53 million in selling and marketing and $7.94 million in general and administrative expenses. Interest expense was $788,000. Adjusted EBITDA, a non-GAAP measure, was a loss of $4.53 million, compared with a loss of $3.78 million.

At March 31, 2024, cash and cash equivalents were $14.15 million and restricted cash was $5.64 million; combined cash, cash equivalents, and restricted cash totaled $19.79 million. Working capital was approximately $1.15 million (management describes it as $1.2 million). Current assets were $25.48 million and current liabilities were $24.33 million. Total liabilities were $60.69 million, including $21.27 million of debt principal (reported debt net of unamortized discount was $16.86 million) and substantial operating lease liabilities. Stockholders’ equity was $13.50 million.

Material changes versus the prior period

• Revenue increased substantially following the Belami acquisition; management attributes the increase primarily to Belami product sales. The reported-year comparison is not like-for-like. Pro forma Q1 2023 revenue, assuming Belami had been acquired at the start of that period, was $18.64 million.
• Gross profit rose with sales, but the company recorded a $9.68 million net loss versus $7.97 million a year earlier. Operating expenses increased by $7.22 million, while operating cash use increased by approximately $2.06 million.
• Debt principal increased to $21.27 million from $18.27 million at year-end 2023. In March, $3.12 million payable to Belami sellers was replaced with 10% convertible notes due May 2025, convertible at $3.00 per share.
• During Q1, the company issued 2.73 million shares through its ATM program for net proceeds of approximately $3.58 million. Common shares outstanding were 97.10 million at quarter-end and 100.03 million as of May 1, 2024.

Outlook, risks, and unusual items

Management expects 2024 revenue to exceed 2023, mainly due to Belami and sales of the company’s advanced-safe-smart products. It also expects cost of revenue and operating expenses to increase, with investment continuing to support growth. No quantified revenue or earnings guidance is provided.

The filing states that recurring losses and operating cash use create substantial doubt about the company’s ability to meet obligations over the year following issuance of the financial statements. Management plans to improve cash generation through higher revenue and margins and, if needed, additional equity or debt financing, including the ATM program. The filing reports approximately $6.5 million remaining under the ATM in one note and $6.6 million in MD&A.

Key risks include continued cash burn and access to financing; debt repayment and covenants; reliance on third-party manufacturers and suppliers; product acceptance, competition, and Belami integration; inflation, supply-chain constraints, and geopolitical disruption, including potential effects of the Israel-Hamas war on developers in Israel. Management reported no material legal proceedings and no material changes to the risk factors in the 2023 Form 10-K. It concluded disclosure controls were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter.

After quarter-end, the company issued a $1.0 million non-interest-bearing convertible note to GE, convertible at $1.07 per share, reducing a stated 2027 obligation by $400,000. In April, it also issued 1,853,421 shares to Belami sellers and released $750,000 from escrow. The GE agreement and seller-note arrangements affect future obligations and potential dilution.

Important facts for investors to verify

• Assess cash runway using unrestricted cash, restricted cash, quarterly operating cash use, and upcoming debt maturities; $6.33 million of principal is scheduled for the nine months ending December 2024.
• Evaluate whether Belami revenue and anticipated smart-product sales can improve gross margins and reduce operating cash burn; reported Q1 year-over-year revenue growth is heavily affected by the acquisition.
• Review debt terms, collateral, conversion features, GE obligations, lease commitments, and the company’s ability to refinance or repay obligations.
• Track potential dilution from convertible notes, options, warrants, equity compensation, and further ATM sales; the filing lists 43.69 million anti-dilutive common-stock equivalents at quarter-end.
• Reconcile filing inconsistencies: MD&A reports Q1 selling and marketing expense of $6.59 million, while the financial statements report $6.53 million; the remaining ATM capacity is described as both $6.5 million and $6.6 million.