Filing identity and reporting period
The supplied filing is SQL Technologies Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018. It does not identify SKYX Platforms Corp. as the registrant; investors should verify that this is the intended filing before relying on the figures.
SQL Technologies develops quick-install electrical-fixture technology and sold GE-branded fans and lighting. Management said it was transitioning its product portfolio toward “smart” technologies and its proprietary SkyPlug technology.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | 2018: $2.26 million; 2017: $2.50 million | 2018: $5.40 million; 2017: $5.12 million |
| Gross profit and margin | 2018: $0.39 million, 17.1%; 2017: $0.53 million, 21.3% | 2018: $1.10 million, 20.3%; 2017: $1.14 million, 22.3% |
| Operating loss | 2018: $2.47 million; 2017: $1.51 million | 2018: $4.23 million; 2017: $2.66 million |
| Net loss | 2018: $3.87 million; 2017: $1.92 million | 2018: $5.46 million; 2017: $19.33 million |
| Cash used in operations | Not separately stated | 2018: $2.23 million; 2017: $2.17 million |
For the six-month period, Adjusted EBITDA, a non-GAAP measure, was a loss of $1.46 million versus a loss of $1.41 million in 2017. The filing reports $3.98 million cash at June 30, down from $4.88 million at year-end 2017. Current assets were $8.16 million and current liabilities $37.68 million, including $20.24 million of derivative liabilities; reported working-capital deficit was $29.52 million. Total liabilities were $37.68 million. The balance sheet also presents $45.75 million of redeemable preferred stock outside permanent equity and total stockholders’ deficit of $74.10 million.
Material changes and notable items
- Second-quarter revenue fell 9.7% year over year, while first-half revenue rose 5.4%. Gross profit declined in both comparisons, and gross margin contracted.
- First-half SG&A rose 70.6% to $4.39 million. Management attributed the increase primarily to $1.83 million of non-cash stock compensation, including executive awards, option expense, and shares issued in connection with the credit line.
- First-half net loss was substantially narrower than in 2017, largely because the prior period included a $13.02 million loss from changes in fair value of embedded derivative liabilities. In 2018, that item was a $0.75 million gain. Derivative valuations and related charges are significant and subject to estimates.
- Debt included a $4.94 million secured line-of-credit balance due January 10, 2019, a $0.20 million related-party demand note, and a bank note due August 28, 2018. The company said $5.06 million remained available under its $10 million line, which expires in January 2019; it had no committed replacement financing.
- The GE license required cumulative payments of $12 million by November 2018, with any unpaid balance due in December 2018. The recorded royalty obligation was $10.39 million at June 30. The GE trademark license itself expires in November 2018.
- The company reported 13.46 million Series A preferred shares, classified as redeemable mezzanine equity, with a 6% dividend and conversion and put-related terms. Common shares outstanding were 53.56 million at June 30.
Outlook, risks, and controls
No quantified revenue, earnings, or cash-flow guidance is provided. Management said the company may need to raise capital or arrange alternative financing to replace the expiring credit facility and support working capital. It identified commercialization, retail competition, economic conditions, cost volatility, and financing needs as risks. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting. The filing states there were no pending legal proceedings and no subsequent events requiring disclosure.
Important facts for investors to verify
- Confirm that this SQL Technologies Corp. filing, rather than a filing for SKYX Platforms Corp., is the intended document.
- Verify the GE license and royalty payment deadlines, the amount ultimately payable, and any effect of license expiration on sales.
- Assess the company’s ability to refinance or repay debt as the line of credit and other notes mature, given cash, operating cash use, and the working-capital deficit.
- Review the valuation assumptions and potential share dilution associated with derivative liabilities, preferred stock, options, warrants, and equity compensation.
- Reconcile period figures against the original filing: the MD&A includes some comparative figures that differ from the financial statements, and the filing contains inconsistent share counts in certain preferred-stock disclosures.