Business context and reporting period
The supplied filing is a Form 10-Q for the quarter and nine months ended September 30, 2018. However, it identifies the registrant as SQL Technologies Corp. (formerly Safety Quick Lighting & Fans Corp.), not SKYX Platforms Corp.; investors should verify that this is the intended filing. SQL Technologies developed quick-install electrical-fixture technology and sold GE-branded fans and lighting. Management said it was shifting its product portfolio and marketing toward smart technologies.
Financial results and liquidity
| Metric | Three months ended Sept. 30, 2018 | Three months ended Sept. 30, 2017 | Nine months ended Sept. 30, 2018 | Nine months ended Sept. 30, 2017 |
|---|---|---|---|---|
| Revenue | $1.012 million | $1.415 million | $6.413 million | $6.537 million |
| Gross profit (margin) | $83,000 (8.2%) | $222,000 (15.7%) | $1.179 million (18.4%) | $1.359 million (20.8%) |
| Operating loss | $2.672 million | $1.581 million | $6.905 million | $4.242 million |
| Net loss | $3.587 million | $2.128 million | $9.048 million | $21.457 million |
| Net loss per share | $0.068 | $0.040 | $0.171 | $0.44 |
At September 30, 2018, cash was $3.149 million, versus $4.878 million at December 31, 2017. Current assets were $6.288 million and current liabilities $25.884 million, producing a reported working-capital deficit of $19.596 million. The filing reports $5.645 million of current line-of-credit debt and $200,000 due to a related party. Derivative liabilities were approximately $17.361 million; GE royalty obligations totaled approximately $5.578 million, including $4 million classified as long-term. Total liabilities were $29.884 million, and the balance sheet showed a total deficit of $68.647 million, including redeemable preferred stock.
Cash used in operating activities was $7.718 million for the nine months, investing cash use was $31,000, and financing provided $6.021 million. Cash decreased $1.728 million. The cash-flow statement includes a $9.183 million reduction in royalty payable; MD&A separately describes operating cash use of $3.298 million after a $4.422 million GE-related adjustment. These presentations are not readily reconcilable from the supplied text.
Material changes versus the prior comparable period
- Third-quarter revenue fell 28.5% year over year; nine-month revenue fell 1.9%. Management attributed sales changes to the product-mix transition toward smart technology. Gross margin declined in both comparisons.
- Operating expenses rose: reported SG&A was $2.285 million for the quarter and $6.675 million for nine months, versus $1.170 million and $3.735 million, respectively. Management attributed much of the increase to noncash stock compensation. Operating losses consequently widened.
- Nine-month net loss was smaller than in 2017, largely because the prior-year period included a substantial derivative fair-value charge and a debt-extinguishment loss. The 2018 period included a $1.104 million gain from changes in derivative fair value, offset by $2.969 million of derivative expense.
- Cash declined from year-end 2017, while line-of-credit borrowings increased from $3.457 million to $5.645 million.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management described the transition to smart products and new sales and marketing methods but gave no quantified outlook.
- The $10 million revolving credit facility was due to expire January 10, 2019. The company said $4.355 million remained available at September 30 and that it might need additional capital or replacement financing; no such financing commitment was then in place.
- A September 2018 amendment to the GE license extended it through November 30, 2023, expanded product and territory rights, including smart products, and waived approximately $10 million of the prior royalty obligation. In exchange, the company agreed to minimum payments of $2 million annually in 2018, 2019 and 2020, offset against royalties.
- Management cited commercialization and product success, competition at large retailers, economic conditions, cost volatility, financing needs, regulatory changes, currency movements and natural-disaster risks. Derivative liabilities use Level 3 fair-value estimates, which depend on significant assumptions.
- After quarter-end, warrant exercises generated $125,015 in October and $3 million on October 30; additional shares were issued in a cashless exercise. The filing reported no pending legal proceedings and stated that disclosure controls were effective.
Important facts for investors to verify
- Confirm the filing’s issuer: the document names SQL Technologies Corp., while the request names SKYX Platforms Corp.
- Reconcile the cash-flow statement’s $7.718 million operating cash use with MD&A’s $3.298 million adjusted figure and the stated GE-related adjustment.
- Check apparent internal inconsistencies in MD&A: nine-month cost of sales is stated once as $1.078 million, while the financial statements report $5.233 million; the narrative also appears to conflate SG&A with total operating expenses.
- Confirm reported net loss: the statements of operations show $9.048 million for nine months, while the cash-flow statement gives $9.043 million attributable to SQL Technologies.
- Assess near-term liquidity, credit-facility renewal or replacement, required GE minimum payments, and potential dilution from preferred stock, options and warrants.