SKY? Company identity and reporting period
Filing identity differs from request metadata: the supplied 10-Q is for SQL Technologies Corp. (formerly Safety Quick Lighting & Fans Corp.), not SKYX Platforms Corp. It covers the quarter and six months ended June 30, 2017; the quarter’s results are compared with 2016.
SQL Technologies developed patented quick-connect technology for electrical fixtures and sold GE-branded lighting and ceiling fans. Management also described development of “Smart SQL” products using Bluetooth and Wi-Fi. The filing says the technology was included in the 2017 National Electrical Code.
Financial performance and position
- Second-quarter revenue: $2.50 million, up 35.1% year over year. Gross profit was $535,000 and gross margin was 21.4%, compared with 8.8% in Q2 2016. Operating loss was $1.51 million; net loss was $1.92 million, or $0.04 per share.
- First-half revenue: $5.12 million, up 42.2%. Gross profit was $1.14 million and gross margin was 22.3%, compared with 9.7% in the prior-year period. Operating loss was $2.66 million; net loss was $19.33 million, or $0.40 per share.
- Cash flow: first-half operating cash outflow was $2.17 million, versus $4.47 million in 2016. Investing cash outflow was $105,000; financing provided $5.35 million, including $5.00 million from warrant exercises. Cash increased by $3.07 million to $7.20 million.
- Liquidity: current assets were $11.17 million and current liabilities were $37.33 million. The company reported a $26.16 million working-capital deficit, which included $32.30 million of derivative liabilities. It also reported $6.70 million of uninsured bank deposits.
- Debt and obligations: notes payable totaled approximately $3.67 million, including a $200,000 related-party demand note. The $10 million secured line of credit had $3.34 million outstanding and $6.66 million available; it expires December 31, 2017. The GE royalty obligation was $10.95 million, with a $12 million cumulative royalty commitment tied to the license agreement.
- Balance sheet: total assets were $14.96 million and total liabilities were $48.29 million. Redeemable preferred stock was reported separately at $45.75 million. Accumulated deficit was $160.60 million.
Changes versus the prior comparable period
Revenue and gross margin improved in both the quarter and first half. Management attributed revenue growth to new customer accounts, higher volumes, and expanded product offerings; margin improvement was attributed to better pricing and volume discounts. General and administrative expense rose 35.8% in Q2 and 29.5% in the first half, with higher payroll, selling, marketing, travel, and product-development costs. Operating losses therefore remained broadly similar year over year.
Reported net losses were substantially smaller than in 2016, primarily because the prior-year periods included much larger noncash derivative fair-value charges. First-half 2017 still included a $13.02 million loss from changes in derivative fair value, $2.26 million of derivative expense, and a $1.26 million loss on debt extinguishment. These items materially affect comparisons of reported net loss with operating performance.
Outlook, risks, and unusual items
- The filing provides no quantified revenue, earnings, or cash-flow guidance. Management said revenue had not been sufficient to cover operating costs and the company continued to have negative operating cash flow.
- Management cautioned that additional financing may be needed to replace the line of credit when it expires or to fund working capital; no replacement financing commitment was in place.
- The GE license requires minimum cumulative royalties of $12 million, with any shortfall due after the license term. The license is amortized through November 2018.
- Derivative liabilities are Level 3 fair-value measurements, and the filing identifies substantial estimation judgment. Changes in share price and valuation assumptions can cause significant earnings volatility.
- Other stated risks include product commercialization and sales variability, competition at large retail chains, economic conditions, product-cost volatility, regulatory changes, and possible adverse patent-litigation outcomes. The filing reports no pending legal proceedings.
- After quarter-end, the company issued options to purchase 350,000 shares on August 2, 2017; options for a further 1.8 million shares authorized in April had not been issued as of August 11.
Important facts for investors to verify
- Confirm the issuer: the supplied filing identifies SQL Technologies Corp., while the request identifies SKYX Platforms Corp.
- Assess whether the company can replace or extend its line of credit before its December 31, 2017 expiration and fund ongoing operating cash needs.
- Review the composition, valuation assumptions, and potential cash or equity consequences of the $32.30 million derivative liabilities and $45.75 million redeemable preferred stock.
- Verify the timing and capacity to meet the GE royalty commitment and the related license’s November 2018 expiration.
- Track revenue growth, gross-margin sustainability, receivables and inventory conversion, and the rising operating expense base.