Safety Quick Lighting & Fans Corp. — Form 10-Q Summary
Period: Quarter and nine months ended September 30, 2014. The filing identifies the issuer as Safety Quick Lighting & Fans Corp., not SKYX Platforms Corp.; verify the entity and filing-period metadata before relying on this summary.
Business context
The company develops a patented quick-connect electrical plug for lighting fixtures and ceiling fans. Its stated strategy is to sell GE-branded fixtures and fans with the technology installed, rather than primarily selling the device as an add-on. It owns 98.8% of its manufacturing subsidiary. The filing describes planned production through third-party manufacturers and says production would generally follow customer purchase orders.
Financial performance and position
- Revenue and margins: The statements of operations report no revenue or cost-of-sales line for either comparative period. Gross margin therefore cannot be assessed from the presented statements.
- Net loss: Third-quarter 2014 net loss was $1.076 million, versus $55,969 in Q3 2013. Nine-month net loss was $3.390 million, versus $135,150 in the prior-year period. Loss attributable to the company was $3.349 million for the first nine months; basic and diluted loss per share was $0.10.
- Expenses: Nine-month general and administrative expense rose to $1.420 million from $102,440. Other expense was $1.970 million, including $1.516 million of interest expense, $568,485 of derivative expense, and $320,619 of registration-related penalties, partly offset by a $433,901 gain from changes in derivative fair value.
- Cash flow: Nine-month operating cash use was $1.339 million, investing cash use was $190,095, and financing provided $2.142 million. Cash increased to $1.746 million from $1.133 million at year-end 2013.
- Liquidity: Current assets were $1.818 million and current liabilities were $5.849 million, a working-capital deficit of $4.031 million. The filing says the deficit includes $4.921 million of derivative liabilities. Management states available cash and anticipated revenue may not cover near-term needs.
- Debt and dilution: The balance sheet reports $98,086 of current notes payable, $331,775 of long-term notes payable, $1.481 million of long-term convertible debt net, and $50,000 of related-party convertible debt net. Gross convertible notes were $4.270 million; large debt discounts reduce their reported carrying value. Convertible notes bear 12% or 15% stated interest, are secured, and are convertible at $0.25 per share; related warrants generally have a $0.375 exercise price. The filing lists 27,985,916 common-stock equivalents, excluded from diluted EPS as anti-dilutive.
- Equity: 35.5 million common shares were outstanding at September 30, 2014, versus 34.5 million at year-end 2013. Stockholders’ deficit was $5.488 million.
Changes versus the prior comparable period
Losses and operating cash use increased substantially from the first nine months of 2013. Management attributes higher G&A principally to professional and consulting fees associated with audits and the registration statement, new salaries, and rent. Interest and derivative-related expenses rose following convertible-note financings in late 2013 and 2014. Financing proceeds supported working capital and other stated business-plan costs.
Outlook, risks, and unusual items
- Going concern: The auditor-related financial-statement note says recurring losses, operating cash use, and working-capital and stockholders’ deficits raise substantial doubt about the company’s ability to continue as a going concern. Management expects to seek debt or equity financing; availability on acceptable terms is not assured, and equity funding could dilute shareholders.
- GE license commitment: The amended license sets tiered royalties of 7%, 6%, or 5% of net sales and a $12 million aggregate minimum through November 30, 2018. Any shortfall is due at term end. The size and timing of this commitment are significant relative to the company’s reported liquidity.
- Registration defaults: The company accrued $320,619 of penalties at September 30 for late registration filings. The registration statement was filed August 1 and became effective October 22, 2014. Part II separately reports $271,733 of filing-default damages through August 1 and increased interest rates on certain November 2013 notes to 24% and 27% by October 22 due to an effectiveness default. These disclosures should be reconciled.
- Operating risks: Management cites commercialization uncertainty, competition at large retail chains, economic conditions, cost volatility, and dependence on financing. The company had no inventory or accounts receivable at quarter-end and said it had no financing facility in place for potential receivables or inventory needs.
- Controls and contingencies: Disclosure controls were deemed ineffective because the small staff did not provide adequate segregation of duties; management planned to hire accounting personnel. The company reported no pending legal proceedings. It also reported no off-balance-sheet arrangements.
- Subsequent events: The company entered a new 53-month headquarters lease in October 2014 and sublet its former office through March 2017. The filing also describes a $6,500 monthly consulting agreement and related options whose terms were still being negotiated.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for Safety Quick Lighting & Fans Corp., while the request names SKYX Platforms Corp.
- Determine whether, and when, the company began generating revenue; the presented statements contain no revenue line.
- Reconcile registration-default damages, accrued penalties, and the post-quarter interest-rate increases on the notes.
- Review the convertible-note terms, derivative-liability valuation assumptions, potential ratchet provisions, and resulting dilution.
- Assess the $12 million minimum GE royalty commitment against commercialization prospects and the company’s ability to finance operations.
- Check subsequent financing, sales, and liquidity developments relevant to the stated going-concern doubt.