SKYX Platforms Corp. (then Safety Quick Lighting & Fans Corp.) — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. The filing is under the name Safety Quick Lighting & Fans Corp. The company develops quick-connect electrical-fixture technology and markets GE-branded lighting and ceiling fans. Sales under its newer business model began in 2015 after manufacturing approvals.
Financial performance
| Metric | Q3 2015 | Nine months 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $262,897 | $2,482,035 | $0 |
| Gross profit / margin | $14,222 / 5.4% | $286,380 / 11.5% | $0 |
| General and administrative expense | $1,220,844 | $3,741,198 | $481,922 / $1,419,989 |
| Operating loss | $1,206,622 | $3,454,818 | $481,922 / $1,419,989 |
| Net loss | $10,080,424 | $13,086,489 | $1,075,698 / $3,389,743 |
| Net loss per share | $0.25 | $0.34 | $0.03 / $0.10 |
For Q3, management said gross margin was 23.7% excluding contractual allowances for returns; reported margin was 5.4%. Management characterized early orders as test orders with lower margins and anticipated improvement on future orders.
- Cash flow: Operating cash outflow was $2,865,936 for the nine months, versus $1,338,612 in 2014. Investing outflow was $31,355; financing inflow was $2,323,277. Cash fell by $574,014 to $667,473.
- Liquidity: Current assets were $1,316,597 and current liabilities $16,810,012, a working-capital deficit of $15,493,415. Total assets were $9,356,496, total liabilities $28,853,187, and total stockholders’ deficit $19,496,691.
- Debt and obligations: Current convertible debt, net of discount, was $3,560,251; the filing also reports $4,270,100 aggregate principal outstanding. The notes bear 12%–15% interest and are convertible at $0.25 per share, with ratchet provisions and associated warrants. A bank note totaled $327,894. The GE license arrangement requires $12 million in minimum payments by November 2018; the recorded royalty obligation was $11,821,957.
- Noncash items: The $7,357,719 nine-month loss from changes in fair value of embedded derivatives materially increased reported losses. Derivative liabilities reached $12,009,481, measured using Level 3 inputs.
Changes, outlook, and risks
- Revenue began in 2015 after GE approvals at third-party manufacturers; online sales were initiated in Q3. The comparable 2014 periods had no sales.
- Nine-month G&A rose by $2,321,209, chiefly reflecting $1,826,100 of GE license amortization, sales commissions, consulting, and expanded sales and production activity. Interest expense rose to $2,273,951 from $1,515,577.
- The company reported substantial doubt about its ability to continue as a going concern, citing its losses, operating cash outflow, and working-capital and stockholders’ deficits. Management expected to seek additional debt or equity financing; it cautioned that funding might not be available on acceptable terms and that dilution could result. No financing commitment was in place.
- The filing gives no quantified revenue or earnings guidance. Management’s outlook depends on commercialization, sales growth, customer acceptance, manufacturing execution, and improved margins. It also identifies competition, economic conditions, cost volatility, and regulatory and other operating risks.
- The stock offering, priced at $0.60 per share, raised $2,009,600 through September 30; the final November 6 closing added $260,000, bringing reported aggregate gross proceeds to $2,269,600.40. The filing also reports 27,819,166 common-stock equivalents at September 30, including convertible debt, warrants, options, and restricted stock. Subsequent to quarter-end, the board authorized 3,990,000 options and 75,000 shares under its incentive plan.
- Management concluded disclosure controls were effective; no material change in internal control over financial reporting was reported. The company stated it had no pending legal proceedings and no off-balance-sheet arrangements.
Investor verification priorities
- Assess near-term funding needs, financing availability, and the going-concern uncertainty against the company’s cash, operating cash burn, and current maturities.
- Review the convertible notes’ principal, maturity dates, default and registration-rights terms, ratchet provisions, and potential share dilution.
- Validate the derivative-liability valuation and its sensitivity to share price and other Level 3 assumptions; distinguish this noncash charge from cash operating performance.
- Test whether sales growth and management’s anticipated margin improvement can support the GE minimum-payment obligation and ongoing license costs.
- Confirm the final offering proceeds, share count, and subsequent incentive awards; the filing reports 41,501,251 shares outstanding as of November 16, 2015.