SKYX Platforms Corp.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes included elsewhere in this Form 10-Q and our audited financial statements and related notes thereto for the year ended December 31, 2024 included in our Annual Report on Form 10-K for the year ended December 31, 2024. This discussion and analysis and other parts of this Form 10-Q contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties, and assumptions, such as statements regarding our plans, objectives, strategy, expectations, outlook, intentions, and projections. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth in “Part I. Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024, in this Form 10-Q, and in other filings with the Securities and Exchange Commission (the “SEC”). Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements” contained in this Form 10-Q.

Overview

We have a series of advanced-safe-smart platform technologies. Our first and second-generation technologies enable light fixtures, ceiling fans and other electrically wired products to be installed safely and plugged in to a ceiling’s electrical outlet box within seconds, and without the need to touch hazardous wires. The plug and play technology method is a universal power-plug device that has a matching receptacle that is simply connected to the electrical outlet box on the ceiling, enabling a safe and quick plug and play installation of light fixtures and ceiling fans in just seconds. The plug and play power-plug technology eliminates the need of touching hazardous electrical wires while installing light fixtures, ceiling fans and other hard wired electrical products. In recent years, we have expanded the capabilities of our power-plug product to include advanced, safe and quick universal installation methods, as well as advanced-smart capabilities. The smart features include control of light fixtures and ceiling fans by the SkyHome App, through WIFI, Bluetooth Low Energy and voice control connections. The SkyHome App allows scheduling, energy saving-eco mode, dimming, back-up emergency light, night light, light color changing and much more. Our third-generation technology is an all-in-one safe and smart-advanced platform (the “Smart Sky Platform”) that is designed to enhance all-around safety and lifestyle of homes and other buildings. We are continuing to refine our products and began manufacturing certain advanced and smart products in 2023 and expect additional products, including the third-generation smart-advanced platform to be available in 2025. Our products are designed to improve all around home and building safety and lifestyle. We expect to manufacture the additional product offerings within the next six months. We hold over 97 U.S. and global patents and patent applications and have received a variety of final electrical code approvals, including UL, United Laboratories of Canada (cUL) and Conformité Européenne (CE), and 2017 and 2020 inclusion in the NEC Code Book.

We believe our total addressable market in the United States exceeds $500 billion, based on the Company’s internal calculations derived from the estimation of the total target user pool, projected average selling price, and projected units per household. We believe there are billions of installations of light and other electrical fixtures globally. Our estimates of the addressable market for our products may prove to be incorrect. The projected demand for our products could differ materially from actual demand. Even if the total addressable market for our products is as large as we have estimated and even if we are able to gain market awareness and acceptance, we may not be able to penetrate the existing market to capture additional market share.

Inflation and related risk of recession increased during 2022 and have continued to impact operations. Inflationary factors, such as tariffs, increases in interest rates, supply and overhead costs and transportation costs, may adversely affect our operating results, and we may not be able to offset increased costs with increased sales price per unit, particularly as we work toward commercial manufacturing of our products. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the near future (especially if inflation rates continue to rise). In addition, we may be negatively impacted because of supply chain constraints, consequences associated with government regulations, ongoing and potential geopolitical conflicts, instability in the global banking system, employee availability and wage increases. We are currently evaluating, and do not yet know, the potential impact of recently increased tariffs to our business and financial condition.

The conflicts in the Middle East may adversely impact our operations in the near future. We have a number of developers working in Israel. If such individuals are called for service or this conflict escalates regionally, it may create work interruptions leading to longer periods between releases of offering improvements and increased costs.

During April 2023, we completed the previously announced acquisition of all the issued and outstanding shares of Belami, a strategic e-commerce lighting and home décor conglomerate. The Company paid cash and issued an aggregate of 3,776,706 shares of our common stock as consideration for the acquisition. The Company expects that Belami will serve as a marketing and growth platform and should provide several distribution channels for our products, including retail customers, builders, and professionals.

In connection with the acquisition, the Company engaged in private placements of its securities during the first quarter of 2023, pursuant to which the Company issued and sold (i) subordinated secured convertible promissory notes in the aggregate principal amount of $10.35 million and (ii) warrants to purchase an aggregate of up to 1,391,667 shares of the Company’s common stock. The proceeds were used to fund the cash component of the Belami acquisition and to pay certain transaction expenses in connection with the acquisition and the private placements.

Recent Developments

In March 2024, the Company and the Belami sellers entered into a letter agreement modifying certain obligations under the stock purchase agreement for the acquisition of Belami. In connection with the letter agreement, the Company issued convertible promissory notes to each of the sellers (the “Seller Note(s)”) in substitution of an aggregate of $3,117,408 in cash due to the sellers on the first anniversary of the closing of the Belami acquisition. Each seller received a Seller Note in an amount of $1,039,303 on the same date. In addition to other customary terms, the Seller Notes bear annual interest at 10%, with interest and principal coming due on May 16, 2025, and can be converted by the sellers into shares of our common stock at any time at $3.00 per share of our common stock. The Seller Notes include customary events of default accelerating maturity, including a breach of the Company’s covenants, representations, and warranties under the Belami stock purchase agreement and a change of control of Belami. The letter agreement further provided that the Company would perform all other obligations arising on the first anniversary of the closing, including issuance of shares of common stock due to sellers, and that on such date the non-fundamental representations and warranties will expire, and the Company would release $750,000 held in escrow. In April 2024, the Company issued an aggregate of 1,853,421 shares of common stock to the sellers and released the escrow amount.

On April 11, 2024, the Company entered into an amendment to the letter agreement previously entered into with GE Trademark Licensing, Inc. (“GE-TL”) in December 2023, which extended the deadline for the Company to issue the convertible note to GE-TL to May 1, 2024, and also issued a three-year, $1.0 million convertible note to GE-TL, thereby reducing obligations due in 2027 by $400,000. The note does not bear interest, and the principal amount of the note is convertible into shares of the Company’s common stock at any time at the option of the holder at $1.07 per share.

During the second quarter of 2023, we began our at the market offering (“ATM”) pursuant to which we may sell up to $20 million of shares of our common stock.

Between October 2024 and March 2025, the Company issued shares of newly authorized Series A Preferred Stock and Series A-1 Preferred Stock which generated proceeds of $12.0 million.

The designations of each class of preferred stock are as follows:

Series A Preferred Stock:

• Cumulative dividend of 8% annually, 12% if paid after dividend date;
• Original issue price of $25 per share;
• Conversion option at the holder’s option at $2 per share, with subsequent equity offering reset provision of no less than $1.20 per share;
• Redemption at the price of $25 per share at the Company’s option after 5 years or upon change of control (substantially outside the control of the holder); and
• Voting rights on as converted basis.

Series A-1 Preferred Stock:

• Cumulative dividend of 8% annually, 12% if paid after dividend date;
• Original issue price of $25 per share;
• Conversion option at the holder’s option at $2 per share, with subsequent equity offering reset provision of no less than $1.20 per share;
• Redemption at the price of $25 per share at the Company’s option after three years or upon change of control (substantially outside the control of the holder); and
• Voting rights on as converted basis.

Results of Operations

Comparison of the Three months ended March 31, 2025

NM: Not meaningful

Revenue

The increase in revenues is primarily due to an increased number of units of lighting and heating products sold.

We believe that our revenues will be higher in 2025 than in 2024 primarily resulting from revenues from the sale of our advanced and smart products.

Cost of Revenues

The increase in cost of revenue is proportionate to the increase in revenues.

We believe that the cost of revenues will increase in 2025 compared to 2024, commensurate with an anticipated increase in revenues.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of sales and marketing compensation as well as sales and marketing programs.

The increase in selling and marketing expenses is primarily due to increased share-based payments to sales and marketing employees and contractors of approximately $450,000.

General and Administrative Expenses

General and administrative expenses consist primarily of an allocation of product development, finance, legal, human resources, including salaries, wages, and benefits, and depreciation and amortization, including share-based payments.

The decrease in general and administrative expenses is primarily due to decreased share-based payments of approximately $700,000 and decreased professional fees.

The increase in interest expense resulted primarily from interest charges related to increased interest-bearing weighted average debt in the current periods when compared to the prior year periods.

Liquidity and Capital Resources

As of March 31, 2025, and 2024, we had $12.3 million and $15.5 million in cash, cash equivalents, and restricted cash, respectively.

We have raised additional funds through the sale of our common stock for gross proceeds of $ 460,000 pursuant to placements and offerings during the three-month period ended March 31, 2025. We also generated gross proceeds of $1.0 million pursuant to the issuance of 40,000 shares of our Series A-1 Preferred Stock in March 2025.

These offerings included shares sold pursuant to our ATM offering program which provides us with additional access to capital, as needed, subject to market conditions. During the three months ended March 31, 2025, we issued 223,756 shares of common stock under such program for net proceeds of $450,428, excluding placement fees of $9,206. From inception through March 31, 2025, we issued 8,118,655 shares of common stock under such a program for net proceeds of $14,706,702, net of brokerage fees and legal fees of $ 628,621. As of March 31, 2025, the remaining amount to be used under the ATM offering program is $5.3 million.

Between October, 2024 and March 2025, we sold an aggregate of 480,000 shares of two series of preferred stock, resulting in total gross proceeds of $12.0 million, pursuant to securities purchase agreements under which an investor purchased an aggregate of 200,000 shares of Series A Preferred Stock, at a purchase price of $25 per share, and securities purchase agreements under which certain investors purchased an aggregate of 280,000 shares of Series A-1 Preferred Stock, at a purchase price of $25 per share.

Since March 31, 2025, the Company generated proceeds of $2.9 million by issuing 114,000 shares of its Preferred Series A-1 stock.

Our future capital requirements will depend on many factors, including the Belami integration of operations, our revenue growth rate, expenditures related to our headcount growth and manufacturing, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the price at which we are able to purchase parts to incorporate in our product offerings, the introduction of platform enhancements, and the market adoption of our platforms. We may continue to enter arrangements to acquire or invest in complementary businesses, products, and technologies. We may, because of those arrangements, or the general expansion of our business, be required to seek additional equity or debt financing. If we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition.

We owe approximately $20.0 million under fixed rate obligations as of March 31, 2025. In addition, we owe GE certain minimum royalty payments under a license agreement and other accrued expenses which amounted to $1.7 million as of March 31, 2025.

On March 29, 2024, we entered into a letter agreement with Belami sellers, modifying certain obligations under the Stock Purchase Agreement. In connection with the letter agreement, the Company issued convertible promissory notes to each of the Sellers (the “Seller Note(s)”) in substitution of an aggregate of $3,117,408 in cash due to the Sellers on the first anniversary of the Closing. Each Seller received a Seller Note in the amount of $1,039,303 on the same date. In addition to other customary terms, the Seller Notes bear annual interest at 10%, with interest and principal coming due on May 16, 2025, and can be converted by the Sellers at any time at $3.00 per share of our common stock.

On September 23, 2024, the Company, through its wholly owned subsidiary, Belami, entered into a $3.5 million secured revolving line of credit (the “line of credit”) with a commercial bank, increasing, and renewing its previous revolving line of credit with such bank. The line of credit bears interest at a variable rate per annum equal to The Wall Street Journal Prime Rate, subject to a floor of 7.5% and ceiling of the maximum rate allowed under applicable law, payable monthly, and matures September 5, 2025. The line of credit is subject to customary default and acceleration provisions and to certain financial covenants, including working capital in excess of $1.75 million and a debt service coverage ratio in excess of 1.25 to 1.00 (calculated as described in the business loan agreement governing the line of credit). In addition, the Company agreed to guarantee Belami’s obligations under the line of credit, pursuant to a commercial guaranty agreement.

As common with companies having a similar cash conversion cycle as ours, when sales are converted into cash rapidly, often referred to as the “Dell Working Capital Model,” we leverage our trades payable to finance our operations to lower our cost of capital, and accordingly, we may have negative working capital. This negative working capital is partly inherent to the relatively quick turnaround of finished goods inventory, quicker collection of accounts receivables, and longer payment cycle of trades payable. Our negative working capital, which consists of accounts receivable, inventory, net of trades and compensation payable, amounted to $8.5 million and $7.2 million as of March 31, 2025, and 2024 respectively.

Please see below a summary of the primary components of our cash used in or provided by operating investing and financing activities during the three-month period ended March 31, 2025:

The changes in working capital, net are primarily attributable to timing differences in accounts receivable, accounts payable related to operations and deferred revenues.

Dividends are related to the Series A and A-1 Preferred Stock initially issued in October 2024.

Going Concern

The Company’s liquidity sources include $ 12.3 million in cash and cash equivalents, including restricted cash of $2.8 million held for long-term purposes, and $ 10.3 million of working capital deficit as of March 31, 2025. The Company has a history of recurring operating losses, and its net cash used in operating activities amounted to $4.3 million and $6.2 million during the three months ended March 31, 2025, and 2024, respectively. The Company has also generated net cash provided by financing activities of $1.5 million and $3.6 million during the three months ended March 31, 2025, and 2024, respectively. Accordingly, the Company’s management cannot ascertain that there is no substantial doubt that it will be able to meet its obligations as they become due within one year after the date that its financial statements are issued.

Management intends to mitigate such conditions by supporting its continued growth, decreasing its cash used in operating activities through increased revenues and increased margins from products sold to large retailers and its internet portals, and to the extent necessary, generating cash provided by financing activities through at the market offering or other equity or debt financing means.

Non-GAAP Financial Measures

Management considers earnings (loss) before interest, taxes, depreciation and amortization, or EBITDA, as adjusted, an important indicator in evaluating our business on a consistent basis across various periods. Due to the significance of non-recurring items, EBITDA, as adjusted, enables our management to monitor and evaluate our business on a consistent basis. We use EBITDA, as adjusted, as a primary measure, among others, to analyze and evaluate financial and strategic planning decisions regarding future operating investments and potential acquisitions. We believe that EBITDA, as adjusted, eliminates items that are not part of our core operations, such as interest expense and amortization and impairment expense associated with intangible assets, or items that do not involve a cash outlay, such as share-based payments, and non-recurring items, such as transaction costs. EBITDA, as adjusted, should be considered in addition to, rather than as a substitute for, pre-tax income (loss), net income (loss) and cash flows used in operating activities. This non-GAAP financial measure excludes significant expenses that are required by GAAP to be recorded in our financial statements and is subject to inherent limitations. Investors should review the reconciliation of this non-GAAP financial measure to the comparable GAAP financial measure included below. Investors should not rely on any single financial measure to evaluate our business.

Critical Accounting Policies

Our significant accounting policies are disclosed in Note 2 to our consolidated financial statements for the year ended December 31, 2024 contained in our Annual Report on Form 10-K. The following is a summary of those accounting policies that involve significant estimates and judgment of management.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes.

Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates.

Fair Value of Financial Instruments

Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of March 31, 2025, and December 31, 2024, we believe the amounts reported for cash, prepaid expenses, accounts payable and accrued expenses and other current liabilities, accrued interest, notes payable and convertible note payable approximate fair value because of their short maturities.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

• Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
• Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
• Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Stock-Based Compensation

Stock-based compensation is accounted for based on the requirements of ASC 718 - “Compensation-Stock Compensation”, which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Stock-based compensation is measured at the grant date based on the value of the award granted using the Black- Scholes option pricing model based on projections of various potential future outcomes and recognized over the period in which the award vests. For stock awards no longer expected to vest, any previously recognized stock compensation expense is reversed in the period of termination. The stock-based compensation expense is included in general and administrative expenses.

Revenue Recognition

We account for revenues in accordance with Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606).

Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We determine revenue recognition through the following steps:

• identification of the contract, or contracts, with a customer;
• identification of the performance obligations in the contract;
• determination of the transaction price;
• allocation of the transaction price to the performance obligations in the contract; and
• recognition of revenue when, or as, we satisfy a performance obligation.

Recent Accounting Pronouncements

Although there are several new accounting pronouncements issued or proposed by the Financial Accounting Standards Board, which we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements have had or will have a material impact on our financial position or results of operations.

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures and any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving their control objectives.

As of the end of the period covered by this report, management, including our Principal Executive Officers and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based upon the evaluation, our Principal Executive Officers and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2025.

Changes in Internal Controls Over Financial Reporting:

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes from the risk factors set forth in “Part I. Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, other than as noted below. Our business, operations and financial results are subject to various risks and uncertainties that could materially adversely affect our business, results of operations, financial condition, and the trading price of our common stock. You should carefully read and consider the risks and uncertainties included in the report referenced above, together with all of the other information in such report and this Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, and other documents that we file with the SEC. The risks and uncertainties described in these reports may not be the only ones we face, and the disclosure of any risk factor should not be interpreted to imply that the risk has not already materialized. The factors discussed in these reports, among others, could cause our actual results to differ materially from historical results and those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors, and oral statements.

We may face exposure to foreign currency exchange rate fluctuations.

While we have historically transacted in U.S. dollars with the majority of our customers and suppliers, we have transacted in some foreign currencies, such as the [Chinese Renminbi], and may transact in additional foreign currencies in the future. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar may affect our revenue and operating results. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and operating results. In addition, to the extent that fluctuations in currency exchange rates cause our operating results to differ from our expectations or the expectations of our investors, the trading price of our common stock could decrease.