SKYX Platforms Corp. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Form 10-K. This discussion and other parts of this Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, strategy, expectations, outlook, intentions, and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section of this Form 10-K. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements” contained in this Form 10-K. 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. It allows scheduling, energy savings 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 that is designed to enhance all-around safety and lifestyle of homes and other buildings. Our products are designed to improve all around home and building safety and lifestyle. 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. We expect to manufacture the additional product offerings within the next six months. We hold over 96 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. 40 Inflation and related risk of recession increased during 2022 and continue to impact operations. Inflationary factors, such as 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. 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 war 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 to 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-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. During October 2024, the Company completed its authorization of the issuance of 440,000 shares each of newly authorized Series A Preferred Stock and Series A-1 Preferred Stock which generated proceeds of $11.0 million. The Company sold an additional 40,000 shares of Series A-1 Preferred Stock for proceeds of $1.0 million during March 2025. 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; 41 ○ Redemption at the price of $25 per share at the Company’s option after 5 years or upon change of control (substantially within 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 Years Ended December 31, 2024 and 2023 For the year ended December 31, Increase/ Increase/ 2024 2023 (Decrease) $ (Decrease) % Revenue $ 86,276,876 $ 58,785,762 27,491,114 47 % Operating expenses Cost of revenues 61,682,934 40,749,913 20,933,021 51 % Selling and marketing expenses 25,353,172 18,805,069 6,548,103 35 % General and administrative expenses 31,353,009 37,055,986 (5,702,978 ) (15 %) Total expenses 118,389,115 96,610,968 21,778,147 23 % Other income / (expense) Interest expense, net (4,055,905 ) (3,109,307 ) 946,598 ) 30 % Gain on extinguishment of debt 400,000 1,201,857 (801,857 ) (67 %) Total other income (expense), net (3,655,905 ) (1,907,450 ) 1,748,455 145 % Net loss (35,768,144 ) (39,732,656 ) (3,964,512 ) (10 %) Revenue Year ended December 31, Increase/ Increase/ 2024($) 2023($) Decrease $ Decrease % Revenue 86,276,876 58,785,762 27,491,114 47 % The increase in revenues is primarily due to revenues from products marketed by Belami which was acquired on April 28, 2023. We believe that revenues will be higher in 2025 than in 2024, primarily resulting from revenues the sale of our advanced products. Cost of Revenues Year ended December 31, Increase/ Increase/ 2024($) 2023($) Decrease $ Decrease % Cost of revenues 61,682,934 40,749,913 20,933,021 51 % 42 The cost of revenues consists primarily of costs associated with selling the products marketed by Belami. The increase is primarily due to costs associated with revenues from products marketed by Belami which was acquired on April 28, 2023, commensurate with the increase in revenues. We believe that the cost of revenues will increase in 2025 compared to 2024, in similar proportions to the anticipated increase in revenues. Selling and Marketing Expenses Year ended December 31, Increase/ Increase/ 2024($) 2023($) Decrease $ Decrease % Selling and marketing expenses 25,353,172 18,805,069 6,548,103 35 % 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 such expenses increasing following the acquisition of Belami on April 28, 2023 We believe that our selling and marketing expenses will be higher during 2025 when compared to 2024 as we continue to invest to support our anticipated growth. General and Administrative Expenses Year ended December 31, Increase/ Increase/ 2024($) 2023($) Decrease $ Decrease % General and administrative expenses 31,353,008 37,055,986 (5,702,978 ) -15 % 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 during 2024 when compared to 2023, primarily due to the following: ○ Decreased share-based payments of $4.5 million resulting from smaller issuance of restricted stock units and options. Our share-based payments were higher in 2023 primarily as a result of the acquisition of Belami, Inc.. ○ We incurred non-recurring expenditures of $2.7 million related our inventory and royalties payable during 2023. ○ This decrease was offset by increased amortization of intangibles which were amortized over nine months during 2024 and five months during 2023, following the acquisition of Belami in April 2023. The increase in depreciation and amortization expenses of $1.0 million primarily related to increased intangibles acquired during the second quarter of 2023. Additionally, we recognized an impairment expense of $1.1 million during 2024. We believe that our operating expenses will be higher during 2025 when compared to 2024 as we continue to invest to support our anticipated growth which now includes such expenses related to Belami’s operations following its acquisition. Other Income (Expense) Year ended December 31, Increase/ Increase/ 2024($) 2023($) Decrease $ Decrease % Interest expense, net 4,055,905 3,109,307 946,598 30 % 43 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. Year ended December 31, Increase/ Increase/ 2024($) 2023($) Decrease $ Decrease % Gain on extinguishment of debt 400,000 1,201,857 (801,857 ) -67 % The decrease in gain on extinguishment of debt is due to non-recurring gain on extinguishment of debt which occurred during the respective periods. Liquidity and Capital Resources As of December 31, 2024 and 2023, we had $15.5 million and $22.4 million in cash and cash equivalents, restricted cash, respectively. Historically, we have raised funds through the issuances of common stock, securities convertible into common stock and notes payable. We have raised funds through the sale of our common stock and preferred stocks for gross proceeds of $15.4 million pursuant to placements and offerings during 2024. We also generated gross proceeds of $1.0 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 2024, we t issued 3,535,067 shares of common stock under such program. From inception through December 31, 2024, we issued 7,894,899 shares of common stock under such a program for net proceeds of $13,795,059, net of brokerage fees and legal fees of $619,415. As of March 13, 2025, the remaining amount to be used under the ATM offering program is $5.4 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 (i) a Securities Purchase Agreement entered into with an accredited investor, pursuant to which such investor purchased an aggregate of 200,000 shares of Series A Preferred Stock, at a purchase price of $25.00 per share, and (ii) a Securities Purchase Agreement entered into with certain accredited investors, pursuant to which such investors purchased an aggregate of 280,000 shares of Series A-1 Preferred Stock, at a purchase price of $25.00 per share. 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 $15.6 million under fixed rate obligations as of December 31, 2024. 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 December 31, 2024. 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. 44 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 accounts receivable, inventory, net of trades payable, amounted to $(6.1) million and $(6.8) million as of December 31, 2024, and 2023, respectively. The designations of each class of Series A and A-1 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 a subsequent reset provision of $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 within the control of the holder) ● 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 a subsequent reset provision of $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) ● Voting rights on as converted basis. 45 Please see below a summary of the primary components of our cash used in or provided by operating investing and financing activities during 2024 and 2023 2024 2023 Cash flows from operating activities: Net loss $ (35,768,144 ) $ (39,732,656 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization, and impairment 5,185,706 2,885,856 Amortization of debt discount 1,211,974 1,365,789 Gain on forgiveness of debt (400,000 ) (1,201,857 ) Share-based payments 13,474,433 17,977,252 Change in operating assets and liabilities: Working capital changes (1,964,340 ) 4,235,229 Net cash used in operating activities (18,260,370 ) (12,998,073 ) Cash flows from investing activities: Proceeds from disposition of debt securities, net — 7,436,103 Acquisition, net of cash acquired (750,000 ) (4,206,200 ) Purchase of property and equipment (981,428 ) 10,194 Net cash provided by (used in) investing activities (1,731,428 ) 3,240,097 Cash flows from financing activities: Proceeds from issuance of stock- offerings, net 15,337,796 9,289,957 Proceeds from issuance of debt instruments, net (2,775,756 ) 13,436,775 Net cash provided by financing activities 13,062,040 22,726,632 Change in cash and cash equivalents, and restricted cash (6,929,758 ) 12,968,656 Cash, cash equivalents and restricted cash at beginning of year 22,430,253 9,461,597 Cash, cash equivalents and restricted cash at end of year $ 15,500,495 $ 22,430,253 The changes in working capital, net are primarily attributable to timing differences in accounts receivable, trade accounts payable and deferred revenues. Going Concern The Company’s liquidity sources include $ 15.5 million in cash and cash equivalents, including restricted cash of $2.9 million held for long-term purposes, and $ 5.7 million of working capital deficit as of December 31, 2024. The Company has a history of recurring operating losses, and its net cash used in operating activities amounted to $18.3 million and $13.0 million during the year ended December 31, 2024, and 2023, respectively. The Company has also generated net cash provided by financing activities of $13.1 million and $22.7 million during 2024, and 2023, 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 continuing to support its continued growth by 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 it’s at the market offering or other equity or debt financing means. 46 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. For the year ended December 31, 2024 2023 Net loss $ (35,768,144 ) $ (39,732,656 ) Share-based payments 13,474,433 17,977,252 Interest expense 4,055,905 3,109,307 Impairment 1,118,750 - Depreciation, amortization 4,066,957 2,885,856 Transaction costs - 516,601 EBITDA, as adjusted $ (13,052,099 ) $ (15,243,640 ) Off Balance Sheet Arrangements We do not have any off-balance sheet arrangements. 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 this Annual Report on Form 10-K for the year ended December 31, 2024. 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 recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2024 and 2023, 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. 47 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 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 has had or will have a material impact on our financial position or results of operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company”, we are not required to provide the information required by this Item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required to be included in this report appear as indexed in the appendix to this report beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.