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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to
Commission
File Number: 001-41276
SKYX
PLATFORMS CORP.
(Exact
name of registrant as specified in its charter)
Florida |
|
46-3645414 |
(State
or other jurisdiction of
incorporation
or organization) |
|
(IRS
Employer
Identification
No.) |
2855
W. McNab Road
Pompano
Beach, Florida 33069
(Address,
including zip code, of principal executive offices)
(855)759-7584
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
symbol(s) |
|
Name
of each exchange on which registered |
Common
Stock, no par value per share |
|
SKYX |
|
The
Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated
filer |
☒ |
Smaller
reporting company |
☒ |
|
|
Emerging
growth company |
☐ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As
of November 1, 2024, the registrant had 102,501,694 shares of common stock, no par value per share, issued and outstanding.
SKYX
PLATFORMS CORP.
Form
10-Q
TABLE
OF CONTENTS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q (this “Form 10-Q”) of SKYX Platforms Corp. (the “Company,” “we,” “us,”
or “our”) contains forward-looking statements that are based on management’s beliefs and assumptions and on information
currently available to management. All statements other than statements of historical facts contained in this Form 10-Q, including statements
regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management, outlook,
and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by the following
words: “may,” “might,” “will,” “could,” “would,” “should,” “expect,”
“intend,” “plan,” “aim,” “objective,” “anticipate,” “believe,”
“estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,”
“target,” “seek” or the negative of these terms or other comparable terminology, although not all forward-looking
statements contain these words. These statements involve risks, uncertainties, and other factors, which have outcomes that are difficult
to predict and may be outside our control, which may cause actual results, levels of activity, performance, or achievements to be materially
different from the information expressed or implied by these forward-looking statements. Forward-looking statements in this Form 10-Q
include, but are not limited to, statements about:
|
● |
our
ability to successfully launch, develop additional features and achieve market acceptance of our smart products and technologies,
access and integrate our products and technologies with third-party platforms or technologies, respond to rapidly changing technology
and customer demands, and compete in our industry; |
|
● |
our
ability to successfully integrate and manage and grow the operations of Belami, Inc. (“Belami”) with our business; |
|
● |
our
ability to expand, operate and successfully manage our operations, including managing our business transformation in connection with
evolving our business strategy to focus on smart products and technologies and integrating new lines of business; |
|
● |
our
ability to raise additional financing to support and continue our operations as needed; |
|
● |
our
ability to comply with the terms of, and timely repay, our current debt financing; |
|
● |
our
reliance on a limited number of third-party manufacturers and suppliers and our ability to successfully reduce our production costs; |
|
● |
our
potential dependence upon a limited number of customers and/or on contracts awarded through competitive bidding processes; |
|
● |
any
downturn in the cyclical industries in which our customers operate; |
|
● |
our
ability to acquire other businesses, license rights, form alliances or dispose of operations when desired; |
|
● |
our
ability to comply with regulations relating to applicable quality standards; |
|
● |
our
ability to maintain, protect and enhance our intellectual property and retain rights to use intellectual property owned by third
parties; |
|
● |
the
potential outcome of any legal proceedings; |
|
● |
compliance
with various tax laws and regulations, including income and sale tax; |
|
● |
our
ability to successfully sell and distribute our products and technologies; |
|
● |
our
ability to attract and retain key executives and qualified personnel; |
|
● |
guidance
provided by management, which may differ from our actual operating results; |
|
● |
our
ability to successfully manage our planned development and expansion, including the additional costs of being a public company; |
|
● |
our
estimated total addressable market; |
|
● |
our
ability to maintain effective internal control over financial reporting and disclosure controls and procedures; |
|
● |
the
potential impact of unstable market and economic conditions on our business, financial condition and stock price, including the effects
of governmental regulations, geopolitical conflicts, including the Israel-Gaza-Lebanon war and, potentially deteriorating relationships
with China, inflation, labor shortages, supply chain constraints and shortages, including availability of affordable electronic microchips,
instability in the global banking system and the possibility of an economic recession; |
|
● |
the
potential impact of cybersecurity breaches or disruptions to our information systems, including our cloud-based infrastructure; |
|
● |
risks
related to our use of artificial intelligence capabilities in our product offerings, including operational and reputational risks; |
|
● |
the
potential impact of widespread outages, interruptions, or other failures of operational, communication, and other systems; |
|
● |
the
potential impact of natural disasters and other catastrophic events; |
|
● |
risks
related to ownership of our common stock; and |
|
● |
the
potential impact of anti-takeover and director and officer liability provisions in our charter documents and under Florida law. |
These
forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject
to risks, uncertainties, and other factors, including unpredictable or unanticipated factors that we have not discussed in this Form
10-Q. Investors should refer to the heading “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year
ended December 31, 2023 and in this Form 10-Q for a discussion of other important factors, many of which are outside of our control,
that may cause actual results to differ materially from those expressed or implied by the forward-looking statements. As a result of
these factors, we cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate. Furthermore, if
the forward-looking statements prove to be inaccurate, the inaccuracy may be material. Considering the significant uncertainties in these
forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we
will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this Form 10-Q represent
our views as of the date of this Form 10-Q. We anticipate that subsequent events and developments will cause our views to change; however,
we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or
otherwise, except as required by U.S. federal securities laws. You should, therefore, not rely on these forward-looking statements as
representing our views as of any date subsequent to the date of this Form 10-Q.
Part
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
SKYX
PLATFORMS CORP.
Consolidated
Balance Sheets
| |
(Unaudited) September 30, 2024 | | |
(Audited) December 31, 2023 | |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 10,172,387 | | |
$ | 16,810,983 | |
Restricted cash | |
| — | | |
| 2,750,000 | |
Accounts receivable | |
| 2,925,687 | | |
| 3,384,976 | |
Inventory, net | |
| 4,538,112 | | |
| 3,425,734 | |
Deferred cost of revenues | |
| 308,908 | | |
| 224,445 | |
Prepaid expenses and other assets | |
| 1,040,595 | | |
| 721,717 | |
Total current assets | |
| 18,985,689 | | |
| 27,317,855 | |
| |
| | | |
| | |
Other assets: | |
| | | |
| | |
Property and equipment, net | |
| 839,998 | | |
| 436,587 | |
Restricted cash | |
| 2,876,382 | | |
| 2,869,270 | |
Right of use assets | |
| 20,297,189 | | |
| 21,214,652 | |
Intangibles, definite life | |
| 5,609,141 | | |
| 8,141,032 | |
Goodwill | |
| 16,157,000 | | |
| 16,157,000 | |
Other assets | |
| 204,807 | | |
| 204,807 | |
Total other assets | |
| 45,984,517 | | |
| 49,023,348 | |
| |
| | | |
| | |
Total Assets | |
$ | 64,970,206 | | |
$ | 76,341,203 | |
| |
| | | |
| | |
Liabilities and Stockholders’ Equity | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 16,838,539 | | |
$ | 12,388,475 | |
Accounts payable and accrued expenses-related party | |
| 500,000 | | |
| — | |
Accounts payable and accrued expenses | |
| 500,000 | | |
| — | |
Notes payable, current | |
| 3,622,945 | | |
| 5,724,129 | |
Operating lease liabilities, current | |
| 2,447,069 | | |
| 1,898,428 | |
Royalty obligation | |
| 1,000,000 | | |
| 800,000 | |
Consideration payable | |
| — | | |
| 730,999 | |
Deferred revenues | |
| 2,108,351 | | |
| 1,475,519 | |
Convertible notes, current-related parties | |
| 950,000 | | |
| 950,000 | |
Convertible notes, current | |
| 3,292,408 | | |
| 225,000 | |
Convertible notes, current | |
| 3,292,408 | | |
| 225,000 | |
| |
| | | |
| | |
Total current liabilities | |
| 30,759,312 | | |
| 24,192,550 | |
| |
| | | |
| | |
Long term liabilities: | |
| | | |
| | |
Long term accounts payable and accrued expenses | |
| 300,520 | | |
| 744,953 | |
Notes payable | |
| 636,291 | | |
| 1,016,924 | |
Consideration payable | |
| — | | |
| 3,038,430 | |
Operating lease liabilities | |
| 20,745,239 | | |
| 22,267,558 | |
Convertible notes | |
| 7,594,274 | | |
| 5,758,778 | |
Convertible notes related parties | |
| — | | |
| — | |
Convertible notes | |
| — | | |
| — | |
| |
| | | |
| | |
Royalty obligations | |
| 1,100,000 | | |
| 3,100,000 | |
| |
| | | |
| | |
Total long-term liabilities | |
| 30,376,324 | | |
| 35,926,643 | |
| |
| | | |
| | |
Total liabilities | |
| 61,135,636 | | |
| 60,119,193 | |
Stockholders’ Equity: | |
| | | |
| | |
Common stock and additional paid-in-capital: $0 par value, 500,000,000 shares authorized; and 102,385,859 and 93,473,433 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | |
| 175,398,040 | | |
| 162,025,024 | |
Accumulated deficit | |
| (171,563,470 | ) | |
| (145,803,014 | ) |
Accumulated other comprehensive loss | |
| — | | |
| — | |
Total stockholders’ equity | |
| 3,834,570 | | |
| 16,222,010 | |
| |
| | | |
| | |
Total Liabilities and Stockholders’ Equity | |
$ | 64,970,206 | | |
$ | 76,341,203 | |
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
SKYX
Platforms Corp.
Consolidated
Statements of Operations and Comprehensive Loss
(Unaudited)
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
For the three-months ended September 30, | | |
For the nine-months ended September 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Revenue | |
| 22,168,919 | | |
| 21,617,579 | | |
$ | 62,592,888 | | |
$ | 36,611,659 | |
Cost of revenues | |
| 15,327,319 | | |
| 14,917,493 | | |
| 43,596,611 | | |
| 25,207,604 | |
Gross profit loss | |
| 6,841,600 | | |
| 6,700,086 | | |
| 18,996,277 | | |
| 11,404,055 | |
| |
| | | |
| | | |
| | | |
| | |
Selling and marketing expenses | |
| 6,275,742 | | |
| 5,702,647 | | |
| 19,074,266 | | |
| 12,546,736 | |
General and administrative expenses | |
| 8,171,293 | | |
| 7,519,042 | | |
| 22,651,096 | | |
| 24,869,910 | |
Total expenses, net | |
| 14,447,035 | | |
| 13,221,689 | | |
| 41,725,362 | | |
| 37,416,646 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (7,605,435 | ) | |
| (6,521,603 | ) | |
| (22,729,085 | ) | |
| (26,012,591 | ) |
Other income / (expense) | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (1,015,871 | ) | |
| (662,173 | ) | |
| (3,031,371 | ) | |
| (2,601,526 | ) |
Gain on extinguishment of debt | |
| — | | |
| — | | |
| — | | |
| 1,201,857 | |
| |
| | | |
| | | |
| | | |
| | |
Total other expense, net | |
| (1,015,871 | ) | |
| (662,173 | ) | |
| (3,031,371 | ) | |
| (1,399,669 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (8,621,306 | ) | |
| (7,183,776 | ) | |
| (25,760,456 | ) | |
| (27,412,260 | ) |
Other comprehensive loss: | |
| | | |
| | | |
| | | |
| | |
Other comprehensive income (loss): | |
| — | | |
| — | | |
| — | | |
| 62,147 | |
Net comprehensive loss attributed to common stockholders | |
$ | (8,621,306 | ) | |
$ | (7,183,776 | ) | |
$ | (25,760,456 | ) | |
$ | (27,350,113 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share - basic and diluted | |
$ | (0.08 | ) | |
$ | (0.08 | ) | |
$ | (0.25 | ) | |
$ | (0.31 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding – basic and diluted | |
| 103,507,590 | | |
| 91,081,313 | | |
| 101,481,416 | | |
| 87,055,643 | |
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
SKYX
Platforms Corp.
Consolidated
Statements of Stockholders’ Equity
(Unaudited)
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
For the three months ended September 30, | | |
For the nine months ended September 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
| | |
| | |
| | |
| |
Shares of common stock | |
| | | |
| | | |
| | | |
| | |
Balance, beginning of period | |
$ | 172,426,254 | | |
$ | 147,282,469 | | |
$ | 162,025,024 | | |
$ | 114,039,638 | |
Balance, beginning of period | |
| 101,249,700 | | |
| 90,660,148 | | |
| 93,473,433 | | |
| 82,907,541 | |
Common stock issued pursuant to offerings | |
| — | | |
| 592,150 | | |
| 3,535,067 | | |
| 3,576,458 | |
Common stock issued pursuant to acquisition | |
| — | | |
| — | | |
| 1,853,421 | | |
| 1,923,285 | |
Common stock issued pursuant to extinguishment of debt | |
| — | | |
| — | | |
| — | | |
| 574,713 | |
Common stock issued pursuant to exercise of options | |
| 128,023 | | |
| — | | |
| 128,023 | | |
| — | |
Common stock issued pursuant to conversion of preferred stock | |
| — | | |
| — | | |
| — | | |
| 580,400 | |
Common stock issued pursuant to services | |
| 1,008,136 | | |
| 593,767 | | |
| 3,395,915 | | |
| 2,283,668 | |
| |
| | | |
| | | |
| | | |
| | |
Balance, end of period | |
$ | 175,398,040 | | |
$ | 150,538,326 | | |
$ | 175,398,040 | | |
$ | 150,538,326 | |
Balance, September 30 | |
| 102,385,859 | | |
| 91,846,065 | | |
| 102,385,859 | | |
| 91,846,065 | |
| |
| | | |
| | | |
| | | |
| | |
Common stock and paid-in capital | |
| | | |
| | | |
| | | |
| | |
Balance, beginning of period | |
$ | 172,426,254 | | |
$ | 147,282,469 | | |
$ | 162,025,024 | | |
$ | 114,039,638 | |
Common stock issued pursuant to offerings | |
| — | | |
| 785,256 | | |
| 4,330,295 | | |
| 8,231,529 | |
Common stock issued pursuant to services | |
| 2,964,286 | | |
| 2,470,601 | | |
| 9,035,221 | | |
| 13,109,135 | |
Common stock issued pursuant to conversion of preferred stock | |
| — | | |
| — | | |
| — | | |
| 220,099 | |
Common stock issued pursuant to acquisition | |
| — | | |
| — | | |
| — | | |
| 7,327,716 | |
Common stock issued pursuant to exercise of options | |
| 7,500 | | |
| — | | |
| 7,500 | | |
| — | |
Common stock issued pursuant to extinguishment of debt | |
| — | | |
| — | | |
| — | | |
| 2,040,231 | |
Debt discount | |
| — | | |
| — | | |
| — | | |
| 5,569,978 | |
Balance, September 30 | |
$ | 175,398,040 | | |
$ | 150,538,326 | | |
$ | 175,398,040 | | |
$ | 150,538,326 | |
| |
| | | |
| | | |
| | | |
| | |
Accumulated Deficit | |
| | | |
| | | |
| | | |
| | |
Balance, beginning of period | |
$ | (162,942,164 | ) | |
$ | (126,298,842 | ) | |
$ | (145,803,014 | ) | |
$ | (106,070,358 | ) |
Net loss | |
| (8,621,306 | ) | |
| (7,183,776 | ) | |
| (25,760,456 | ) | |
| (27,412,260 | ) |
Balance, end of period | |
$ | (171,563,470 | ) | |
$ | (133,482,618 | ) | |
$ | (171,563,470 | ) | |
$ | (133,482,618 | ) |
| |
| | | |
| | | |
| | | |
| | |
Accumulated other comprehensive loss | |
| | | |
| | | |
| | | |
| | |
Balance, beginning of period | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | (62,147 | ) |
Balance | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | (62,147 | ) |
Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| 62,147 | |
Balance, end of period | |
| — | | |
| — | | |
| — | | |
| — | |
Balance | |
$ | (162,942,164 | ) | |
$ | (126,298,842 | ) | |
$ | (145,803,014 | ) | |
$ | (106,070,358 | ) |
Net loss | |
| (8,621,306 | ) | |
| (7,183,776 | ) | |
| (25,760,456 | ) | |
| (27,412,260 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total stockholders’ equity | |
$ | 3,834,570 | | |
$ | 17,055,708 | | |
$ | 3,834,570 | | |
$ | 17,055,708 | |
Balance | |
$ | 3,834,570 | | |
$ | 17,055,708 | | |
$ | 3,834,570 | | |
$ | 17,055,708 | |
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
SKYX
Platforms Corp.
Consolidated
Statements of Cash Flows
(Unaudited)
| |
2024 | | |
2023 | |
| |
For the nine months ended September 30, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (25,760,456 | ) | |
$ | (27,412,260 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 3,125,903 | | |
| 2,098,935 | |
Amortization of debt discount | |
| 933,476 | | |
| 867,572 | |
Impairment of intangible assets | |
| 1,118,750 | | |
| — | |
Gain on forgiveness of debt | |
| — | | |
| (1,201,857 | ) |
Non-cash equity-based compensation expense | |
| 9,035,220 | | |
| 13,109,135 | |
Change in operating assets and liabilities: | |
| | | |
| | |
Inventory | |
| (1,112,378 | ) | |
| (1,675,394 | ) |
Accounts receivable | |
| 459,289 | | |
| (512,826 | ) |
Prepaid expenses and other assets | |
| (318,878 | ) | |
| 79,224 | |
Deferred charges | |
| (84,463 | ) | |
| 1,200,916 | |
Deferred revenues | |
| 632,832 | | |
| (74,111 | ) |
Operating lease liabilities | |
| (1,636,374 | ) | |
| (215,743 | ) |
Accretion operating lease liabilities | |
| — | | |
| 890,474 | |
Other assets | |
| — | | |
| — | |
Royalty obligation | |
| (400,000 | ) | |
| — | |
Consideration payable | |
| (750,000 | ) | |
| — | |
Accounts payable and accrued expenses | |
| 1,805,631 | | |
| 2,753,572 | |
| |
| | | |
| | |
Net cash used in operating activities | |
| (12,951,448 | ) | |
| (10,092,363 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of debt securities | |
| — | | |
| (136,033 | ) |
Proceeds from disposition of debt securities | |
| — | | |
| 7,572,136 | |
Acquisition, net of cash acquired | |
| — | | |
| (4,206,200 | ) |
Purchase of property and equipment | |
| (536,014 | ) | |
| (119,942 | ) |
Net cash (used in) provided by investing activities | |
| (536,014 | ) | |
| 3,109,961 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from issuance of common stock- offerings | |
| 4,426,221 | | |
| 8,723,461 | |
Placement costs | |
| (88,426 | ) | |
| (491,932 | ) |
Proceeds from line of credit | |
| 120,687 | | |
| 6,197,695 | |
Proceeds from anticipated issuance of preferred stock | |
| 1,800,000 | | |
| — | |
Proceeds from anticipated issuance of preferred stock-related parties | |
| 500,000 | | |
| — | |
Proceeds from anticipated issuance of preferred stock | |
| 500,000 | | |
| — | |
Proceeds from issuance of convertible notes | |
| — | | |
| 10,350,000 | |
Principal repayments of notes payable | |
| (2,652,504 | ) | |
| (5,147,300 | ) |
Net cash provided by financing activities | |
| 4,105,978 | | |
| 19,631,924 | |
| |
| | | |
| | |
(Decrease) increase in cash, cash equivalents and restricted cash | |
| (9,381,484 | ) | |
| 12,649,522 | |
Cash, cash equivalents, and restricted cash at beginning of period | |
| 22,430,253 | | |
| 9,461,597 | |
Cash, cash equivalents and restricted cash at end of period | |
$ | 13,048,769 | | |
$ | 22,111,119 | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | 1,161,304 | | |
$ | 666,539 | |
Supplementary disclosure of non-cash financing activities: | |
| | | |
| | |
| |
| | | |
| | |
Substitution of consideration payable to convertible notes | |
$ | 3,117,408 | | |
$ | — | |
Substitution of royalty payable to convertible notes | |
| 1,000,000 | | |
| — | |
Business acquisition: | |
| | | |
| | |
Assets acquiring excluding identifiable intangible assets and goodwill and cash | |
| — | | |
| 7,090,094 | |
Liabilities assumed and consideration payable | |
| — | | |
| 19,755,903 | |
Identifiable intangible assets and goodwill | |
| — | | |
| 19,993,525 | |
Debt discount | |
| — | | |
| 5,569,978 | |
Common stock issued pursuant to antidilutive provisions | |
| — | | |
| — | |
Fair value of shares issued pursuant to acquisition | |
| — | | |
$ | 7,327,716 | |
Common stock pursuant to extinguishment of debt | |
| — | | |
| 2,040,231 | |
Right-of-use assets and operating lease liabilities | |
| 662,698 | | |
| — | |
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
SKYX
Platforms Corp.
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
1 ORGANIZATION AND NATURE OF OPERATIONS
SKYX
Platforms Corp., a corporation (the “Company”), was incorporated in Florida in May 2004.
The
Company maintains offices in Sacramento, California, Johns Creek, Georgia, Miami and Pompano Beach, Florida, New York City, and Guangdong
Province, China.
The
Company has a series of advanced-safe-smart platform technologies. The Company’s first-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, the Company
has expanded the capabilities of its power-plug product, to include its second generation 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. The Company’s 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.
Since
April 2023, the Company also markets home lighting, ceiling fans and other home furnishings from third parties.
Going
Concern
The
Company’s liquidity sources include $ 13
million in cash and cash equivalents, including restricted cash of $2.9
million held for long-term purposes, and $ 11.7
million of working capital deficit as of September 30, 2024. The Company has a history of recurring operating losses, and its net
cash used in operating activities amounted to $13.0
million and $10.1
million during the nine months ended September 30, 2024, and 2023, respectively. The Company has also generated net cash provided by
financing activities of $4.1
million and $19.6
million during the nine months ended September 30, 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 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, generate
cash provided by financing activities through its at the market (“ATM”) offering or other equity or debt financing means.
NOTE
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles
in the United States (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Rule 8-03 of Regulation
S-X. Accordingly, they do not include all of the information and disclosures required for annual financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The consolidated financial statements as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 are
unaudited. The results of operations for the interim periods are not necessarily indicative of the results of operations for the respective
fiscal years. The consolidated statement of financial condition at December 31, 2023 has been derived from the audited financial statements
at that date but does not include all of the information and notes required by GAAP for complete financial statement presentation. The
accompanying consolidated financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2023 for additional disclosures and accounting policies.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the 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 nonconforming events. Accordingly, actual results will differ from
estimates.
Basis
of Consolidation
The
consolidated financial statements include the results of the Company and one of its subsidiaries, SQL Lighting and Fans LLC from January
1, 2023 and the results from its remaining subsidiaries, Belami, Inc., BEC, CA 1, Inc., BEC CA 2, LLC, Luna BEC, Inc., and Confero Group
LLC from April 28, 2023. All intercompany balances and transactions have been eliminated in consolidation.
Cash,
Cash Equivalents, and Restricted Cash
The
Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents.
On September 30, 2024, and December 31, 2023, the Company’s cash composition was follows:
SCHEDULE
OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
| |
September 30, 2024 | | |
December 31, 2023 | |
| |
| | |
| |
Cash and cash equivalents | |
$ | 10,172,387 | | |
$ | 16,810,983 | |
Restricted cash | |
| 2,876,382 | | |
| 5,619,270 | |
Total cash, cash equivalents and restricted cash | |
$ | 13,048,769 | | |
$ | 22,430,253 | |
Restricted
Cash
The
Company issued a letter of credit of $2.8 million in September 2023 to use as collateral for certain obligations to one of its lessors.
The letter of credit was issued by a financial institution and was secured by cash of $2.8 million as of September 30, 2024 and December
2023. Additionally, pursuant to the Company’s acquisition of Belami, Inc., the Company placed $750,000 in an escrow account as
of December 31, 2023 which was released to Belami, Inc. sellers in April 2024. Furthermore, the Company secured a line of credit of $2.0
million with cash of the equivalent amount as of December 31, 2023. The Company satisfied its obligations under the line of credit in
August 2024.
Customer
Contracts Balances
Accounts
receivables are recorded in the period when the right to receive payment or other consideration becomes unconditional. Accounts receivables
are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts based upon
an estimate of probable credit losses in existing accounts receivable. The majority of the Company’s accounts receivable are from
third-party payers and are paid within a few days from the order date. The Company determines the allowance based upon individual accounts
when information indicates the customers may have an inability to meet their financial obligations, historical experience, and currently
available evidence. As of September 30, 2024, and December 31, 2023, the Company’s allowance for doubtful accounts was $8,584 and
$54,987, respectively.
The Company determines an allowance for sales returns based upon historical experience. As of September 30, 2024,
and December 31, 2023, the Company’s allowance for sales returns was $26,393 and $182,584, respectively, and is recorded as accrued
expenses in the accompanying consolidated financial statements.
The
Company defers the revenue related to undelivered customer orders for which it was paid or has a right to be paid at each measurement
date. Such amounts are recognized as deferred revenues in the accompanying balance sheet. Deferred revenues amounted to $2,108,351 and
$1,475,519 as of September 30, 2024 and December 31, 2023, respectively.
The
costs associated with such deferred revenues are recognized as deferred charges in the accompanying balance sheet. Such charges include
the carrying value of related inventory, freight, and sales charges. The deferred charges amounted to $308,908 and $224,445 as of September
30, 2024 and December 31, 2023, respectively.
Inventory
Inventories
are stated at the lower of cost, determined on the first-in, first-out (FIFO) method. Cost principally consists of the purchase price
(adjusted for lower of cost or market), customs, duties, and freight. The Company periodically reviews historical sales activity to determine
potentially obsolete items and evaluates the impact of any anticipated changes in future demand.
SCHEDULE
OF INVENTORY
| |
September 30, 2024 | | |
December 31, 2023 | |
Inventory, component parts | |
$ | 2,975,163 | | |
$ | 2,230,252 | |
Inventory, finished goods | |
| 2,862,949 | | |
| 2,495,482 | |
Allowance | |
| (1,300,000 | ) | |
| (1,300,000 | ) |
Inventory-total | |
$ | 4,538,112 | | |
$ | 3,425,734 | |
The
Company will maintain an allowance based on specific inventory items that have shown no activity over a reasonable period. The Company
tracks inventory as it is repurposed, disposed, scrapped, or sold at below cost to determine whether additional items on hand should
be reduced in value through an allowance method. The Company has recorded an allowance of $1.3 million as of September 30, 2024, and
December 31, 2023.
GE
Agreements
The
Company has the following agreements with General Electric (“GE”) related to the Company’s products.
|
A
U.S. and Global Licensing and Master Service Agreement dated December 4, 2023, which replaced a prior agreement with similar terms.
The agreement expires on December 4, 2028 and includes automatic renewal provisions. Pursuant to such agreement, GE’s licensing
team has the rights to exclusively license certain of the Company’s Standard and Smart plug-and-play products set forth in
a statement of work in the U.S. and worldwide. Pursuant to the agreement, the Company expects that GE’s licensing team will
seek and arrange licensee partners for our products in the U.S. and globally, including negotiating agreement terms, managing contracts,
collecting payments, auditing partners, assisting with patent strategy and protection, and assisting in auditing product quality
control under the “Nine Sigma” guidelines. For products licensed to third parties, the Company and GE will each receive
a specified percentage of the revenue earned from such licensing, unless otherwise provided in the applicable statement of work. |
|
|
|
The
second agreement consists of a letter agreement dated November 28, 2023, as amended on April 11, 2024. The agreement expires on December
15, 2027 and includes a Repayment Plan Under U.S. and Global Trademark Agreement dated June 15, 2011 (as later amended), which expired
November 30, 2023, between SQL Lighting & Fans, LLC and GE Trademark Licensing, Inc. Under this new payment arrangement, the
Company pays royalty payment obligation of $2.7 million in the aggregate (the “Royalty Payment”) payable in quarterly
installments beginning on December 15, 2023 and ending on December 15, 2026 and issued a convertible promissory note amounting to
$1.0 million, |
Loss
Per Share
Basic
net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common stock
outstanding during each period. Diluted earnings (loss) per share are computed by dividing net income (loss) for the period by the weighted
average number of common stocks, common stock equivalents and potentially dilutive securities outstanding during each period.
The
Company uses the “treasury stock” method to determine whether there is a dilutive effect of outstanding convertible debt,
option, and warrant contracts. For the three- and nine-month ended September 30, 2024, and 2023, the Company recognized net loss and
a dilutive net loss, and the effect of considering any common stock equivalents would have been antidilutive for the period. Therefore,
a separate computation of diluted earnings (loss) per share is not presented for the periods presented.
The
Company had the following anti-dilutive common stock equivalents on September 30, 2024, and September 30, 2023:
SCHEDULE
OF ANTI-DILUTIVE COMMON STOCK EQUIVALENTS
| |
September 30, 2024 | | |
September 30, 2023 | |
Stock warrants | |
| 1,817,523 | | |
| 2,063,522 | |
Stock options | |
| 35,832,641 | | |
| 35,084,598 | |
Unvested restricted stock | |
| 4,853,919 | | |
| 4,045,675 | |
Convertible notes | |
| 6,475,709 | | |
| 3,920,005 | |
Preferred stock | |
| — | | |
| — | |
Total | |
| 48,979,792 | | |
| 45,113,800 | |
Anti-dilutive securities | |
| 48,979,792 | | |
| 45,113,800 | |
Recently
Issued Accounting Pronouncements
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect
on its consolidated financial statements.
NOTE
3 PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
SCHEDULE
OF FURNITURE AND EQUIPMENT
| |
September 30, 2024 | | |
December 31, 2023 | |
Equipment and furniture | |
$ | 1,156,664 | | |
$ | 968,213 | |
Leasehold improvements | |
| 456,659 | | |
| 139,649 | |
Total | |
| 1,643,876 | | |
| 1,107,862 | |
Less: accumulated depreciation | |
| (803,878 | ) | |
| (671,275 | ) |
Total, net | |
$ | 839,998 | | |
$ | 436,587 | |
Depreciation
expense amounted to $132,603 and $67,897 during the nine months ended September 30, 2024 and 2023, respectively.
NOTE
4 INTANGIBLE ASSETS AND GOODWILL
Intangible
assets consisted of the following:
SCHEDULE
OF INTANGIBLE ASSETS
| |
| | |
September 30, 2024 | | |
December 31, 2023 | |
| |
Useful life | | |
Carrying Value | | |
Accumulated Amortization | | |
Net carrying value | | |
Carrying Value | | |
Accumulated Amortization | | |
Net carrying value | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Customer relationships | |
| 7 | | |
$ | 4,500,000 | | |
$ | (910,708 | ) | |
$ | 3,589,292 | | |
$ | 4,500,000 | | |
$ | (428,571 | ) | |
$ | 4,071,429 | |
E-commerce technology platforms | |
| 1- 4 | | |
| 1,400,000 | | |
| – | | |
| 1,400,000 | | |
| 3,900,000 | | |
| (650,000 | ) | |
| 3,250,000 | |
Patents and other | |
| 15 | | |
| 931,831 | | |
| (311,982 | ) | |
| 619,849 | | |
| 1,040,927 | | |
| (221,324 | ) | |
| 819,603 | |
| |
| | | |
$ | 6,831,831 | | |
$ | (1,222,690 | ) | |
$ | 5,609,141 | | |
$ | 9,440,927 | | |
$ | (1,299,895 | ) | |
$ | 8,141,032 | |
Amortization
expense on intangible assets amounted to $1,213,389 and $642,943 during the nine-month ended September 30, 2024, and 2023, respectively.
During
the quarter ended September 30, 2024, the Company evaluated the effectiveness of the E-commerce technology platforms it acquired in 2023.
Management determined that revenues could increase without increasing its operating expenses (and potentially decrease its general and
administrative expenses) using a different E-commerce technology platform. Management believes it will discontinue using its legacy platforms
and deploy a new E-commerce technology platform by October 1, 2025. Accordingly, the estimated useful life of its legacy platforms decreased
from 4 to 1 year. The reduced estimated useful life of the intangible asset indicated a possible impairment of the carrying value of
such intangible. Management prepared, with a third-party firm, an analysis of the future cash flows related to the legacy platform and
determined that, as of September 30, 2024, such future cash flows were lower than the carrying value of the related intangible asset.
Accordingly, management believes that its legacy platforms’ carrying value was impaired. Based on the future estimated discounted
cash flows, Management believes that the carrying value of the legacy platforms should be $1.4 million. Accordingly, management recorded
an impairment expense of $1.1 million and adjusted the carrying value of its legacy platform to $1.4 million as of and during the quarter
ended September 30, 2024.
The
following table sets forth the estimated amortization expense for the next five years:
SCHEDULE
OF INTANGIBLE ASSETS AMORTIZATION EXPENSE FOR FUTURE
Twelve months ended September 30: | |
| |
2025 | |
$ | 2,089,449 | |
2026 | |
| 689,449 | |
2027 | |
| 689,449 | |
2028 | |
| 689,449 | |
2029 | |
| 689,449 | |
NOTE
5 DEBTS
The
following table presents the details of the principal outstanding:
SCHEDULE
OF DEBT
| |
September 30, 2024 | | |
December 31, 2023 | | |
APR at September 30, 2024 | | |
Maturity | | |
Collateral |
Convertible Notes (b,c) | |
| 15,592,408 | | |
| 11,525,000 | | |
| 6.00 – 10.00 | % | |
| September 2023-March 2028 | | |
Substantially all company assets |
Notes payable to financial institutions and others(a) | |
| 4,259,234 | | |
| 6,493,126 | | |
| 7.93-8.5 | % | |
| August 2025- November 2052 | | |
Substantially all Company assets |
| |
| | | |
| | | |
| | | |
| | | |
|
Notes payable to Belami sellers | |
| – | | |
| 247,927 | | |
| 4.86 | % | |
| April 2024 | | |
– |
| |
| | | |
| | | |
| | | |
| | | |
|
Total | |
$ | 19,851,644 | | |
$ | 18,266,053 | | |
| | | |
| | | |
|
Unamortized debt discount | |
| (3,755,726 | ) | |
| (4,591,222 | ) | |
| | | |
| | | |
|
Debt, net of Unamortized debt Discount | |
$ | 16,095,918 | | |
$ | 13,674,831 | | |
| | | |
| | | |
|
SCHEDULE
OF INTEREST EXPENSE DEBT
| |
For the nine-month period ended | |
| |
September 30, 2024 | | |
September 30, 2023 | |
Interest expense | |
$ | 2,061,236 | | |
$ | 1,939,353 | |
As
of September 30, 2024, the expected future principal payments for the Company’s debt are due as follows:
SCHEDULE OF FUTURE PRINCIPAL PAYMENTS
| |
| | |
Twelve months ended September 30, 2025 | |
$ | 7,934,455 | |
Twelve months ended September 30, 2026 | |
| 428,688 | |
Twelve months ended September 30, 2027 | |
| 1,002,040 | |
Twelve months ended September 30, 2028 | |
| 10,353,039 | |
Twelve months ended September 30, 2029 and thereafter | |
| 133,422 | |
Total | |
$ | 19,851,644 | |
|
(a) |
|
|
|
|
|
(b) |
|
|
|
|
|
|
During
2023, the Company issued convertible promissory notes for $10.4 million. As an inducement to enter the financing transactions, the
Company issued 1,391,667 warrants to the noteholders at an adjusted exercise price of $2.70 per warrant. The Company recorded a debt
discount aggregating $5.6 million which was recognized as debt discount and additional paid-in capital in the accompanying balance
sheet. The Company recognized $ 835,496 as amortized debt discount during the nine-month ended September 30, 2024, and it is reflected
as interest expense in the accompanying unaudited consolidated statement of operations. Only the convertible promissory notes issued
during fiscal 2023 are secured by substantially all of the assets of the Company. |
|
(c) |
|
|
|
|
|
|
Additionally,
the convertible promissory notes include a $1.0 million note payable to GE issued in April 2024. The convertible note is due in April
2027, does not bear interest and is convertible at a price of $1.07 per share. |
NOTE
6 OPERATING LEASE LIABILITIES
In
April 2022, the Company entered into a 58-month lease related to certain office and showroom space pursuant to a sublease that expires
in February 2027. The Company recognized a right-of-use asset and a liability of $1,428,764 pursuant to this lease.
In
September 2022, the Company entered a 124-month lease related to its future headquarters offices and showrooms space. The Company
recognized a right-of-use asset and a liability of $22,192,503 pursuant
to such lease. In connection with the execution of lease, the Company was required to provide the landlord with a letter of credit
in the amount of $2.7 million,
which is secured by the same amount of cash. In January 2024, the Company entered in a 35-month lease related to its Sacramento
office. The Company recognized a right-of-use asset and a liability of $ 662,696 pursuant
to such lease.
The
following table outlines the total lease cost for the Company’s operating leases as well as weighed average information for these
leases as of September 30, 2024:
SCHEDULE
OF LEASE COST OPERATING LEASE
| |
Nine Month Ended September 30, | |
| |
2024 | | |
2023 | |
Cash paid for operating lease liabilities | |
$ | 1,636,374 | | |
$ | 710,135 | |
Right-of-use assets obtained in exchange for new operating lease obligations | |
$ | 662,696 | | |
$ | - | |
Fixed rent payments | |
| 2,703,789 | | |
| 746,652 | |
Lease – Depreciation expense | |
$ | 1,580,160 | | |
$ | 1,404,634 | |
Weighted-average discount rate | |
| 6.48 | % | |
| 6.41 | % |
Weighted-average remaining lease term (in months) | |
| 96 | | |
| 105 | |
SCHEDULE
OF MINIMUM LEASE OBLIGATION
| |
| |
Minimum Lease obligation | |
| |
Twelve months ended September 30, 2025 | |
$ | 2,447,069 | |
Twelve months ended September 30, 2026 | |
| 2,537,065 | |
Twelve months ended September 30, 2027 | |
| 2,421,977 | |
Twelve months ended September 30, 2028 | |
| 2,436,559 | |
Twelve months ended September 30, 2029 and thereafter | |
| 13,349,637 | |
Total | |
$ | 23,192,307 | |
SCHEDULE
OF INTEREST EXPENSE LEASE LIABILITIES
| |
For the nine-month period ended | |
| |
September 30, 2024 | | |
September 30, 2023 | |
Interest expense | |
$ | 1,122,282 | | |
$ | 1,172,962 | |
NOTE
7 ROYALTY OBLIGATIONS
The
Company had a license agreement with General Electric (“GE”) which provided, among other things, for rights to market certain
of the Company’s products displaying the GE brand in consideration of royalty payments to GE. The agreement expired in 2023.
The
Company owes $2.1
million to GE pursuant to the license agreement
as of September 30, 2024. The payments associated with this debt are payable in quarterly tranches aggregating $0.8
million during 2024 and 2025 and $0.9
million in 2026. The Company owed an additional
amount of $1.4
million pursuant to its agreements with GE which
is payable in 2027 as of March 31, 2024. During April 2024, GE and the Company agreed to reduce such additional amount by $400,000
in exchange for the issuance of a convertible
promissory note of $1.0
million.
NOTE
8 ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consisted of the following:
SCHEDULE
OF ACCRUED EXPENSES
| |
September 30, 2024 | | |
December 31, 2023 | |
Accrued interest, convertible notes | |
$ | 1,141,670 | | |
$ | 744,953 | |
Funds received in anticipation of closing of Preferred shares | |
| 2,300,000 | | |
| - | |
Trade payables | |
| 13,401,713 | | |
| 11,513,918 | |
Accrued compensation | |
| 795,676 | | |
| 874,557 | |
Total | |
$ | 17,639,059 | | |
$ | 13,133,428 | |
NOTE
9 RELATED PARTY TRANSACTIONS
Convertible
Notes
Convertible
notes due to related parties represent amounts provided to the Company from a director and the Company’s Co-Chief Executive Officers.
The outstanding principal on the convertible promissory notes, associated with related parties was $950,000 as of September 30, 2024
and December 31, 2023 and accrued interest of $ 293,260 and $151,081as of September 30, 2024, and December 31, 2023, respectively.
Series
A Preferred Stock
The
Company received $500,000, in aggregate, from a director and one of the Company’s Co-Chief Executive Officers as well as from its
President in anticipation of the closing of its Preferred Series A-1 shares in October 2024. These proceeds were reflected as accounts
payable and accrued expenses in the accompanying balance sheet as of September 30, 2024.
NOTE
10 STOCKHOLDERS’ EQUITY
(A)
Common Stock
The
Company issued the following common stock during the nine months ended September 30, 2024, and 2023:
SCHEDULE
OF COMMON STOCK
Transaction Type | |
Shares Issued | | |
Valuation $ | | |
Range of Value Per Share | |
2024 Equity Transactions | |
| | | |
| | | |
| | |
Common stock issued, pursuant to services provided | |
| 3,395,915 | | |
| 9,035,221 | | |
$ | 0.82 -1.78 | |
Common stock issued pursuant to stock at the market offering, net | |
| 3,535,067 | | |
| 4,330,295 | | |
| 0.952- 1.64 | |
Common stock issued pursuant to exercise of options, net | |
| 128,023 | | |
| 7,500 | | |
| .10 | |
Common stock issued pursuant to acquisition (1) | |
| 1,853,421 | | |
| –– | | |
| –– | |
Transaction Type | |
Shares Issued | | |
Valuation $ | | |
Range of Value Per Share | |
2023 Equity Transactions | |
| | | |
| | | |
| | |
Common stock issued, pursuant to services provided | |
| 2,238,668 | | |
| 13,109,135 | | |
$ | 1.22-3.82 | |
Common stock issued pursuant to stock at the market offering, net | |
| 3,576,458 | | |
| 8,231,529 | | |
| 2.55-3.25 | |
Common stock issued pursuant to conversion of preferred stock | |
| 580,400 | | |
| 220,099 | | |
| 0.25 | |
Common stock issued pursuant to acquisition | |
| 1,923,285 | | |
| 7,327,716 | | |
| 3.81 | |
Common stock issued pursuant to extinguishment of debt | |
| 574,713 | | |
| 2,040,231 | | |
| 3.55 | |
As
of September 30, 2024, the remaining amount to be used under the ATM offering program is $5.9 million.
(B)
Preferred Stock
The
following is a summary of the Company’s Preferred Stock activity during the nine months ended September 30, 2023:
SCHEDULE
OF PREFERRED STOCK ACTIVITY
Transaction Type | |
Quantity | | |
Carrying Value | | |
Value per Share | |
Preferred Stock Balance at January 1, 2023 | |
| 880,400 | | |
$ | 220,099 | | |
$ | 0.25 | |
2023 Preferred Stock redemptions | |
| 880,400 | | |
| 220,099 | | |
| 0.25 | |
Preferred Stock Balance at September 30, 2023 | |
| — | | |
$ | — | | |
$ | — | |
The
Series A Preferred Stock was convertible at the holder’s option. The Company could repurchase shares of the Preferred Stock for
$1.20-2.00 per share. Holders also had a put option, allowing them to sell their shares of Preferred Stock back to the Company at $0.25
per share, and therefore the stock was classified as Mezzanine equity rather than permanent equity. This Series A Preferred Stock was retired during 2023.
During
October 2024, the Company completed its authorization of the issuance of 440,000 shares of newly authorized Series A Preferred Stock
and Series A-1 Preferred Stock. 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, if issued below $2 per share, 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); |
| ● | 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, if issued below $2 per share, 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); |
| ● | Voting
rights on as converted basis. |
(C)
Stock Options
The
following is a summary of the Company’s stock option activity during the nine-month ended September 30, 2024, and 2023:
SCHEDULE OF STOCK OPTION ACTIVITY
Options | |
Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (In Years) | | |
Aggregate Intrinsic Value | |
Outstanding, January 1, 2024 | |
| 35,805,976 | | |
$ | 7.33 | | |
| –– | | |
$ | 740,820 | |
Exercised | |
| 210,000 | | |
| 0.1 | | |
| –– | | |
| –– | |
Granted | |
| 2,598,500 | | |
| 1.2 | | |
| –– | | |
| –– | |
Forfeited | |
| (2,436,835 | ) | |
| 4.8 | | |
| — | | |
| — | |
Awards expired | |
| - | | |
$ | - | | |
| - | | |
| - | |
Outstanding, September 30, 2024 | |
| 35,832,641 | | |
$ | 7.08 | | |
| 2.33 | | |
$ | 639,840 | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, September 30, 2024 | |
| 12,996,349 | | |
$ | 4.31 | | |
| 2.05 | | |
$ | 639,840 | |
Options | |
Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (In Years) | | |
Aggregate Intrinsic Value | |
Outstanding, January 1, 2023 | |
| 33,289,250 | | |
$ | 7.7 | | |
| - | | |
$ | 2,370,800 | |
Awards Granted in Period | |
| 2,221,350 | | |
| 2.85 | | |
| - | | |
| - | |
Awards expired | |
| (426,002 | ) | |
$ | 4.0 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Outstanding, September 30, 2023 | |
| 35,084,598 | | |
$ | 7.5 | | |
| 2.9 | | |
$ | 2,370,800 | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, September 30, 2023 | |
| 13,247,370 | | |
$ | 4.4 | | |
| 2.31 | | |
$ | 2,370,800 | |
The
following table summarizes the range of the Black Scholes pricing model assumptions used by the Company during the nine months ended
September 30, 2024, and 2023:
SCHEDULE
OF BLACK SCHOLES PRICING MODEL
| |
September 30, 2024 | | |
September 30, 2023 | |
| |
Range | | |
Range | |
Stock price | |
$ | 0.90 - 1.63 | | |
$ | 3.74-3.84 |
Exercise price | |
$ | 0 - 14 | | |
$ | 3.74-3.84 | |
Expected life (in years) | |
| 2.50- 4.00 yrs. | | |
| 3.5-5 yrs. |
Volatility | |
| 36.7 – 96.5 | % | |
| 48-54 | % |
Risk-fee interest rate | |
| 3.50 - 4.62 | % | |
| 3.51-5.02 | % |
Dividend yield | |
| — | | |
| — | |
The
Company does not have historical stock prices that can be reliably determined for a period that is at least equal to the expected terms
of its options. The expected options terms are 3.5 years, and its historical period is 2.7 years. The Company relies on the expected
volatility of comparable peer-group publicly traded companies within its industry sector, to supplement the Company’s historical
data for the period of the expected terms of the options that exceeds the period of the Company’s historical volatility data.
Unamortized
future option expense was $14.4 million (excluding certain market-based options which management cannot ascertain to have a probable
outcome amounting to $63 million) on September 30, 2024, and it is expected to be recognized over a weighted-average period of 1.2 years.
(D)
Warrants Issued
The
following is a summary of the Company’s warrant activity during the nine months ended September 30, 2024 and 2023:
SCHEDULE
OF WARRANT ACTIVITY
| |
Number of Warrants | | |
Weighted Average Exercise Price | |
Balance, January 1, 2024 | |
| 2,063,522 | | |
$ | 5.76 | |
Issued | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | |
Forfeited | |
| (245,999 | ) | |
| 9.94 | |
Balance, September 30, 2024 | |
| 1,817,523 | | |
$ | 5.20 | |
| |
Number of Warrants | | |
Weighted Average Exercise Price | |
Balance, January 1, 2023 | |
| 671,855 | | |
$ | 11.5 | |
Issued | |
| 1,391,667 | | |
| 3.0 | |
Exercised | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | |
Balance, September 30, 2023 | |
| 2,063,522 | | |
$ | 5.76 | |
During
the nine months ended September 30, 2024, the Company did not issue any warrants. During the nine months ended September 30, 2023, as
an inducement to enter certain financing transactions, the Company issued 1,391,667 3- year warrants to certain noteholders at an adjusted
exercise price of $2.70 per warrant. The Company recorded a debt discount aggregating $5.6 million which was recognized as debt discount
and additional paid-in capital in the accompanying balance sheet.
(E)
Restricted stock units
A
summary of the Company’s non-vested restricted stock units during the nine months ended September 30, 2024 and 2023 are as follows:
SCHEDULE
OF NON-VESTED RESTRICTED STOCK
| |
Shares | | |
Weighted Average Grant Due Fair Value | |
Non-vested restricted stock units, January 1, 2024 | |
| 4,919,702 | | |
$ | 4.21 | |
Granted | |
| 3,789,980 | | |
| 0.69 | |
Vested | |
| (3,681,925 | ) | |
| 2.33 | |
Forfeited | |
| (173,838 | ) | |
| 2.88 | |
Non-Vested restricted stock units, September 30, 2024 | |
| 4,853,919 | | |
| 2.93 | |
| |
| | | |
| | |
Non-vested restricted stock units, January 1, 2023 | |
| 2,516,461 | | |
| 8.39 | |
Granted | |
| 4,110,924 | | |
| 2.21 | |
Vested | |
| (2,325,308 | ) | |
| 4.25 | |
Forfeited | |
| (256,402 | ) | |
| 10.70 | |
Non-vested restricted stock units on September 30, 2023 | |
| 4,045,675 | | |
| 5.27 | |
The
weighted-average remaining contractual life of the restricted units as of September 30, 2024, is 1.7 years.
One
RSU and RSA give the right to receive one share of the Company’s common stock. RSU and RSAs that vest based on service and performance
are measured based on the fair values of the underlying stock on the date of grant. The Company used a Lattice model to determine the
fair value of the RSU with a market condition. Compensation with respect to RSU and RSA awards is expensed on a straight-line basis over
the vesting period.
During
the nine-month ended September 30, 2024, and 2023, the Company recognized compensation expenses of $ 9,035,220, and $13,109,135, respectively,
related to RSUs and RSAs.
NOTE
11 CONCENTRATIONS OF RISKS
Major
Customers and Accounts Receivable
The
Company had no customers whose revenue individually represented 10% or more of the Company’s total revenue during the nine-month
period ended September 30, 2024, and 2023. The Company had two customers with accounts receivable balances aggregating representing
23% of the Company’s total accounts receivable on September 30, 2024, and September 30, 2023 and one third party payor representing
48% and 24% of the Company’s total accounts receivable on September 30, 2024, and September 30, 2023, respectively.
Liquidity
The
Company’s cash and cash equivalents are held primarily with two financial institutions. The Company has deposits which exceed the
amount insured by the FDIC. To reduce the risk associated with the failure of such counterparties, the Company periodically evaluates
the credit quality of the financial institutions in which it holds deposits.
Product
and Geographic Markets
The
Company generates its income primarily from lighting and heating products, and increasingly, smart-based products sold primarily in the
United States.
NOTE
12 PROFORMA FINANCIAL STATEMENTS (unaudited)
The
following pro forma consolidated results of operations have been prepared as if the acquisition occurred on January 1, 2023:
SCHEDULE
OF PROFORMA CONSOLIDATED RESULTS OF OPERATION
| |
Nine-month period ended September 30, | |
| |
2023 | |
Revenues | |
$ | 60,649,120 | |
Net loss | |
$ | (26,430,206 | ) |
Basic and diluted loss per share | |
$ | (0.28 | ) |
Weighted average number of shares outstanding- basic and diluted | |
| 92,768,792 | |
These
pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results to reflect, among
other things, 1) additional amortization that would have been charged assuming the fair value adjustments to amortizable intangible assets
had been applied, 2) the shares issued and issuable by the Company to acquire Belami, 3) fair value of the initial grant and options
to Belami employees, and 4) the increase in interest expense related to the issuance of convertible notes payable, including amortization
of debt discount. Furthermore, it excludes transaction costs related to the Belami acquisition. These pro forma results of operations
have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that would have
resulted had the acquisition occurred on the date indicated or that may result in the future.
NOTE
13 SUBSEQUENT EVENTS
Management
has evaluated subsequent events through November 12, 2024, which is the date the consolidated financial statements were available to be
issued. There were no significant subsequent events that required adjustment to or disclosure in the unaudited consolidated financial
statements other than the following:
The
Company generated proceeds of $11.0 million by issuing 440,000 shares of its newly authorized Preferred Series A and A-1 Stock in October
2024.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2023
included in our Annual Report on Form 10-K for the year ended December 31, 2023. 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, 2023, 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. 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 2024. 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 during 2023 and 2024. 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
Israel-Hamas-Lebanon war 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 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.
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
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) |
| ● | 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 $25 per share at the Company’s option after three years or upon change
of control (substantially outside the control of the holder) |
| ● | Voting
rights on as converted basis. |
Results
of Operations
Comparison
of the Three and Nine months Ended September 30, 2024, and 2023
| |
Three months ended September 30, | | |
Increase/ | | |
Increase/ | | |
Nine months ended September 30, | | |
Increase/ | | |
Increase/ | |
| |
2024($) | | |
2023($) | | |
Decrease $ | | |
Decrease % | | |
2024($) | | |
2023($) | | |
Decrease $ | | |
Decrease % | |
Revenue | |
| 22,168,919 | | |
| 21,617,579 | | |
| 551,340 | | |
| 3 | | |
| 62,592,888 | | |
| 36,611,659 | | |
| 25,981,229 | | |
| 71 | |
Cost of revenues | |
| 15,327,319 | | |
| 14,917,493 | | |
| 409,826 | | |
| 3 | | |
| 43,596,611 | | |
| 25,207,604 | | |
| 18,389,007 | | |
| 73 | |
Gross profit | |
| 6,841,600 | | |
| 6,700,086 | | |
| 141,514 | | |
| 2 | | |
| 18,996,277 | | |
| 11,404,055 | | |
| 7,592,222 | | |
| 67 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Selling and marketing expenses | |
| 6,275,742 | | |
| 5,702,647 | | |
| 573,095 | | |
| 10 | | |
| 19,074,266 | | |
| 12,546,736 | | |
| 6,527,530 | | |
| 52 | |
General and administrative expenses | |
| 8,171,293 | | |
| 7,519,042 | | |
| 662,251 | | |
| 9 | | |
| 22,651,096 | | |
| 24,869,910 | | |
| (2,218,814 | ) | |
| (9 | ) |
Total expenses | |
| 14,447,035 | | |
| 13,221,689 | | |
| 1,225,346 | | |
| 9 | | |
| 41,725,362 | | |
| 37,416,646 | | |
| 4,308,716 | | |
| 12 | |
Operating loss | |
| (7,605,435 | ) | |
| (6,521,603 | ) | |
| 1,083,832 | | |
| 17 | | |
| (22,729,085 | ) | |
| (26,012,591 | ) | |
| (3,283,506 | ) | |
| (13 | ) |
Other income / (expense) | |
| | | |
| | | |
| - | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (1,015,871 | ) | |
| (662,173 | ) | |
| (353,698 | ) | |
| 53 | | |
| (3,031,371 | ) | |
| (2,601,526 | ) | |
| (429,845 | ) | |
| 17 | |
Gain on extinguishment of debt | |
| - | | |
| - | | |
| | | |
| | | |
| - | | |
| (1,201,857 | ) | |
| (1,201,857 | ) | |
| (100 | ) |
Total other income (expense), net | |
| (1,015,871 | ) | |
| (662,173 | ) | |
| (353,698 | ) | |
| NM | | |
| (3,031,371 | ) | |
| (1,399,669 | ) | |
| (1,631,702 | ) | |
| 117 | |
| |
| | | |
| | | |
| - | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (8,621,306 | ) | |
| (7,183,776 | ) | |
| (1,437,530 | ) | |
| 20 | | |
| (25,760,456 | ) | |
| (27,412,260 | ) | |
| (1,651,804 | ) | |
| (6 | ) |
NM:
Not meaningful
Revenue
|
|
Three
months ended
September
30, |
|
|
Increase/ |
|
|
Increase/ |
|
|
Nine
months ended
September
30, |
|
|
Increase/ |
|
|
Increase/ |
|
|
|
2024($) |
|
|
2023($) |
|
|
Decrease $ |
|
|
Decrease % |
|
|
2024($) |
|
|
2023($) |
|
|
Decrease $ |
|
|
Decrease % |
|
Revenue |
|
|
22,168,919 |
|
|
|
21,617,579 |
|
|
|
551,340 |
|
|
|
3 |
|
|
|
62,592,888 |
|
|
|
36,611,659 |
|
|
|
25,981,229 |
|
|
|
71 |
|
The
increase in revenues during the three-month period ended September 30, 2024 is primarily due increased weighted average price of lighting
and heating products offset by a decrease of units sold. The increase in revenues during the nine-month period ended September 30, 2024
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 2024 than in 2023, primarily resulting from revenues from Belami, which was acquired in April
2023 and the sale of our advanced and smart products. 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
|
|
Three
months ended
September
30, |
|
|
Increase/ |
|
|
Increase/ |
|
|
Nine
months ended
September 30, |
|
|
Increase/ |
|
|
Increase/ |
|
|
|
2024
($) |
|
|
2023
($) |
|
|
Decrease $ |
|
|
Decrease % |
|
|
2024
($) |
|
|
2023
($) |
|
|
Decrease $ |
|
|
Decrease % |
|
Cost
of revenues |
|
|
15,327,319
|
|
|
|
14,917,493
|
|
|
|
409,826
|
|
|
|
3 |
|
|
|
43,596,611
|
|
|
|
25,207,604
|
|
|
|
18,389,007 |
|
|
|
73 |
|
The
cost of revenue consists primarily of costs associated with selling the products marketed by Belami. The increase in cost of revenues
during the 2024 interim periods is commensurate with the increase in revenues and is primarily due to costs associated with revenues
from products marketed by Belami which was acquired on April 28, 2023.
We
believe that the cost of revenues will increase in 2024 compared to 2023, commensurate with an anticipated increase in revenues.
Sales
and Marketing Expenses
|
|
Three
months ended
September 30, |
|
|
Increase/ |
|
|
Increase/ |
|
|
Nine
months ended
September 30, |
|
|
Increase/ |
|
|
Increase/ |
|
|
|
2024
($) |
|
|
2023
($) |
|
|
Decrease $ |
|
|
Decrease % |
|
|
2024
($) |
|
|
2023
($) |
|
|
Decrease $ |
|
|
Decrease % |
|
Selling
and marketing expenses |
|
|
6,275,742 |
|
|
|
5,702,647 |
|
|
|
573,095 |
|
|
|
10 |
|
|
|
19,074,266 |
|
|
|
12,546,736 |
|
|
|
6,527,530 |
|
|
|
52 |
|
Sales
and marketing expenses consist primarily of sales and marketing compensation as well as sales and marketing programs.
The
increase in selling and marketing expenses during the three-month period ended September 30, 2024 is primarily due to increased marketing
programs expenses. The increase in selling and marketing expenses during the nine-month period ended September 30, 2024 is primarily
due to such expenses increasing following the acquisition of Belami on April 28, 2023
General
and Administrative Expenses
| |
Three month ended September 30, | | |
Increase/ | | |
Increase/ | | |
Nine months ended September 30, | | |
Increase/ | | |
Increase/ | |
| |
2024 ($) | | |
2023 ($) | | |
Decrease $ | | |
Decrease % | | |
2024 ($) | | |
2023 ($) | | |
Decrease $ | | |
Decrease % | |
General and administrative expenses | |
| 8,171,293 | | |
| 7,519,042 | | |
| 662,251 | | |
| 9 | | |
| 22,651,096 | | |
| 24,869,910 | | |
| (2,218,814 | ) | |
| (9 | ) |
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
increase in general and administrative expenses during the three-month period ended September 30, 2024 is primarily due to the following:
| ● | Nonrecurring
impairment charge of $1.1 million of our E-commerce technology platforms which will be discontinued
in September 2025 which will be replaced by a new platform expected to increase our revenues
and possibly decrease our general and administrative expenses, offset by a decrease in share-based
payments. |
The
decrease in general, and administrative expenses during the nine-month period ended September 30, 2024 primarily due to the following:
|
● |
Decreased
share-based payments resulting from greater issuance of shares to employees following the acquisition of Belami, Inc. during the
second quarter of 2023; |
|
●
|
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 of 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 $1.1 million during the quarter ended September 30, 2024. |
We
believe that our operating expenses will be higher during 2024 when compared to 2023 as we continue to invest to support our anticipated
growth which now includes such expenses related to Belami’s operations following its acquisition.
Other
Income (Expense)
| |
Three-month ended September 30, | | |
Increase/ | | |
Increase/ | | |
Nine-month ended September 30, | | |
Increase/ | | |
Increase/ | |
| |
2024($) | | |
2023($) | | |
Decrease $ | | |
Decrease % | | |
2024($) | | |
2023($) | | |
Decrease $ | | |
Decrease % | |
Interest expense, net | |
| (1,015,871 | ) | |
| (662,173 | ) | |
| 353,697 | | |
| 53 | | |
| (3,031,374 | ) | |
| (2,601,526 | ) | |
| 429,848 | | |
| 17 | |
The
increase in interest expense during the interim 2024 periods resulted primarily from interest charges related to increased interest-bearing weighted average debt in the current periods when compared to the prior year periods.
| |
Three-month ended September 30, | | |
Increase/ | | |
Increase/ | | |
Nine-month ended September 30, | | |
Increase/ | | |
Increase/ | |
| |
2024($) | | |
2023($) | | |
Decrease $ | | |
Decrease % | | |
2024($) | | |
2023($) | | |
Decrease $ | | |
Decrease % | |
Gain on extinguishment of debt | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,201,857 | | |
| (1,201,857 | ) | |
| (100 | ) |
The
decrease in gain on extinguishment of debt is due to a non-recurring gain on extinguishment of debt which occurred during the second
quarter of 2023.
Liquidity
and Capital Resources
As
of September 30, 2024, and 2023, we had $13.0 million and $22.1 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 $4.4 million pursuant to placements and offerings
during the nine-month period ended September 30, 2024.
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 September 30, 2024, we did not issue any shares of common stock under such program.
From inception through September 30, 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 September 30, 2024, the remaining amount to be used under the ATM offering program
is $5.9 million.
On
October 4, 2024, we sold an aggregate of 440,000 shares of two series of preferred stock, resulting in total gross proceeds of $11.0
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 240,000 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 September 30, 2024. In addition, we owe GE certain minimum royalty
payments under a license agreement and other accrued expenses which amounted to $2.3 million as of September 30, 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.
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 $(7.5) million and $(7.2) million as of September 30, 2024, and 2023, respectively.
During
October 2024, the Company authorized the issuance of 440,000 shares of newly authorized Series A Preferred Stock and Series A-1
Preferred Stock which generated proceeds of $11.0 million. We received $2.3 million of such proceeds in September 2024. 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 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 outside 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. |
Please
see below a summary of the primary components of our cash used in or provided by operating investing and financing activities during
the nine-month period ended September 30, 2024
| |
For the nine months ended September 30, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (25,760,456 | ) | |
$ | (27,412,260 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation, amortization, and impairment | |
| 4,244,653 | | |
| 2,098,935 | |
Amortization of debt discount | |
| 933,476 | | |
| 867,572 | |
Gain on forgiveness of debt | |
| — | | |
| (1,201,857 | ) |
Non-cash equity-based compensation expense | |
| 9,035,220 | | |
| 13,109,135 | |
Change in operating assets and liabilities: | |
| | | |
| | |
Working capital changes | |
| (1,404,341 | ) | |
| 2,446,112 | |
| |
| | | |
| | |
Net cash used in operating activities | |
| (12,951,448 | ) | |
| (10,092,363 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
| |
| | | |
| | |
Proceeds from disposition of debt securities, net | |
| — | | |
| 7,436,103 | |
Acquisition, net of cash acquired | |
| — | | |
| (4,206,200 | ) |
Purchase of property and equipment | |
| (536,014 | ) | |
| (119,942 | ) |
Net cash used in investing activities | |
| (536,014 | ) | |
| 3,109,961 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from issuance of equity instruments, net of costs | |
| 4,337,795 | | |
| 8,231,529 | |
Proceeds from anticipated issuance of preferred stocks | |
| 2,300,000 | | |
| — | |
Proceeds from issuance of debt instruments, net | |
| (2,531,817 | ) | |
| 11,400,395 | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 4,105,978 | | |
| 19,631,924 | |
| |
| | | |
| | |
(Decrease) increase in cash, cash equivalents and restricted cash | |
| (9,381,484 | ) | |
| 12,649,522 | |
Cash, cash equivalents, and restricted cash at beginning of period | |
| 22,430,253 | | |
| 9,461,597 | |
Cash, cash equivalents and restricted cash at end of period | |
$ | 13,048,769 | | |
$ | 22,111,119 | |
The
changes in working capital, net are primarily attributable to timing differences in accounts receivable, accounts payable related to
operations and deferred revenues.
Going
Concern
The
Company’s liquidity sources include $ 13.0 million in cash, cash equivalents and restricted cash, and $ 11.7 million of working
capital deficit as of September 30, 2024. The Company has a history of recurring operating losses and its net cash used in operating
activities amounted to $13.0 million and $10.1 million during the nine months ended September 30, 2024, and 2023, respectively. The Company
has also generated net cash provided by financing activities of $4.1 million and $19.6 million during the nine months ended September
30, 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 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, generate
cash provided by financing activities through its 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.
| |
For the three-months ended September 30, | | |
For the nine-months ended September 30 | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Net loss | |
$ | (8,621,306 | ) | |
$ | (7,183,776 | ) | |
$ | (25,760,456 | ) | |
$ | (27,412,260 | ) |
Share-based payments | |
| 2,964,2856 | | |
| 2,470,601 | | |
| 9,035,221 | | |
| 13,109,035 | |
Interest expense | |
| 1,015,871 | | |
| 662,173 | | |
| 3,031,371 | | |
| 2,601,526 | |
Impairment | |
| 1,118,750 | | |
| — | | |
| 1,118,750 | | |
| — | |
Depreciation, amortization | |
| 928,794 | | |
| 1,067,203 | | |
| 3,125,903 | | |
| 2,098,935 | |
Transaction costs | |
| - | | |
| 123,000 | | |
| - | | |
| 516,601 | |
EBITDA, as adjusted | |
$ | (2,593,606 | ) | |
$ | (2,860,779 | ) | |
$ | (9,449,211 | ) | |
$ | (9,086,063 | ) |
Critical
Accounting Policies
Our
significant accounting policies are disclosed in Note 2 to our consolidated financial statements for the year ended December 31, 2023
contained in our Annual Report on Form 10-K for the year ended December 31, 2023. 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 September 30, 2024, and December 31, 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. |
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; |
|