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, 2023

☐ 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 October 31, 2023, the registrant had 92,166,413 shares of common stock, no par value per share, issued and outstanding.

SKYX PLATFORMS CORP.

Form 10-Q

TABLE OF CONTENTS

	PART I. FINANCIAL INFORMATION

	Cautionary Note Regarding Forward Looking Statements	3

Item 1	Financial Statements	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations and Comprehensive Loss	5
	Consolidated Statements of Changes in Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4	Controls and Procedures	28
	PART II. OTHER INFORMATION
Item 1	Legal Proceedings	29
Item 1A	Risk Factors	29
Item 2	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	31
Item 3	Defaults Upon Senior Securities	31
Item 4	Mine Safety Disclosures	31
Item 5	Other Information	31
Item 6	Exhibits	32

Signatures		33

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, many of which have been 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 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 our operations as needed;
	●	our ability to comply with the terms of, and timely repay, our current debt financing;
	●	the impact of the COVID-19 pandemic on our business and operations, including the potential impact on manufacturing operations in China;
	●	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 our license agreement with General Electric (“GE”);
	●	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 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-Hamas 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;
	●	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, 2022 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 because 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 after the date of this Form 10-Q.

Part I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SKYX PLATFORMS CORP.

Consolidated Balance Sheets

	(Unaudited) September 30, 2023			(Audited) December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	16,479,393		$	6,720,543
Restricted cash		2,750,000			—
Accounts receivable		3,034,585			—
Investments, available-for-sale		—			7,373,956
Inventory		5,385,039			1,923,540
Deferred cost of revenues		282,165
Prepaid expenses and other assets		408,427			311,618
Total current assets		28,339,609			16,329,657

Other assets:
Furniture and equipment, net		592,520			215,998
Restricted cash		2,881,726			2,741,054
Right of use assets, net		22,072,530			23,045,293
Intangible assets, definite life, net		8,436,398			662,802
Goodwill		15,799,725			—
Other assets		220,747			182,306
Total other assets		50,003,646			26,847,453

Total Assets	$	78,343,255		$	43,177,110

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable and accrued expenses	$	10,784,874		$	1,949,823
Notes payable, current		3,627,273			405,931
Operating lease liabilities, current		2,223,318			1,130,624
Royalty obligation		2,638,000			2,638,000
Consideration payable		8,905,315			-
Deferred revenues		1,854,922			-
Convertible notes, related parties		950,000			950,000
Convertible notes, current		350,000			350,000
Total current liabilities		31,333,702			7,424,378

Long term liabilities:
Accounts payable		523,797			—
Notes payable		1,142,875			4,867,004
Operating lease liabilities		22,806,894			22,758,496
Convertible notes, net		5,480,279			—

Total long-term liabilities		29,953,845			27,625,500

Total liabilities		61,287,547			35,049,878

Commitments and Contingent Liabilities:		-			-
Redeemable preferred stock - subject to redemption: $0 par value; 20,000,000 shares authorized; none and 580,400 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		—			220,099

Stockholders’ Equity:
Common stock and additional paid-in-capital: $0 par value, 500,000,000 shares authorized; and 91,846,065 and 82,907,541shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		150,538,326			114,039,638
Accumulated deficit		(133,482,618	)		(106,070,358	)
Accumulated other comprehensive loss		—			(62,147	)
Total stockholders’ equity		17,055,708			7,907,133
Non-controlling interest		—			—
Total equity		17,055,708			7,907,133

Total Liabilities and Stockholders’ Equity	$	78,343,255		$	43,177,110

The accompanying notes are an integral part of the unaudited consolidated financial statements.

SKYX Platforms Corp.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

	2023			2022			2023			2022
	For the three months ended September 30,						For the nine months ended September 30,
	2023			2022			2023			2022
Revenue	$	21,617,579		$	8,556		$	36,611,659		$	22,916
Cost of revenues		14,917,493			5,914			25,207,604			17,676
Gross income		6,700,086			2,642			11,404,055			5,240
Sales and marketing		5,702,647			993,232			12,546,736			3,839,175
General and administrative		7,519,042			4,615,887			24,869,910			18,282,472
Operating expenses		13,221,689			5,609,119			37,416,646			22,121,647
Loss from operations		(6,521,603	)		(5,606,477	)		(26,012,591	)		(22,116,407	)
Other income / (expense)
Interest expense, net		(662,173	)		(52,189	)		(2,601,526	)		(224,610	)
Other income		—			—			—			—
Gain on extinguishment of debt		—			—			1,201,857			178,250
Total other income (expense), net		(662,173	)		(52,189	)		(1,399,669	)		(46,360	)

Net loss		(7,183,776	)		(5,658,666	)		(27,412,260	)		(22,162,767	)
Common stock issued pursuant to antidilutive provisions		—			—			—			4,691,022
Preferred dividends		—			4,627			—			32,504
Non-controlling interest		—			—			—			—
Net loss attributed to common shareholders	$	(7,183,776	)	$	(5,663,293	)	$	(27,412,260	)	$	(26,886,293	)
Other comprehensive loss:		—			(108,817	)		62,147			(108,817	)
Net Comprehensive loss attributed to common stockholders	$	(7,183,776	)	$	(5,772,110	)	$	(27,350,113	)	$	(26,995,110	)

Net loss per share - basic and diluted	$	(0.08	)	$	(0.07	)	$	(0.31	)	$	(0.34	)

Weighted average number of common shares outstanding during the period – basic and diluted		91,081,313			81,562,681			87,055,643			78,350,946

The accompanying notes are an integral part of the unaudited consolidated financial statements.

SKYX Platforms Corp.

Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

	2023			2022			2023			2022
	For the three months ended September 30,						For the nine months ended September 30,
	2023			2022			2023			2022

Shares of Common stock
Balance, beginning of period		90,660,148			81,053,486			82,907,541			66,295,288
Common stock issued pursuant to offerings		592,150			—			3,576,458			1,650,000
Common stock issued pursuant to services		593,767			322,579			2,283,668			865,528
Common stock issued pursuant to conversion of preferred stock		—			1,000,000			580,400			12,376,536
Common stock issued pursuant to exercise of options and warrants		—			180,000			—			1,033,640
Common stock issued pursuant to acquisition		—			—			1,923,285			—
Common stock issued pursuant to antidilutive provisions		—			—			—			335,073
Common stock issued pursuant to extinguishment of debt		—			—			574,713			—
Balance, September 30		91,846,065			82,556,065			91,846,065			82,556,065

Common stock and paid-in capital
Balance, beginning of period	$	147,282,469		$	110,444,367		$	114,039,638		$	70,880,386
Common stock issued pursuant to stock offering		785,256			—			8,231,529			20,552,000
Common stock issued pursuant to services		2,470,601			2,762,945			13,109,135			13,957,145
Common stock issued pursuant to conversion of preferred stock		—			250,000			220,099			3,094,134
Common stock issued pursuant to exercise of options and warrants		—			107,999			—			390,624
Debt discount		—			—			5,569,978			—
Common stock issued pursuant to acquisition		—			—			7,327,716			—
Common stock issued pursuant to extinguishment of debt		—			—			2,040,231			—
Common stock issued pursuant to antidilutive provisions		—			—			—			4,691,022
Balance, September 30	$	150,538,326		$	113,565,311		$	150,538,326		$	113,565,311

Accumulated Deficit
Balance, beginning of period	$	(126,298,842	)	$	(95,528,340	)	$	(106,070,358	)	$	(74,269,898	)
Net loss		(7,183,776	)		(5,658,666	)		(27,412,260	)		(22,162,767	)
Non-controlling interest		—			—			—			(35,442	)
Common stock issued pursuant to antidilutive provisions		—			—			—			(4,691,022	)
Preferred dividends		—			(4,627	)		—			(32,504	)
Balance, end of period	$	(133,482,618	)	$	(101,191,633	)	$	(133,482,618	)	$	(101,191,633	)

Accumulated other comprehensive loss
Balance, beginning of period	$	—		$	—		$	(62,147	)	$	—
Other comprehensive income		—			(108,817	)		62,147			(108,817	)
Balance, end of period		—			(108,817	)		—			(108,817	)

Balance, beginning of period	$	17,055,706		$	7,907,133		$	7,907,133		$	7,907,133
Net loss		(7,183,776	)		(5,658,666	)		(27,412,260	)		(22,162,767	)
Total stockholders’ equity	$	17,055,708		$	12,264,861		$	17,055,708		$	12,264,861
Balance, ending of period	$	17,055,708		$	12,264,861		$	17,055,708		$	12,264,861

The accompanying notes are an integral part of the unaudited consolidated financial statements.

SKYX Platforms Corp.

Consolidated Statements of Cash Flows

(Unaudited)

	2023			2022
	For the nine months ended September 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(27,412,260	)	$	(22,162,767	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,098,935			194,698
Gain on forgiveness of debt		(1,201,857	)		(178,250	)
Amortization of debt discount		867,572			—
Share-based payments		13,109,135			13,957,145
Change in operating assets and liabilities:
Inventory		(1,675,394	)		(549,825	)
Accounts receivable		(512,826	)		—
Prepaid expenses and other assets		79,224			(795,365	)
Deferred charges		1,200,916			—
Deferred revenues		(74,111	)		—
Operating lease liabilities		(215,743	)		(28,521	)
Accretion operating lease liabilities		890,474			—
Other assets		—			(161,358	)
Royalty obligation		—			(900,000	)
Accounts payable and accrued expenses		2,753,572			897,256
Net cash used in operating activities		(10,092,363	)		(9,726,987	)
Cash flows from investing activities:
Purchase of debt securities		(136,033	)		(7,441,617	)
Proceeds from disposition of debt securities		7,572,136			—
Acquisition, net of cash acquired		(4,206,200	)		—
Purchase of property and equipment		(119,942	)		(257,907	)
Payment of patent costs and other intangibles		—			(137,645	)
Net cash provided by (used in) investing activities		3,109,961			(7,837,169	)
Cash flows from financing activities:
Proceeds from issuance of common stock- offerings		8,723,461			23,100,000
Placement costs		(491,932	)		(2,548,000	)
Proceeds from exercise of options and warrants		—			390,624
Proceeds from line of credit		6,197,695			—
Proceeds from issuance of convertible notes		10,350,000			—
Dividends paid		—			(32,504	)
Principal repayments of notes payable		(5,147,300	)		(202,503	)
Net cash provided by financing activities		19,631,924			20,707,617
Increase in cash, cash equivalents and restricted cash		12,649,522			3,143,461
Cash, cash equivalents, and restricted cash at beginning of period		9,461,597			10,426,249
Cash, cash equivalents and restricted cash at end of period	$	22,111,119		$	13,569,710
Supplementary disclosure of non-cash financing activities:
Preferred stock conversion to common	$	220,099		$	3,094,134
Business acquisition:
Assets acquired excluding identifiable intangible assets and goodwill and cash		7,090,094			—
Liabilities assumed and consideration payable		19,755,903			—
Identifiable intangible assets and goodwill, net of cash outlay		19,993,525			—
Debt discount		5,569,978			—
Fair value of shares issued pursuant to antidilutive provisions		—			4,691,022
Fair value of shares issued pursuant to acquisition		7,327,716			—
Fair value of shares issued pursuant to extinguishment of debt		2,040,231			—
Right-of-use assets and operating lease liabilities					23,621,267
Cash paid during the period for:
Interest	$	666,539		$	303,957

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 into 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 to touch 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 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 second-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.

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 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, 2023 and for the three and nine months ended September 30, 2023 and 2022 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, 2022 has been derived from the audited financial statements at that date but does not include all 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, 2022 for additional disclosures and accounting policies.

Reclassifications

For comparability, reclassifications of certain prior-year balances were made to conform with current-year presentations, such as certain expenses previously included in cost of revenues and reclassified as general, and administrative expenses in 2022 and sales and marketing expenses which were previously included in selling, general, and administrative expenses in 2022.

Basis of Consolidation

The unaudited consolidated financial statements include the results of the Company and one of its subsidiaries, SQL Lighting and Fans LLC from January 1, 2022 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 to September 30, 2023. All intercompany balances and transactions have been eliminated in consolidation.

Business Combination

The Company accounts for its business acquisitions under the acquisition method of accounting. This method requires recording of acquired assets and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to the business combination are included prospectively beginning with the date of acquisition and transaction costs and transaction costs related to business combinations are recorded within selling, general, and administrative expenses.

The Company acquired the outstanding units of Belami, Inc (“Belami”) and its subsidiaries on April 28, 2023. Belami is an online retailer and e-commerce provider specializing in home lighting, ceiling fans, and other home furnishings. The initial allocation of purchase price is subject to adjustment through April 2024. The allocation of purchase price may vary based on the number and fair value of the shares to be issued in April 2024. The initial allocation of the purchase price is as follows:


Assets acquired excluding identifiable intangible assets and goodwill	$	7,090,094
Customer relationships		4,500,000
E-commerce technology platforms		3,900,000
Goodwill		15,799,725
Assumed liabilities		(10,949,178	)

Total Assets Acquired	$	20,340,641
Consideration:
Cash outlay, net of cash acquired	$	4,206,200
Consideration payable		8,806,725
Shares of common stock issued at initial closing		7,327,716
Total purchase price	$	20,340,641

Consideration payable primarily consists of the fair value of cash and shares of the Company’s common stock amounting to $3.2 million and $5.6 million payable in April 2024 and $750,000 cash, held in escrow, payable in July 2024. The consideration payable is discounted using an effective rate of 6%.

The goodwill recognized, none of which is deductible for income tax purposes, is attributable to the assembled workforce of Belami and to expected synergies and other benefits that the Company believes will result from combining its operations with Belami’s. The intangible assets recognized are primarily attributable to expected increased margins that the Company believes will result from Belami’s existing customer relationships and increased margins from the e-commerce technology platforms Belami has developed over the years.

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. At September 30, 2023 and December 31, 2022, the Company’s cash composition was as follows:

	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	16,479,393	$	6,720,543
Restricted cash		5,631,726		2,741,054
Total cash, cash equivalents and restricted cash	$	22,111,119	$	9,461,597

Restricted Assets

The Company issued a letter of credit of $2.7 million in September 2022 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 $2.7 million as of September 30, 2023 and December 31, 2022. Additionally, pursuant to the Company’s acquisition of Belami, Inc., the Company placed $750,000 in an escrow account. Furthermore, the Company secured a line of credit of $2.0 million with cash of the equivalent amount.

Customer Contracts Balances

Accounts receivable are recorded in the period when the right to receive payment or other consideration becomes unconditional. Accounts receivable 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, 2023, and December 31, 2022, the Company’s allowance for doubtful accounts was $54,987 and $0, respectively. The Company determines an allowance for sales returns based upon historical experience. As of September 30, 2023 and December 31, 2022, the Company’s allowance for sales returns was $439,180 and $0, respectively and is recorded as an 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 unaudited balance sheet. As of September 30, 2023, the deferred revenues amounted to $1,854,922. There were no deferred revenues as of December 31, 2022.

The costs associated with such deferred revenues are recognized as deferred charges in the accompanying unaudited balance sheet. Such charges include the carrying value of related inventory, freight, and sales charges. The deferred charges amounted to $ 282,165 as of September 30, 2023. There were no deferred charges as of December 31, 2022.

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, 2023		December 31, 2022
Inventory, component parts	$	2,682,219	$	1,923,540
Inventory, finished goods		2,702,820		—
Total inventory	$	5,385,039	$	1,923,540

Intangible Assets

Intangible assets were recorded in connection with the acquisition of Belami. Intangible assets with finite lives, which consist of customer relationships and e-commerce technology platforms, are being amortized over their estimated useful lives on a straight-line basis. Such intangible assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company assesses the recoverability of its intangible assets by determining whether the unamortized balance can be recovered over the assets’ remaining estimated useful life through undiscounted estimated future cash flows. If undiscounted estimated future cash flows indicate that the unamortized amounts will not be recovered, an adjustment will be made to reduce such amounts to fair value based on estimated future cash flows discounted at a rate commensurate with the risk associated with achieving such cash flows. Estimated future cash flows are based on trends of historical performance and the Company’s estimate of future performance, considering existing and anticipated competitive and economic conditions.

Goodwill

Goodwill, which was recorded in connection with the acquisition of Belami, is not subject to amortization and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill represents the excess of the purchase price of Belami over the fair value of its identifiable net assets acquired. Goodwill is tested for impairment at the reporting unit level. Fair value is typically based upon estimated future cash flows discounted at a rate commensurate with the risk involved or market-based comparables. If the carrying amount of the reporting unit’s net assets exceeds its fair value, then an analysis will be performed to compare the implied fair value of goodwill with the carrying amount of goodwill. An impairment loss will be recognized in an amount equal to the excess of the carrying amount over its implied fair value. After an impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Accounting guidance on the testing of goodwill for impairment allows entities testing goodwill for impairment the option of performing a qualitative assessment to determine the likelihood of goodwill impairment and whether it is necessary to perform such two-step impairment test.

The initial carrying value of goodwill associated with the Belami acquisition may vary during the first year of initial purchase (through April 2024) if the carrying value of the assets acquired or assumed liabilities or the fair value of the shares issuable in April 2024 varies from the initial allocation of assets previously performed or based on the number of shares the Company has to issue in April 2024.

Revenue Recognition

The Company currently generates revenues substantially from home lighting, ceiling fans, and smart products through its family of internet sites and marketplaces. A substantial portion of the Company’s customers’ orders are made and paid contemporaneously by credit card and shipped through third-party delivery providers. The Company recognizes revenues once it concludes that the control of the product is transferred to the customer, which is upon delivery.

The Company records reductions to revenue for estimated customer sales returns and replacements, net of sales tax. The Company receives rebate and cooperative allowances based on a percentage of periodic purchases from certain vendors. These vendor considerations are reflected as a reduction of costs of revenues. The vendor considerations, the rights of returns and replacements are based upon estimates that are determined by historical experience, contractual terms, and current market conditions. The primary factors affecting the Company’s accrual for estimated customer rights of returns include estimated customer return rates as well as the number of units shipped that have a right of return that have not expired as of the measurement date.

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 is computed by dividing net income (loss) for the period by the weighted average number of common stock, 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 months ended September 30, 2023 and 2022, 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 at September 30, 2023 and 2022:

SCHEDULE OF EARNING (LOSS) PER SHARE

	September 30, 2023		September 30, 2022
Stock warrants		2,063,522		939,895
Stock options		35,084,598		33,390,500
Convertible notes		3,920,005		86,668
Preferred stock		-		880,400
Total		41,068,125		35,297,463

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.

Change in Accounting Principles

Historically, the Company recognized its revenues of products shipped by third-party providers upon shipment. During the second quarter of 2023, the Company changed its revenue recognition policy as it believes that it is preferable to recognize the revenues of products shipped by such third-party providers upon delivery. This revenue recognition method is consistent with the method used by Belami. The change in accounting principle does not significantly impact on the revenues historically recorded by the Company.

NOTE 3 FURNITURE AND EQUIPMENT

Furniture and equipment consisted of the following:

SCHEDULE OF FURNITURE AND EQUIPMENT

	September 30, 2023			December 31, 2022
Machinery and equipment	$	317,462		$	67,419
Computer equipment		6,846			6,846
Furniture and fixtures		36,059			36,059
Tooling and production		577,559			534,204
Leasehold improvements		30,553			30,553
Software development costs net		150,713			-
Total		1,119,192			675,081
Less: accumulated depreciation		(526,672	)		(459,083	)
Total, net	$	592,520		$	215,998

Depreciation expense amounted to $ 67,897 and $32,648 for the nine months ended September 30, 2023 and 2022, respectively.

NOTE 4 INTANGIBLE ASSETS

The Company’s definite-lived intangible assets were as follows:

SCHEDULE OF INTANGIBLE ASSETS

			September 30, 2023							December 31, 2022
	Useful life		Carrying Value		Accumulated Amortization			Net carrying value		Carrying Value		Accumulated Amortization			Net carrying value

Customer relationships		7	$	4,500,000	$	(267,857	)	$	4,232,143	$	-	$	-		$	-
E-commerce technology platforms		4		3,900,000		(406,250	)		3,493,750		-		-			-
Patents and other		20		886,381		(175,856	)		710,505		869,822		(207,020	)		662,802
			$	9,286,381	$	(849,963	)	$	8,436,398	$	869,822	$	(207,020	)	$	662,802

The amortization expense of intangible assets was $ 642,943 and $37,753 for the nine months ended September 30, 2023, and 2022, respectively.

The following table sets forth the estimated amortization expense for the following five years:

Twelve months ended September 30, 2024	$	1,673,613
2025		1,673,613
2026		1,673,613
2027		1,511,113
2028		698,613

NOTE 5 DEBTS

The following table presents the details of the principal outstanding:

SCHEDULE OF DEBT TABLE

	September 30, 2023			December 31, 2022		APR September 30, 2023 %		Maturity		Collateral
Notes payable	$	-		$	5,115,000		N/A		September 2026		Substantially all company assets

Line of credit (a)		2,697,695			-		8.5		August 2024		-
Loan		1,500,000			-		7.93		August 2026		-

Convertible Notes ^(b)		11,650,000			1,300,000		6.00-10.00		September 2023-March 2026		Substantially all company assets
Notes payable to Belami sellers		239,266			-		4.86		April 2025		-
SBA-related loans (c)		153,187			157,835		3.75		April 2025=November 2052		Substantially all company assets
Total	$	16,240,148		$	6,572,835
Unamortized debt discount	$	(4,689,721	)	$	-
Debt, net of Unamortized debt Discount	$	11,550,427		$	6,572,835

SCHEDULE OF INTEREST EXPENSE

	For the nine-month period ended September 30,
	2023		2022
Interest expense associated with debt		1,214,920		172,421

As of September 30, 2023, the expected future principal payments for the Company’s debt are due as follows:

SCHEDULE OF FUTURE PRINCIPAL PAYMENTS


Remainder of 2023		1,565,436
2024		3,423,751
2025		526,685
2026		10,583,359
2027		3,040
2028 and thereafter		137,877
Total	$	16,240,148

	(a)	The unpaid principal bears annual interest at the Wall Street Journal prime rate.

	(b)	Included in Convertible Notes are loans provided to the Company from one director, two officers and two investors. The notes each have the following terms: three-year subordinated convertible promissory note of principal face amounts. Subject to other customary terms, the Convertible Notes mature between October 2023 and January 2024 and bear interest at an annual rate of 6%, which is payable annually in cash or common stock, at the holder’s discretion. At any time after issuance and prior to or on the maturity date, the note is convertible at the option of the holder into shares of common stock at a conversion price ranging of $15 per share.

		All convertible notes are convertible at a price ranging between $2.70 and $15 per share.

		During the nine-month period ended September 30, 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 note holders 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 $700,000 as amortized debt discount during the nine-month period ended September 30, 2023, 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)	The Small Business Administration forgave approximately $178,000 of PPP loans during the nine-month period ended September 30, 2022, which was recognized as other income.

NOTE 6 OPERATING LEASE LIABILITIES

In April 2022, the Company entered 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 $22.2 million pursuant to this 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 with cash.

The following table outlines the total lease cost for the Company’s operating leases as well as weighted average information for these leases as of September 30, 2023:

SCHEDULE OF LEASE COST OPERATING LEASE

	September 30, 2023
Lease costs:
Cash paid for operating lease liabilities	$	710,135
Right-of-use assets obtained in exchange for new operating lease obligations	$	22,072,530
Fixed rent payment	$	746,652
Lease – Depreciation expense	$	1,404,634

	September 30, 2023
Other information:
Weighted-average discount rate		6.41	%
Weighted-average remaining lease term (in months)		105

SCHEDULE OF MINIMUM LEASE OBLIGATION

Minimum Lease obligation
2024	$	3,716,661
2025		3,527,956
2026		3,568,891
2027		3,446,601
2028 and thereafter		19,159,060
Total	$	33,419,169

NOTE 7 ROYALTY OBLIGATIONS

The Company has a license agreement with General Electric (“GE”) which provides, 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 Company cannot assign the agreement or sublicense the stated rights. The agreement imposes certain manufacturing and quality control conditions to continue to use the GE brand. The agreement expires in November 2023.

In the event the Company receives significant funding rounds of at least $50 million, the Company is required to use a portion of such funding to pay certain amounts to GE. The Company must make certain fixed and variable royalty payments through the terms of the agreement.

Variable royalty payments are due quarterly, using a December 1 – November 30 contract year and based upon the prior quarter’s sales. Royalty payments will be paid from sales of GE branded product subject to the following repayment schedule:

SCHEDULE OF ROYALTY OBLIGATIONS

Net Sales in Contract Year	Percentage of Contract Year Net Sales owed to GE
$0 to $50,000,000		7	%
$50,000,001 to $100,000,000		6	%
$100,000,000+		5	%

As of September 30, 2023 and December 31, 2022, the outstanding balance of the aggregate Minimum Payment was $2,638,000 and it is payable by December 31, 2023.

NOTE 8 ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	September 30, 2023		December 31, 2022
Accrued interest	$	523,796	$	104,735
Trade payables		10,346,558		1,369,701
Accrued compensation		438,317		475,417
Total	$	11,308,671	$	1,949,823

NOTE 9 RELATED PARTY TRANSACTIONS

Convertible Notes Due to Related Parties

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, 2023 and December 31, 2022 and accrued interest of $127,595 and $104,375, respectively.

Initial Public Offering

The Company issued 455,353 shares of its common stock to certain directors, officers and greater than 5% stockholders which generated gross proceeds of $6,374,942 during the nine-month period ended September 30, 2022.

The Company issued 95,386 shares of its common stock to affiliates of certain directors and greater than 5% stockholders pursuant to certain anti-dilutive provisions during the nine-month period ended September 30, 2022. The issuance of such shares was triggered based on the Company’s effective price of its initial public offering in February 2022.

NOTE 10 STOCKHOLDERS’ EQUITY

Common Stock

The Company issued the following common stock during the nine months ended September 30, 2023 and 2022:

SCHEDULE OF COMMON STOCK

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, gross		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

SEC Form 10-Q filed by SKYX Platforms Corp.