SKYX Platforms Corp.

Notes to Consolidated Financial Statements

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 $15.7 million in cash and cash equivalents, including restricted cash of $2.9 million held for long-term purposes, and $8.6 million of working capital deficit as of June 30, 2025. The Company has a history of recurring operating losses, and its net cash used in operating activities amounted to $6.3 million and $10.4 million during the six months ended June 30, 2025, and 2024, respectively. The Company has also generated net cash provided by financing activities of $7.3 million and $3.8 million during the six months ended June 30, 2025, and 2024, respectively. Accordingly, the Company’s management cannot ascertain that there is no substantial doubt that it will be able to meet its obligations as they become due within one year after the date that its financial statements are issued.

Management intends to mitigate such conditions by supporting its continued growth, decreasing its cash used in operating activities through increased revenues and increased margins from products sold to large retailers and its internet portals, and to the extent necessary, generate cash provided by financing activities through 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 June 30, 2025 and for the three and six months ended June 30, 2025 and 2024 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, 2024 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, 2024 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 all its subsidiaries, including SQL Lighting and Fans LLC , Belami, Inc., BEC, CA 1, Inc., BEC CA 2, LLC, Luna BEC, Inc., and Confero Group LLC. 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 June 30, 2025, and December 31, 2024, the Company’s cash composition was as follows:

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 June 30, 2025, and December 31, 2024.

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 June 30, 2025, and December 31, 2024, the Company’s allowance for doubtful accounts was $12,711 and $12,147, respectively.

The Company determines an allowance for sales returns based upon historical experience. The Company’s allowance for sales returns was $159,553 and $242,515, as of June 30, 2025, and December 31, 2024, 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.

The costs associated with such deferred revenues are recognized as deferred charges in the accompanying balance sheet. Such charges include the carrying value of freight, and sales charges. Deferred charges are included in prepaid costs and other assets in the accompanying balance sheet.

Inventory

Inventories are stated at the lower of cost or market, 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.

The Company maintains 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 June 30, 2025, and December 31, 2024.

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 six-month periods ended June 30, 2025, and 2024, 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 June 30, 2025, and 2024:

Income Taxes – Improvements to Income Tax Disclosures

In December 2023, the Financial Accounting Standards Board (“FASB”) issued a new standard to improve income tax disclosures. The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The standard will be effective for us beginning with our 2025 annual reporting with early adoption permitted. We are currently evaluating the impact of this standard on our income tax disclosures.

Comprehensive Income- Improvements to Expense Disaggregation Disclosures

In November 2024, FASB issued a new standard to improve expense disaggregation disclosures. The guidance expands the disclosures required for certain costs and expenses in our annual and interim consolidated financial statements, primarily through enhanced disclosures about significant expenses. The standard is effective as of March 31, 2026 and interim and annual periods thereafter. The impact of this standard is only on the Company’s expenses disclosures.

NOTE 3 PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Depreciation expense amounted to $133,132 and $68,022 as of June 30, 2025, and December 31, 2024.

NOTE 4 INTANGIBLE ASSETS AND GOODWILL

Intangible assets consisted of the following:

Amortization expense on intangible assets amounted to $1,022,489 and $880,440 for the six-month periods ended June 30, 2025 and 2024, respectively.

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

NOTE 5 DEBTS

The following table presents the components of debt as of June 30, 2025 and December 31, 2024:

As of June 30, 2025, the expected future principal payments for the Company’s debt are due as follows:

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 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 a 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 June 30, 2025, and 2024 respectively:

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 $1.5 million to GE pursuant to the license agreement as of June 30, 2025. 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:

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 June 30, 2025, and December 31, 2024, and accrued interest of $187,597 and $151,900 as of June 30, 2025, and December 31, 2024, respectively. Interest expense to related parties amounted to $35,696 and $35,893 during the six-month periods ended June 30, 2025 and 2024, respectively.

Preferred Stock Dividends

The Company paid and declared dividends to related parties (a director and officer and two officers) amounting to $20,000 during the six-month period ended June 30, 2025.

NOTE 10 STOCKHOLDERS’ EQUITY

(A) Common Stock

The Company issued the following common stock during the six months ended June 30, 2025, and 2024:

(B) Preferred Stock Series A-1

The following is a summary of the Company’s Preferred Stock A-1 activity during the six months ended June 30, 2025:

During May 2025, increased the authorized amount of shares of Series A-1 Preferred Stock to 480,000 shares. In March 2025 a holder converted 20,000 Preferred stocks Series A-1 into shares of common stock, within terms.

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

Series A Preferred Stock (temporary equity):

Series A-1 Preferred Stock (permanent equity):

(C) Stock Options and Restricted Stock

The following is a summary of the Company’s stock option activity during the six-months ended June 30, 2025, and 2024:

The following table summarizes the range of the Black Scholes pricing model assumptions used by the Company during the six months ended June 30, 2025, and 2024:

Prior to the second quarter of 2025, the Company did not have historical stock prices that could be reliably determined for a period that is at least equal to the expected terms of its options. The expected options terms, which were calculated using the plain vanilla method, are 3.5 years, and its historical period was 3.0 years. The Company relied 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 exceeded the period of the Company’s historical volatility data. As of May 1, 2025, the Company uses its historical stock prices to determine its expected volatility.

A summary of the Company’s non-vested restricted stock units and awards (“RSUA”) during the six months ended June 30, 2025, and 2024 are follows:

The weighted-average remaining contractual life of the restricted units as of June 30, 2025, is 1.46 years.

One RSUAs give the right to receive one share of the Company’s common stock. RSUAs 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 RSUA awards is expensed on a straight-line basis over the vesting period.

The Company recognized compensation expenses of $5,410,950, and $3,848,642, respectively, related to RSUs and RSAs during the six-month periods ending June 30, 2025 and 2024. The Company recognized compensation expenses of $1,242,572 and $2,222,294, respectively, related to stock options during the six-month periods ending June 30, 2025 and 2024.

The options and RSUAs are granted to the Company’s employees, board members, and certain consultants. There is no difference in characteristics of the awards other than the stock options have to be exercised and restricted awards and units do not. The vesting of the options, restricted stock units or awards is based on the requisite service period of the employees and the non-employee’s vesting period is generally based on a period of up to six years. The maximum contractual term of the options is up to 5 years. The number of shares available for grant of options, and restricted stock units or awards amounts to 15,869,552 at June 30, 2025.

Unamortized future stock-based compensation expense was $7.7 million as of June 30, 2025, and it is expected to be recognized over a weighted-average period of 1.1 years.

(D) Warrants

The following is a summary of the Company’s warrant activity during the six months ended June 30, 2025, and 2024:

During the six months ended June 30, 2025, and 2024, the Company did not issue any warrants except for warrants issued to a placement agent in connection with its Series A -1 Preferred offerings in the second quarter of 2025.

NOTE 11 CONCENTRATIONS OF RISKS AND SEGMENT

Major Customers and Accounts Receivable

The Company had no customers whose accounts receivable or revenue individually represented 10% or more of the Company’s total accounts receivable or revenue as of and during the six-month periods ended June 30, 2025, and 2024. The Company had two and three third party payors representing 47% and 54% of the Company’s total accounts receivable as of June 30, 2025 and December 31, 2024, 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.

Segment

The Company operates in one segment: advanced-safe-smart technologies and related products. The Company used the following factors to identify includes the basis of organization, the relative similarities in types of product offerings. The chief operating decision maker consists of a team comprised of the Company’s Executive Chairman and its two Co-Chief Executive Officers. The total assets of the segments amount to the Company’s consolidated assets. Long-lived assets, which consists of property and equipment and right of use assets are located in the United States.

The Company has concluded that consolidated net income or loss is the measure of segment profitability. The following is a reconciliation of the Company’s revenues from external customers and consolidated revenues and the consolidated and segment loss, including significant segment expenses.

NOTE 12 SUBSEQUENT EVENTS

Management has evaluated subsequent events since June 30, 2025, through 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 consolidated financial statements.