NextPlat Corp — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. The company, formerly Orbsat Corp, sells satellite communications products and services and is expanding its e-commerce platform; it is also developing a Web3/NFT marketplace.
Financial results and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $11.71 million | $7.74 million |
| Gross profit / margin | $2.49 million / 21.2% | $1.86 million / 24.0% |
| Operating expenses | $9.69 million | $8.48 million |
| Operating loss | $7.20 million | $6.62 million |
| Net loss | $9.16 million | $8.11 million |
| Cash used in operations | $3.60 million | $4.09 million |
| Cash at year-end | $18.89 million | $17.27 million |
- Revenue rose 51.3%, led by GTC sales growth of about 60% and Orbital Satcom growth of about 34%. Gross margin fell 2.8 percentage points, which management attributed to higher inventory and freight costs, distributor sales mix, and discounted sales to charities for Ukraine.
- Operating expenses increased about 14%. Salaries and professional fees rose, while selling, general and administrative costs were broadly flat. Other expense fell substantially as interest expense on convertible notes declined; the company reported no company-level convertible-note balance at year-end.
- Working capital was approximately $19.1 million ($19.2 million as stated in MD&A). Total liabilities were $2.86 million, including $216,756 of coronavirus loans and $858,555 of operating lease liabilities. Cash flow from investing activities was negative $7.72 million, including a $7 million Progressive Care investment and about $716,000 of equipment, software and website spending.
- Accumulated deficit was $31.15 million. The company recorded a $1.74 million equity-method loss from Progressive Care. It reported no dividend payments and does not anticipate paying dividends in the foreseeable future.
Material changes and strategic developments
- Amazon accounted for 54.3% of FY2022 revenue, down from 63.6% in FY2021. Europe represented 73.7% of revenue. Garmin and Cygnus Telecom each accounted for more than 20% of purchases, underscoring supplier concentration.
- NextPlat invested $7 million in Progressive Care Inc. and reported significant influence, but not control, at year-end. The investment’s carrying value was $5.26 million; the filing states its quoted market value was approximately $10.05 million. NextPlat also entered into an agreement allowing it, at its election, to purchase up to $10 million of secured Progressive Care debentures; none had been purchased by year-end.
- The December 2022 private placement raised approximately $8 million gross through 4.58 million units, each including a common share and a three-year warrant at $1.75. Related parties accounted for 48% of the offering, according to the filing. Shares outstanding increased from 7.05 million at year-end 2021 to 14.40 million at year-end 2022; 7.65 million warrants and 2.12 million options were outstanding at year-end.
- The company completed implementation of its ERP system on January 1, 2023. Its planned NextPlat Digital platform remained in development, with material regulatory and execution risks disclosed.
Outlook, risks and contingencies
- No quantified revenue or earnings guidance is provided. Management expects costs and expenses to rise as the business expands and says it cannot estimate the amounts. The company has a history of losses and expects additional losses while developing new revenue sources.
- Liquidity disclosures are mixed: management says existing working capital and expected operating cash flows should cover the next 12 months, while the MD&A’s forward-looking cautionary language refers to insufficient cash and borrowing capacity for working capital without further financing. Management also says financing may be needed if initiatives and operating results are unsuccessful.
- Key risks include dependence on Amazon, supply-chain and freight disruption, supplier concentration, continued losses and potential capital needs, dilution, currency exposure, cybersecurity and privacy, and uncertain regulation of digital assets. Management reported $18.29 million of cash above FDIC-insured limits at year-end.
- A lawsuit with former CFO Thomas Seifert concerns his termination and alleged unpaid compensation; both sides have asserted claims. The filing describes the matter as pending and reports no other litigation expected to have a material adverse effect.
- Nasdaq notified the company in January 2023 that it was out of compliance for not holding its annual shareholder meeting within the required period. Nasdaq accepted a compliance plan and granted an exception through May 31, 2023; the company scheduled its annual meeting for that date.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded internal control over financial reporting was effective; the auditor did not attest to that assessment.
Investor facts to verify
- Reconcile the differing statements about whether cash and borrowing capacity cover the next 12 months; monitor cash burn and any subsequent financing.
- Track gross-margin recovery and the effect of freight, inventory costs, distributor mix and foreign exchange.
- Assess Amazon and supplier concentration, including whether alternative sales channels materially reduce dependence.
- Review Progressive Care’s performance, the valuation and carrying value of the investment, related-party governance, and any debenture purchases or control changes.
- Evaluate potential dilution from outstanding warrants, options, and resale registration of offering securities.
- Confirm Nasdaq compliance and the status and potential exposure of the Seifert litigation.