Nextplat Corp. — Q1 2021 Form 10-Q Summary
Entity identification: The supplied filing is for Orbsat Corp. (formerly Orbital Tracking Corp.), not Nextplat Corp. Investors should verify that this is the intended filing. The quarter ended March 31, 2021; financial statements are unaudited and compare with Q1 2020.
Business context
Orbsat sells satellite-based hardware, airtime and related services internationally, and also offers short-term equipment rentals. Its subsidiaries are Orbital Satcom Corp. and Global Telesat Communications Ltd.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $1.461 million | $1.468 million |
| Gross profit / margin | $437,517 / 29.9% | $348,001 / 23.7% |
| Operating expenses | $736,446 | $539,241 |
| Operating loss | $298,929 | $191,240 |
| Interest expense | $520,694 | $91,253 |
| Net loss | $803,142 | $284,860 |
| Operating cash flow | $(459,764) | $64,712 |
| Cash at period end | $559,282 | $138,078 |
Gross margin improved by 6.2 percentage points, primarily due to a higher share of higher-margin sales and customers bearing VAT previously paid by the company. Management cautioned that the improved margin may not persist. Net loss per share was reported as $0.16 in Q1 2021 and $2.43 in Q1 2020.
Balance sheet, debt and liquidity
- At March 31, 2021, total assets were $2.739 million, total liabilities $2.163 million and stockholders’ equity $576,368.
- Current assets were $1.558 million and current liabilities $1.591 million, producing negative working capital of $33,271. Cash declined from $728,762 at year-end 2020.
- Convertible notes had $1.186 million of principal outstanding, offset by a $924,199 debt discount; the reported long-term carrying amount was $261,977. The company also reported $365,407 of coronavirus loans, $58,255 of current notes payable and $101,834 due to related parties.
- Q1 financing cash flow was $289,131, including $350,000 proceeds from a new convertible note, partly offset by debt repayments. Operating cash use was driven in part by increases in inventory and receivables.
Changes, outlook and material risks
- Revenue fell 0.5% year over year. Global Telesat sales rose 6.3%, while Orbital Satcom sales declined 12.9%. Europe accounted for 69.3% of revenue; Amazon represented 53.6% of revenue.
- Operating expenses rose 36.6%, including professional fees up 154.9% to $292,882, attributed largely to costs associated with a potential Nasdaq listing. Interest expense increased substantially, mainly because of $501,164 in noncash amortization of convertible-debt discounts.
- The March 2021 note was issued for $350,000, bears 7% interest and matures in three years. Its conversion terms include discounts to a future qualified transaction and potentially lower conversion pricing after default; conversion could dilute existing shareholders.
- Management and the auditor identify substantial doubt about the company’s ability to continue as a going concern. Management intends to seek additional capital through a public or private offering, but gives no assurance of success; without funding, operations may be curtailed, headcount reduced or operations temporarily suspended.
- COVID-19 had caused inventory shortages, reduced some sales and workforce levels, and could continue to affect demand, supply chains and liquidity. Management expects operating expenses to increase during 2021 and beyond, but did not quantify the increases or provide specific revenue or earnings guidance.
- Disclosure controls and procedures were reported ineffective because of limited internal audit functions and insufficient levels of transaction review. Management proposed ERP upgrades and additional personnel, subject to available capital.
- The company reported no pending material litigation and no subsequent events. It also approved a possible 1-for-2 to 1-for-5 reverse split, with the ratio to be selected by the board.
Important facts for investors to verify
- Confirm that the Orbsat Corp. filing, rather than a Nextplat Corp. filing, is the intended document.
- Assess the company’s near-term funding needs and prospects for raising capital in light of negative working capital, operating cash burn and the going-concern warning.
- Review the convertible notes’ conversion, default and dilution provisions, and reconcile reported share issuances and outstanding share counts.
- Check the filing’s share-count date: its cover page refers to shares outstanding at May 17, 2020, although the report is dated 2021. Verify the correct date and share count.
- Evaluate reliance on Amazon and key suppliers, and whether gross-margin improvement can be sustained as COVID-19 and supply-chain conditions evolve.