Business Context and Reporting Period
The filing is an unaudited Form 10-Q for the three and six months ended June 30, 2018. Although the request identifies Nextplat Corp, the filing identifies the registrant as Orbital Tracking Corp. The company distributes and develops satellite communications hardware, airtime, tracking products and related services through U.S. and U.K. subsidiaries.
Key Financial Metrics
| Metric | Q2 2018 / June 30, 2018 | Prior period / Dec. 31, 2017 |
|---|---|---|
| Revenue | $1.600 million for Q2; $3.268 million for first half | $1.567 million for Q2 2017; $2.939 million for first half 2017 |
| Gross profit and margin | $356,073; 22.3% for Q2. $735,169; 22.5% for first half | $296,640; 18.8% for Q2 2017. $594,556; 20.2% for first half 2017 |
| Operating expenses | $469,115 for Q2; $989,292 for first half | $1.122 million for Q2 2017; $1.652 million for first half 2017 |
| Net loss | $123,620 for Q2; $269,078 for first half | $3.131 million for Q2 2017; $3.360 million for first half 2017 |
| Cash flow | First-half operating cash used: $247,930; investing cash used: $21,805; financing cash provided: $498,522 | First-half 2017 operating cash used: $100,631; investing cash used: $16,964; financing cash provided: $492,981 |
| Cash and liquidity | Cash $452,125; current assets $1.310 million; current liabilities $1.086 million; working capital $223,590 | Cash $233,326 at Dec. 31, 2017 |
| Liabilities and equity | Total liabilities $1.086 million, all current; stockholders’ equity $2.083 million | Total liabilities $1.204 million; equity $1.860 million at Dec. 31, 2017 |
No long-term debt is reported on the balance sheet. The related-party note balance was zero; $5,520 was payable to the CEO for inventory advances. First-half preferred-stock proceeds were $500,000.
Material Changes Versus Prior Comparable Period
- Revenue increased 2.1% in Q2 and 11.2% for the first half. Management attributes growth to recurring airtime customers and increased sales of terminals, accessories and locator beacons, partly offset by weaker phone and tracking-device sales.
- Gross margin improved in both comparisons. First-half cost of sales nevertheless rose 8.0% as revenue rose 11.2%.
- Operating expenses declined 58.2% in Q2 and 40.1% for the first half. A major factor was the absence of the $600,000 stock-compensation expense recorded in 2017; lower professional fees also contributed.
- Net losses narrowed substantially, largely because 2017 included $2.309 million of preferred-stock price-protection expense as well as $600,000 of stock compensation. The 2018 results remained loss-making.
- Cash increased from year-end, mainly reflecting preferred-stock financing; operating cash use increased year over year, with a $200,087 decrease in deferred revenue contributing to the first-half cash outflow.
Outlook, Risks, Contingencies and Unusual Items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern for one year from issuance. It cites the $8.810 million accumulated deficit, first-half net loss and dependence on obtaining additional capital. Management intends to seek funding, but gives no assurance it will succeed.
- Outlook: Management expects cost of revenue and operating expenses to rise as the business expands but cannot estimate the amounts. No quantified revenue or earnings guidance is provided.
- Foreign exchange: The U.K. subsidiary generated 69% of first-half sales; currency movements affect reported revenue and results. Management’s discussion includes unclear or inconsistent currency-comparison wording.
- Financing and dilution: The company raised $200,000 through Series J preferred stock and $300,000 through Series L units. Series L units include warrants for two common shares per unit; preferred shares and other outstanding awards may also convert into or require issuance of common shares. A 1-for-150 common-stock reverse split became effective March 8, 2018.
- Governance and compensation: New two-year CEO and CFO employment agreements provide for bonuses and, in specified termination circumstances, severance equal to twice base salary and accelerated option vesting. The company granted options under a new incentive plan; the filing gives different option-grant counts in separate passages.
- Controls: Management concluded disclosure controls were ineffective, citing limited internal-audit functions and insufficient levels of transaction review. It was evaluating improvements, including accounting software upgrades, but gave no assurance of timely or adequate remediation.
- Concentration and other matters: No customer represented at least 10% of revenue, but three suppliers accounted for substantial purchase shares, including Network Innovations at 39.8%. The company reported no pending material litigation and no material off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Confirm the issuer’s identity: the supplied request says Nextplat Corp, while this filing names Orbital Tracking Corp.
- Assess the company’s ability to raise additional capital and fund operations given the going-concern disclosure and operating cash use.
- Review preferred-stock conversion terms, warrants, options and potential dilution, including the filing’s differing option-grant counts.
- Verify the extent to which reported revenue growth reflects underlying demand versus foreign-exchange effects; the filing’s currency discussion is not fully clear.
- Monitor remediation of ineffective disclosure controls and the effects of supplier concentration and declining deferred revenue.