SEC filing summary
Filing identity: The supplied filing is Orbital Tracking Corp.’s Form 10-Q for the quarter ended September 30, 2016, filed November 10, 2016. This does not match the request metadata naming Nextplat Corp.; verify the issuer before relying on this summary.
Business context and reporting period
Orbital Tracking, through Global Telesat Communications Limited and Orbital Satcom Corp., sells satellite communications equipment, airtime, rentals and related services in the U.S. and internationally. It also described plans to develop tracking devices. Financial statements are unaudited and cover the three and nine months ended September 30, 2016, compared with the same 2015 periods.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $1.299 million | $0.983 million | $3.783 million | $2.955 million |
| Gross profit | $296,347 | $284,913 | $940,244 | $825,182 |
| Gross margin | 22.8% | 29.0% | 24.9% | 27.9% |
| Net loss | $338,672 | $300,584 | $1.452 million | $955,185 |
| Basic and diluted loss per share | $(0.01) | $(0.03) | $(0.05) | $(0.10) |
- Nine-month operating expenses were $2.151 million, versus $1.762 million. Professional fees rose to $881,318 from $409,605; management attributed the increase primarily to investor-awareness, public-company compliance and capital-raising costs.
- Nine-month other expense was $241,933, versus $18,295, including $603,427 interest expense and a $425,790 gain from changes in derivative fair value. The convertible notes were exchanged for Series G preferred shares in May 2016.
- Cash at September 30 was $118,248, down from $963,329 at December 31, 2015. Current assets were $869,925 and current liabilities $967,571, resulting in negative working capital of $97,646. Total liabilities were $967,571; the balance sheet showed no convertible notes payable at period-end.
- For the first nine months, cash used in operations was $772,935; investing activities used $34,967 and financing activities used $43,027. Cash decreased by $845,081 overall.
- Total assets were $3.233 million and stockholders’ equity $2.265 million at September 30. Common shares outstanding were 46,004,604 at quarter-end, compared with 19,252,082 at December 31, 2015; the filing reports 48,986,354 common shares outstanding as of November 10.
Changes versus prior comparable periods
- Nine-month revenue grew 28.0%, while gross margin fell from 27.9% to 24.9%; cost of sales increased faster than revenue. Q3 revenue increased 32.2%, but Q3 gross margin declined from 29.0% to 22.8%.
- Nine-month net loss widened by approximately $497,000. Operating cash use increased from $477,929 to $772,935.
- Management cited stronger international e-commerce activity, a mobile-friendly website and a recurring UK Forestry Commission lone-worker tracker contract. GTCL comparable sales increased, while Orbital Satcom’s Q3 comparable sales declined 9.5%, partly due to lower Amazon U.S. sales.
- Common shares outstanding increased substantially, largely through conversions of preferred stock. The filing lists approximately 199.1 million potential shares from convertible preferred stock, excluded from diluted loss per share as anti-dilutive.
Outlook, risks and unusual items
- Going concern: The filing states that the accumulated deficit was approximately $3.5 million, the nine-month net loss was approximately $1.45 million and operating cash use was approximately $773,000. Management said these conditions raise substantial doubt about the company’s ability to continue as a going concern. It planned to seek additional capital through a public or private offering but gave no assurance of success.
- Management expected revenue-related costs and operating expenses to continue increasing with expansion, but could not estimate the amounts. No quantified revenue or earnings guidance was provided.
- Subsequent to quarter-end, the company agreed to sell $350,000 of Series H preferred stock, out of a stated $800,000 maximum. The October transaction also triggered antidilution issuances, including Series C and Series I preferred shares convertible into 5.5 million and 11.494 million common shares, respectively, subject to ownership limits.
- Management concluded disclosure controls and procedures were ineffective as of September 30, citing insufficient segregation of duties and the need for an updated accounting system. Management said remediation was in process but gave no assurance it would be completed promptly or prove adequate.
- The filing reported no pending material legal proceedings and no material off-balance-sheet arrangements. It identified supplier concentration: Network Innovations represented 29.2% of purchases during the first nine months of 2016.
- Reported-value inconsistency: The financial statements list operating expenses of $604,049 for Q3 and $2,150,776 for nine months; MD&A gives $605,705 and $2,152,432, respectively. The filing text does not reconcile the differences.
Important facts for investors to verify
- Confirm the issuer: this filing names Orbital Tracking Corp., not Nextplat Corp.
- Reconcile the operating-expense discrepancies between the financial statements and MD&A.
- Assess near-term liquidity and the company’s ability to raise capital, given low cash, negative working capital and the going-concern warning.
- Review the preferred-stock conversion, antidilution and voting terms, and their potential effects on common-share dilution and control.
- Monitor gross-margin trends, cash consumption, supplier concentration and progress on remediating ineffective disclosure controls.