Nextplat Corp. (2015 Q2 Form 10-Q) — filing summary
Entity clarification: The supplied filing is for Orbital Tracking Corp., formerly Great West Resources, Inc.; it does not identify Nextplat Corp. as the registrant. The summary below reflects the filing as provided. The report covers the quarter and six months ended June 30, 2015; financial statements are unaudited.
Business context and reporting period
Orbital Tracking sells satellite communications hardware, airtime, rentals and related services in the U.S. and internationally, and is developing tracking devices. On February 19, 2015, it acquired Global Telesat Communications Limited (GTCL) in a share exchange accounted for as a reverse acquisition and recapitalization, with GTCL as the accounting acquirer. Accordingly, 2015 results include the registrant’s results only from the acquisition date, limiting direct comparability with 2014. The company reported that it had abandoned its former potash business plans.
Key financial metrics
| Metric | Three months ended June 30, 2015 | Three months ended June 30, 2014 | Six months ended June 30, 2015 | Six months ended June 30, 2014 |
|---|---|---|---|---|
| Revenue | $1,188,867 | $613,072 | $1,972,677 | $1,279,993 |
| Gross profit | $324,080 | $137,820 | $540,268 | $342,419 |
| Gross margin | 27.3% | 22.5% | 27.4% | 26.8% |
| Operating expenses | $536,478 | $178,122 | $1,180,643 | $317,897 |
| Net income (loss) | $(214,872) | $(40,248) | $(654,601) | $25,661 |
| Net loss per common share, basic and diluted | $(0.02) | $(0.02) | $(0.07) | $0.00 |
For the six months, operating cash flow was $(300,977), investing cash flow $(401,782), and financing cash flow $1,037,426. Cash increased by $340,307 to $406,199. At June 30, 2015, current assets were $1,303,956, current liabilities $1,037,968, and working capital $265,988; total assets were $3,558,164 and total liabilities $1,037,968. The balance sheet reports no separate long-term liability balance. Current liabilities included $121,770 due to a related party and a $4,773 derivative liability; the filing also describes a $122,536 one-year promissory note associated with the acquisition, but does not clearly reconcile it to the balance-sheet line items.
Material changes versus the prior comparable period
- Revenue rose 93.9% in the quarter and 54.1% for the six months, which management attributed to Orbital Satcom sales and increased international e-commerce presence. Orbital Satcom contributed $420,000 of quarterly and $540,586 of six-month revenue.
- Six-month gross margin increased about 0.6 percentage points; quarterly gross margin increased about 4.8 percentage points. Cost of sales increased alongside revenue.
- Operating expenses rose substantially, including selling, general and administrative costs, payroll, professional fees and depreciation/amortization. Management cited growth-related costs, public-company and reverse-merger costs, staffing, and amortization of acquired assets.
- The company shifted from six-month net income in 2014 to a net loss in 2015, while operating cash flow moved from $3,690 provided to $300,977 used.
- Cash and working capital improved from year-end 2014, aided by equity financing; common shares outstanding increased from 2,540,000 at December 31, 2014 to 11,198,172 at June 30, 2015.
Outlook, risks, contingencies and unusual items
- Management expected cost of revenue and operating expenses to continue increasing as the business expanded, but could not estimate the amounts. The filing provides no quantified revenue or earnings guidance.
- The GTCL transaction involved $375,000 cash, a $122,536 one-year promissory note, common stock and 8,746,000 Series E preferred shares. Each Series E share is convertible into ten common shares and carries ten votes, subject to a 4.99% beneficial ownership conversion limitation. The filing lists 220,887,750 common-share equivalents from preferred stock at June 30, 2015, presenting material potential dilution.
- Six-month cash use included working-capital investment and acquisition spending; cash provided by financing included $1,097,500 from common and preferred stock sales. Related-party financing and transactions included amounts due to CEO David Phipps, transition compensation, and wages to employees related to him.
- Management concluded disclosure controls and procedures were ineffective at June 30, 2015, citing inadequate segregation of duties and the need for an updated accounting system. Remediation was planned, but completion and adequacy were not assured.
- The company cited early-stage business and technology-market risks, competition, demand changes, and foreign-exchange exposure. One supplier accounted for 15.9% of six-month purchases; no customer represented 10% or more of revenue. No material pending litigation or material off-balance-sheet arrangements were reported.
- Subsequent to quarter-end, the company issued 400,000 common shares upon conversion of Series E preferred stock and 20,000 common shares upon conversion of Series A preferred stock.
Important facts for investors to verify
- Confirm the intended issuer: the provided document names Orbital Tracking Corp., not Nextplat Corp.
- Review the reverse-acquisition accounting and the effect of including GTCL only from February 19, 2015 on year-over-year comparability.
- Reconcile the acquisition promissory note and related-party balances to reported liabilities, and assess near-term liquidity given operating cash use.
- Assess fully diluted ownership and voting implications of preferred shares, options and warrants, including Series E conversion terms.
- Track whether management remediated the disclosed ineffective controls and whether expenses and cash needs evolved as projected.