NextPlat Corp — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; financial statements are unaudited. NextPlat operates e-commerce platforms and sells satellite communications equipment and services. It is developing an expanded e-commerce platform and a Web3 digital-asset platform.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Net sales | $2.88 million | $3.58 million | Down 19.6% |
| Gross profit / margin | $621,000 / 21.6% | $801,000 / 22.4% | Margin down 0.8 percentage points |
| Operating expenses | $1.86 million | $1.64 million | Up 13.7% |
| Net loss | $1.19 million | $850,000 | Loss increased; loss per share was $0.08 versus $0.09 |
| Cash used in operations | $2.07 million | $869,000 | Higher operating cash use |
| Cash and cash equivalents | $16.72 million | $18.89 million at Dec. 31, 2022 | Down $2.17 million during the quarter |
| Working capital | Approximately $18.1 million | — | As reported by management |
| Total liabilities | $3.09 million | $2.86 million at Dec. 31, 2022 | Includes lease liabilities and Coronavirus loan obligations |
Q1 2023 investing cash outflow was $69,000, primarily for property and equipment; financing cash outflow was $13,000. The company reported approximately $206,000 of Coronavirus loan principal outstanding, plus operating lease liabilities. It had no preferred shares outstanding.
Changes and management commentary
- Management attributed the sales decline mainly to the absence of roughly $1.3 million of prior-year Ukraine-related sales and unfavorable currency effects. It said GTC sales, excluding those factors, increased by about $800,000 year over year.
- Gross margin declined primarily because of higher shipping and fuel surcharge costs. SG&A rose 37.3%, largely due to stock-based compensation, which increased to approximately $243,000 from $35,000.
- Management said it expects expenses in major operating categories to continue increasing during 2023 and beyond as operations expand. No quantitative revenue or earnings guidance was provided.
- Management stated that available cash and borrowing availability were sufficient to support planned operations for at least 12 months after issuance of the financial statements.
Outlook, risks and unusual items
- Amazon represented 57.2% of Q1 revenue, versus 45.9% a year earlier. Europe accounted for 71.7% of revenue. This creates meaningful channel and geographic concentration exposure.
- The company reported supplier concentration, with several suppliers each accounting for at least 10% of purchases in Q1 2023. Foreign-currency movements also affected reported results.
- Approximately $16.2 million of cash was uninsured by the FDIC at March 31, 2023. The company said it entered an Insured Cash Sweep deposit placement agreement in April to reduce this exposure.
- NextPlat is developing NextPlat Digital, including NFT marketplaces. The filing describes a company risk-assessment process for potential securities regulation, but notes that it is not binding on regulators or courts.
- A dispute with former CFO Thomas Seifert remains in litigation. The company says it believes it has adequate defenses; the filing does not quantify a potential financial exposure.
- Related-party activity included $50,000 of management fees received from Progressive Care under an agreement effective February 1, 2023. The company also disclosed the CEO’s spouse as an employee and a salary increase approved after quarter-end.
- Subsequent to quarter-end, NextPlat raised approximately $6.0 million gross in an April private placement of 3,428,571 shares at $1.75 per share, resulting in share dilution.
- In May, NextPlat invested $1.0 million in Progressive Care units and participated in conversion of approximately $2.9 million of Progressive Care debt into shares and warrants. NextPlat reported owning approximately 38.4% of Progressive Care’s voting securities and expected to increase its holding above 50% by exercising or converting securities it owns. No debentures had been purchased under the separate agreement allowing purchases of up to $10 million.
- An April 20, 2023 Alibaba merchant-sourcing agreement is non-exclusive and has a 90-day term; it is intended to support sales of American-produced goods to Chinese consumers.
Important facts for investors to verify
- Whether revenue trends and gross margins improve after the prior-year Ukraine-related sales comparison and elevated shipping costs.
- Cash runway and operating cash use, including the effects of the April equity raise, inventory growth and receivables.
- The extent of dilution from the private placement and any future Progressive Care share, warrant or debenture transactions, including the related-party implications.
- Progress toward the planned e-commerce expansion and digital-asset platform, including regulatory requirements and execution costs.
- Exposure to Amazon, key suppliers, European sales and uninsured cash balances, as well as the status and potential consequences of the Seifert litigation.