NextPlat Corp (formerly Orbsat Corp) — Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results; filed August 15, 2022.
Business context
NextPlat sells satellite communications equipment and services through Orbital Satcom and Global Telesat, including online storefronts. It is expanding into broader e-commerce services and developing a Web3/NFT platform. NextPlat B.V., formed in June, had no active operations at quarter-end.
Financial performance
| Metric | Three months ended June 30, 2022 | Prior-year quarter | Six months ended June 30, 2022 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $2.871 million | $1.956 million | $6.449 million | $3.418 million |
| Gross profit | $567,389 | $541,490 | $1.368 million | $979,007 |
| Gross margin | 19.8% | 27.7% | 21.2% | 28.7% |
| Operating expenses | $2.101 million | $1.091 million | $3.736 million | $1.827 million |
| Operating loss | $(1.533) million | $(549,336) | $(2.368) million | $(848,265) |
| Net loss | $(1.656) million | $(1.458) million | $(2.506) million | $(2.262) million |
| Basic and diluted loss per share | $(0.18) | $(0.26) | $(0.27) | $(0.43) |
- Sales increased 46.8% in the quarter and 88.7% for the six-month period, per MD&A. The six-month increase reflected growth at both subsidiaries, new product lines, more inventory and additional online storefronts.
- Margins declined as inventory and freight costs rose, distributor sales increased, and the company discounted some goods to charities supporting Ukraine.
- Operating expenses rose substantially, driven by stock-based compensation, sales-related fees and shipping, higher insurance and marketing, and expanded management and staffing.
- Six-month operating cash flow was $(1.888) million, versus $(1.271) million used a year earlier. Investing cash use was $395,245, mainly for equipment, website development and leaseholds.
- Financing provided $5.539 million, mainly from the January stock offering. Cash increased by $3.200 million to $20.468 million.
Balance sheet and liquidity
- At June 30, cash was $20.468 million, current assets $22.831 million, current liabilities $1.506 million, and working capital $21.324 million. Total assets were $25.089 million and stockholders’ equity $22.699 million.
- Total liabilities were $2.390 million. Coronavirus loan balances were $248,369, and operating lease liabilities were $899,987. The company reported no other material outstanding debt in the figures provided.
- Management said available cash and borrowing capacity were sufficient for planned operations for at least 12 months from the financial statement issuance date. The company had an accumulated deficit of $24.492 million.
- Of cash held at a financial institution, $19.920 million was above the $250,000 FDIC-insured limit and therefore unsecured, according to the filing.
Material changes, outlook and risks
- Amazon marketplaces accounted for 49.5% of six-month revenue, down from 64.6% a year earlier. Europe accounted for 78.5% of six-month sales, up from 69.1%.
- Common shares outstanding rose to 9,293,096 from 7,053,146 at year-end, principally reflecting issuance of 2,229,950 shares in a private placement. The placement generated $7.225 million gross and $7.005 million net proceeds; the company cited general corporate purposes, potential acquisitions and joint ventures as intended uses.
- The company expected its e-commerce systems upgrade and NextPlat Digital platform to be substantially complete within six to nine months. It also began implementing an ERP system in April. These are targets, not guaranteed outcomes. Management expected expenses to continue increasing but did not estimate the amount.
- Management cited COVID-19-related supply-chain, demand and staffing uncertainty, inflation, labor costs and potential recession effects. It also reported sales disruption related to sanctions on Russia and adverse foreign-exchange effects on translated revenue.
- NFT and digital-asset laws remain uncertain. The filing describes potential securities, payments, KYC, anti-money-laundering and other compliance obligations, with possible enforcement, penalties and civil liability.
- Internal controls over financial reporting were reported as not effective, with significant deficiencies involving the internal audit function and segregation of accounting duties. Management described remediation efforts; the filing warns material misstatements may not be prevented or detected.
- Litigation continues with former CFO Thomas Seifert over his termination and compensation claims. OSHA dismissed his whistleblower complaint in July 2022. Subsequent events included the July resignation of an operations executive and related severance and share issuance.
Important facts for investors to verify
- Reconcile six-month sales: the financial statements and geographic revenue table report $6,449,257, while the MD&A narrative states $6,499,257; the reported growth rate of 88.7% aligns with the financial-statement figure.
- Assess whether revenue growth can persist while gross margins have fallen and Amazon remains a major sales channel.
- Track operating cash burn, cash deployment, and the actual completion and costs of the e-commerce, ERP and NextPlat Digital projects.
- Monitor remediation of financial-reporting control deficiencies and any related subsequent disclosures.
- Review developments in the Seifert litigation, digital-asset regulation, and the company’s customer, supplier and bank-deposit concentrations.