Business context and reporting period
This is an unaudited Form 10-Q for the three months ended March 31, 2020. The filing identifies the registrant as Orbsat Corp (formerly Orbital Tracking Corp.), a satellite hardware, airtime, rental and related-services provider. This differs from the request metadata name, Nextplat Corp.
Financial performance and position
- Revenue: $1.468 million, up 13.1% from $1.298 million. Management attributed growth to new product lines and higher U.S. Amazon sales; UK subsidiary GTCL sales declined 2.3% in U.S. dollars.
- Profitability: Gross profit was $348,001, with a 23.7% gross margin versus 18.9% a year earlier. Operating expenses rose 11.7% to $539,241; operating loss narrowed to $191,240 from $236,802. Net loss improved to $284,860 from $307,623. Basic and diluted loss per share was $2.43, versus $3.87.
- Cash flow: Operating cash flow was positive $64,712 versus negative $113,837. Investing cash outflow was $10,933; financing inflow was $13,310. Cash increased $62,716 during the quarter to $138,078.
- Liquidity: Current assets were $851,174 and current liabilities $1.570 million, producing negative working capital of $719,067. The company reported an accumulated deficit of $11.4 million and stockholders’ equity of $356,981.
- Debt and obligations: Convertible debt had a $793,674 principal balance after $11,326 was converted to common shares; its balance-sheet carrying amount, net of $560,496 unamortized discount, was $233,178. Other reported obligations included a $121,848 note payable, $17,257 line of credit and $69,089 in current and long-term lease liabilities.
Changes versus the prior comparable period
- Revenue growth and improved gross margin reduced operating and net losses, although operating expenses increased.
- Interest expense increased to $91,253 from $19,219, including $74,837 amortization of the convertible-debt discount. The prior-year quarter included a $36,925 derivative fair-value gain; no such gain was reported in 2020.
- Operating cash flow improved from an outflow to an inflow. Cash at quarter-end was $138,078, compared with $109,790 at March 31, 2019.
- Amazon represented 56.6% of revenue, up from 36.2%; Europe generated 68.1% of revenue, down from 77.0%.
Outlook, risks and unusual items
- Going concern: Management and the filing state that substantial doubt exists about the company’s ability to continue as a going concern for one year from issuance. Continued operations depend on additional capital or financing; management said it intended to seek funds but gave no assurance they would be available.
- COVID-19: The company warned of potential supply-chain, operating and financing disruption and possible cost cuts, including reduced staffing or curtailed operations. After quarter-end, GTCL furloughed six employees; the UK subsidiary received a £25,000 grant and a business-rates waiver, and the company was approved for a $20,832 PPP loan. GTCL was also approved to enter a UK government working-capital loan arrangement.
- Concentration and currency: Amazon’s share of sales creates customer concentration risk. GTCL accounted for 65% of first-quarter sales; management said exchange rates reduced reported revenue, and that constant-rate revenue would have been $18,839 higher.
- Dilution: Debt conversions issued 113,260 common shares during the quarter. The filing reports 234,476 shares outstanding at March 31 and 241,892 at May 15, 2020; convertible notes could result in substantial additional shares, subject to conversion terms and ownership limits.
- Controls and leadership: Management concluded disclosure controls were ineffective due to limited internal audit capacity and insufficient transaction-review layers. Remediation plans depended partly on raising capital. The CEO and CFO waived automatic employment-agreement renewals; their terms were set to end June 14, 2020.
- The company reported no pending material litigation and no quantified financial guidance. Management expected expenses and cost of revenue to rise with expansion but could not estimate the amounts.
Important facts for investors to verify
- Whether the company can secure enough financing to address negative working capital and the stated going-concern uncertainty.
- The full conversion terms, remaining principal and potential dilution from convertible notes, and the share-count change after quarter-end.
- Whether Amazon dependence, supplier concentration and COVID-related disruption affect sales, margins or cash generation.
- Progress on internal-control remediation and the status of the CEO’s and CFO’s employment arrangements.
- The terms and actual receipt or use of the post-quarter UK support measures and PPP loan.