Business context and reporting period
The supplied filing is Orbital Tracking Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2017, not a filing identified as Nextplat Corp. The company, through U.S. and U.K. subsidiaries, sells satellite communications equipment, airtime and related services, and is developing tracking devices. The filing was signed May 15, 2017.
Financial results and position
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $1.382 million | $1.295 million; up 6.7% |
| Gross profit and margin | $315,000; 22.8% | $438,000; 33.8% |
| Operating expenses | $533,000 | $742,000; down 28.2% |
| Operating loss | $218,000 | $304,000 loss |
| Net income (loss) | $(219,000) | $60,000 |
| Operating cash flow | $87,000 provided | $469,000 used |
| Investing / financing cash flow | $(9,000) / $16,000 provided | $(3,000) / $101,000 used |
At March 31, total assets were $3.13 million, total liabilities $1.04 million, and stockholders’ equity $2.10 million. Current assets were $971,000 and current liabilities $1.04 million; reported working capital was negative $64,918. Cash is reported as $214,990 on the balance sheet, but as $214,490 in the cash-flow statement and MD&A. There is no separate conventional long-term debt shown on the balance sheet; related-party balances include $113,428 payable and a $16,864 CEO note balance disclosed in the notes. The filing reports 64.8 million common shares outstanding at quarter-end and 65.8 million as of May 15.
Material changes and management commentary
- Revenue growth reflected increases at both subsidiaries. GTCL reported sales of $977,000, up 5.4% in U.S. dollars; management said its sales rose 22.6% in pounds sterling. Orbital Satcom sales were $405,000, up 10.2%.
- Cost of sales rose 24.6%, outpacing revenue growth, and gross margin fell 11 percentage points. Management attributed margin pressure to sterling weakness after the Brexit vote while maintaining competitive pricing, and to larger reseller orders at lower margins.
- Lower operating expenses—particularly lower investor-relations fees—partly offset weaker gross profit. The prior-year period also included substantial noncash derivative fair-value gains and note-discount amortization, affecting comparability.
- Management expects cost of revenue and operating expenses to increase as the business expands, but did not quantify the increases or provide formal earnings or revenue guidance.
Liquidity, risks and other notable items
- The filing states that accumulated deficit was $4.82 million and that the quarterly net loss and negative working capital raise substantial doubt about the company’s ability to continue as a going concern for one year after issuance. Management intends to seek additional capital through a public or private offering; success is not assured.
- Operating cash flow was positive, but the filing attributes this in part to a $301,000 increase in accounts payable and accrued liabilities. Current liabilities increased 43.7% from year-end, faster than current assets, which increased 21.0%.
- GTCL represented 70.7% of sales, exposing results to foreign-exchange movements. Management estimated that using the prior-year average exchange rate would have made Q1 2017 sales $153,776 higher.
- Two suppliers accounted for 30.2% and 18.2% of Q1 purchases, respectively, creating supplier concentration. No customer represented 10% or more of revenue.
- Disclosure controls and procedures were deemed ineffective because of limited internal-audit functions and insufficient levels of transaction review. Management was pursuing accounting-software and process improvements, with no assurance of timely or adequate implementation.
- The company reported no pending material litigation, no material off-balance-sheet arrangements and no impairment charges. Derivative liabilities declined to $123 from $1,237.
- Common shares increased from 57.3 million at December 31 to 64.8 million at March 31, primarily through conversions of Series D and E preferred stock. The filing also lists 217.8 million potentially dilutive common-stock equivalents; actual conversion and dilution depend on the securities’ terms.
Important facts for investors to verify
- Confirm the issuer: the supplied filing names Orbital Tracking Corp., while the request metadata names Nextplat Corp.
- Reconcile the $500 discrepancy in reported quarter-end cash ($214,990 on the balance sheet versus $214,490 in the cash-flow statement and MD&A).
- Assess the company’s ability to raise capital and address the disclosed going-concern uncertainty and negative working capital.
- Review the causes and sustainability of the gross-margin decline, foreign-exchange exposure, supplier concentration, and cash generation dependent in part on higher payables.
- Track remediation of ineffective disclosure controls and the potential dilution from preferred-stock conversions and outstanding options.