Nextplat Corp. (filing identifies Orbital Tracking Corp.) — Q3 2015 Form 10-Q
Identity note: The filing is for Orbital Tracking Corp., not Nextplat Corp. Verify the issuer and filing match before relying on this summary.
Business context and reporting period
The unaudited report covers the three and nine months ended September 30, 2015, with comparisons to 2014. Orbital Tracking sells satellite communications hardware, airtime, rentals and related services, and is developing tracking devices. In February 2015, it acquired Global Telesat Communications Limited (GTCL) in a share exchange accounted for as a reverse acquisition and recapitalization. GTCL is the accounting acquirer; the change in consolidated business scope limits direct comparability with prior periods. The company had abandoned its former potash-business plans.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $982,775 | $603,551 | $2,955,453 | $1,883,544 |
| Gross profit / margin | $284,913 / 29.0% | $201,571 / 33.4% | $825,182 / 27.9% | $543,990 / 28.9% |
| Operating expenses | $581,428 | $187,317 | $1,762,072 | $505,214 |
| Net income (loss) | $(300,584) | $11,609 | $(955,185) | $37,271 |
| Cash from operations | — | $(477,929) | $35,564 |
Revenue rose 62.8% in Q3 and 56.9% for the nine-month period, which management attributed to Orbital Satcom sales and greater international e-commerce presence. Gross margin declined in both comparisons. Nine-month operating costs increased substantially, including payroll, public-company and capital-raising professional fees, and depreciation and amortization. The company moved from prior-year net income to a loss.
At September 30, 2015, cash was $217,826; current assets were $1,035,625 and current liabilities $986,975, implying working capital of approximately $48,650 (MD&A states $48,651). Total assets were $3,210,256 and stockholders’ equity $2,223,281. Current liabilities included $755,543 of accounts payable and accrued liabilities, $114,441 due to a related party, $112,397 of discontinued-operation liabilities and $4,594 of derivative liabilities. The balance sheet reports no long-term liabilities. Nine-month investing cash outflow was $408,404; financing cash inflow was $1,030,094, principally from stock and preferred-stock sales. No income tax or interest cash payments were reported.
Common shares outstanding were 11,568,172 at September 30 and 12,818,172 as of November 12. The filing lists 222,672,750 potential common equivalents, principally convertible preferred stock, plus options and warrants; these were excluded from diluted loss per share as anti-dilutive.
Material changes and unusual items
- The February GTCL transaction involved $375,000 cash, a one-year $122,536 promissory note, common shares and 8,746,000 Series E preferred shares issued to GTCL holders. GTCL holders obtained approximately 39% voting control at closing.
- The company raised $1.1 million gross in a February private placement. The cash-flow statement reports $1,097,500 in proceeds from common and preferred stock sales.
- Prepaid license fees were $2,043,010 at September 30, with $172,913 of nine-month amortization reported in the notes. On October 13, the company paid an additional $125,000 to purchase the license and equipment.
- Stock-based compensation and amortization were significant noncash adjustments to operating cash flow. The company also reported $149,999 stock-based compensation and $53,901 amortization of prepaid stock-issued services in its cash-flow reconciliation.
- The company reported $4,594 of derivative liabilities valued using Level 3 inputs. Related warrants have down-round protection; fair-value changes are recognized in earnings.
- After quarter-end, preferred-stock conversions issued additional common shares, including Series D conversions. These conversions may affect dilution and voting control.
Outlook, risks and contingencies
Management expects cost of revenue and operating expenses to continue increasing as the business expands, but says it cannot estimate the increases. The filing provides no quantified revenue, earnings or cash-flow guidance. Management describes the company as early-stage, with limited operating history, and cites risks including changing demand, competition, pricing pressure, technology changes and broader economic conditions. Foreign-exchange movements also affected results.
Disclosure controls and procedures were deemed ineffective at September 30 because of inadequate segregation of duties and the need for an updated accounting system. Management said remediation was being considered but gave no assurance that it would be timely or adequate. The filing reports no pending material litigation and no material off-balance-sheet arrangements. One supplier represented 15.9% of nine-month purchases; no customer represented 10% or more of revenue.
Important facts for investors to verify
- Confirm the issuer identity: the request names Nextplat Corp., while the filing names Orbital Tracking Corp.
- Reconcile expense disclosures: the statements list Q3 professional fees of $151,603 and nine-month fees of $409,605, while MD&A gives $195,136 and $453,138, respectively. Q3 SG&A is shown as negative $27,638; confirm the classification and reported totals.
- Confirm the treatment and presentation of the $122,536 acquisition promissory note, related-party balances and discontinued-operation liabilities.
- Assess liquidity against continuing operating cash burn, near-term obligations and management’s expectation of rising expenses.
- Review the license valuation, amortization, October purchase and associated accounting, along with the assumptions used for Level 3 derivative valuation.
- Assess potential dilution and control effects from preferred-stock conversion rights, subsequent conversions and the large number of disclosed common equivalents.
- Monitor remediation of the disclosed control weaknesses and the accuracy of future financial reporting.