NextPlat Corp (formerly Orbsat Corp): FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are to FY2020 unless noted. The company changed its name to NextPlat Corp effective January 21, 2022. The filing reports annual results, not separate fourth-quarter results.
Business context
NextPlat sells satellite communications equipment and airtime, tracking products, and related services through its U.S. and U.K. subsidiaries. It also sells through two company-operated websites and third-party marketplaces. The company is developing an e-commerce platform upgrade and a proposed Web3/digital-asset platform; these initiatives were not yet complete at year-end.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $7.740 million | $5.690 million |
| Gross profit | $1.860 million | $1.225 million |
| Gross margin | 24.0% | 21.5% |
| Operating expenses | $8.482 million | $3.259 million |
| Net loss | $8.108 million | $2.763 million |
| Net cash used in operations | $4.092 million | $0.837 million |
- Revenue increased 36.0%. Management attributed the increase primarily to higher Amazon sales and expanded product selection. Gross margin improved, which the company attributed to higher-margin product lines.
- Operating expenses rose 160.3%. Stock-based compensation was $3.758 million, compared with $0.905 million; payroll and professional fees also increased. Interest expense was $1.467 million, versus $1.022 million.
- At December 31, 2021, cash was $17.268 million, working capital was $16.594 million, total current assets were $19.375 million, and current liabilities were $2.781 million. Total liabilities were $3.035 million.
- Convertible debt was zero at year-end. Coronavirus loan balances were $56,391 current and $253,757 long-term. The U.K. loan is secured by GTC assets and carries a U.K. government guarantee. No line-of-credit balance was reported.
- Investing cash outflow was $229,307, mainly for equipment, capitalized software, and website development. Financing cash inflow was $20.817 million, and cash increased by $16.539 million.
Material changes and financing
- Amazon accounted for 63.6% of FY2021 sales, down from 73.3% in FY2020. Europe represented 66.5% of revenue; GTC generated 68.8% of company sales. The company reported that favorable exchange-rate translation increased reported revenue by approximately $459,458 versus using the prior-year average exchange rate.
- The June 2021 public offering and over-allotment produced approximately $16.56 million in gross proceeds. Warrant exercises generated approximately $4.63 million during 2021.
- A private placement agreed on December 31, 2021, closed January 5, 2022: 2,229,950 shares at $3.24 per share for approximately $7.225 million gross proceeds. The company received $1.4 million in 2021 and the remaining approximately $5.825 million in January 2022. The shares increased dilution; 73% of the funds were reportedly from existing shareholders and company management or directors.
- Common shares outstanding were 7,053,146 at December 31, 2021 and 9,293,096 as of March 28, 2022. A 1-for-5 reverse split took effect May 28, 2021; share figures in the filing reflect the split.
Outlook, risks, contingencies, and unusual items
- No formal numeric revenue or earnings guidance is provided. Management anticipated continued investment and rising operating costs, but said it could not estimate the amount. The e-commerce upgrade and NextPlat Digital were each expected to be substantially complete within six to nine months, and the new ERP system was expected to be operational by the end of FY2022.
- Liquidity statements are not fully consistent: the filing says existing resources and expected operating cash flows should support operations for the next 12 months, while its forward-looking risk language also refers to insufficient cash and borrowing capacity without further financing. The company has a history of losses and used $4.092 million in operating cash in FY2021.
- Key business risks include supply-chain and shipping disruption, reliance on limited suppliers, Amazon marketplace concentration, international and currency exposure, competition, and the uncertain costs and commercial prospects of new platform and digital-asset initiatives. The company reported inventory shortages and adverse COVID-19 effects; it also cited geopolitical uncertainty following Russia’s invasion of Ukraine.
- Disclosure controls and internal control over financial reporting were judged ineffective at December 31, 2021. Management cited limited internal audit resources and insufficient segregation of accounting duties, and planned additional staff and a cloud-based ERP implementation. The auditor did not attest to internal-control effectiveness. The financial-statement audit opinion was unqualified and identified no critical audit matters.
- Two lawsuits relate to former CFO Thomas Seifert’s June 2021 termination. Both were in discovery and no trial date had been set; the company said it did not expect substantial monetary relief in its own action and believed it had defenses to his claims.
- The company reported $112,397 of liabilities from discontinued operations. It also reported a $491,417 VAT receivable related to post-Brexit changes, of which approximately $95,759 had been received after year-end.
- The income-tax disclosures are inconsistent: MD&A and the primary statements show no tax provision, while the tax footnote reports a $15,000 FY2021 current foreign tax provision. The footnote also reports a full valuation allowance against deferred tax assets.
Important facts for investors to verify
- Whether the company can sustain liquidity given operating cash use, continued losses, and the differing liquidity statements.
- Amazon sales concentration, marketplace terms, and progress diversifying revenue sources.
- Progress in remediating control deficiencies, implementing the ERP system, and improving financial reporting controls.
- Actual costs, completion timing, and commercial traction for the e-commerce upgrade and NextPlat Digital.
- Post-year-end share count, potential dilution from warrants and equity awards, and final use of private-placement proceeds.
- The status and potential financial impact of the Seifert litigation, VAT recovery, and tax-provision discrepancy.