Filing summary
Entity and period: The supplied filing is Orbital Tracking Corp.’s Form 10-K for the fiscal year ended December 31, 2017, filed April 2, 2018. It does not identify Nextplat Corp.; verify that this is the intended filing. The filing reports a completed 1-for-150 reverse stock split effective March 8, 2018, and restates share and per-share data for it.
Business context
Orbital Tracking distributes satellite communications equipment and airtime, provides tracking portals and short-term equipment rentals, and serves customers internationally through Orbital Satcom and UK subsidiary Global Telesat Communications Limited (GTCL). Its focus is on hardware, airtime and recurring services. Development of its own dual-mode tracker remained dependent on additional funding, testing and regulatory certification.
Financial results and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $6.005 million | $4.699 million |
| Gross profit / margin | $1.151 million / 19.2% | $1.075 million / 22.9% |
| Operating expenses | $2.708 million | $2.706 million |
| Operating loss | $1.578 million | $1.631 million |
| Net loss | $3.939 million | $2.590 million |
| Cash used in operations | $315,245 | $1.044 million |
- Revenue increased 27.8%. Management attributed growth to additional product lines and online marketplaces. GTCL represented 66.5% of sales; its comparable sales increased 22.5% in pounds sterling. Currency translation reduced reported 2017 sales by an estimated $209,615.
- Gross margin declined from 22.9% to 19.2%, which management attributed to a higher proportion of lower-margin reseller sales and increased competition in U.S. marketplaces.
- Cash was $233,326 at year-end, versus $114,733 a year earlier. Current assets were $1.081 million and current liabilities $1.204 million, producing negative working capital of approximately $122,634. Total stockholders’ equity was reported as $1.860 million.
- Financing provided $439,545 net cash, including $500,000 from Series J preferred stock, partly offset by $60,455 of related-party repayments. Investing used $33,193.
- The company reported no convertible-note balance at year-end. Current liabilities included $6,998 due to a related party; the filing also describes a related-party note with a $5,768 balance. The filing text does not provide a clear reconciliation of these amounts.
- No dividends were anticipated. No customer generated 10% or more of revenue, but Amazon marketplaces accounted for approximately 35.8% of 2017 sales, down from 40.9% in 2016. Network Innovations represented 42.8% of 2017 purchases.
Material changes, outlook and risks
- Net loss widened by approximately $1.349 million. A $2.309 million preferred-stock price-protection charge—recorded as other expense and settled through preferred shares—was a major unusual, noncash item. Stock-based compensation was $600,000, compared with $190,000 in 2016.
- The independent auditor’s report highlighted substantial doubt about the company’s ability to continue as a going concern. The company reported recurring losses, an accumulated deficit of $8.541 million, negative working capital and operating cash outflow. Management said it planned to seek additional public or private capital, but gave no assurance it could do so.
- A 2017 agreement with Viewtrade contemplated an offering of $5 million to $7 million, subject to underwriting fees and warrants. The filing does not establish that this offering was completed.
- Management expected costs of sales and operating expenses to increase with expansion, but provided no quantified forecast. It estimated $50,000–$75,000 to complete and certify the dual-mode tracker, with a hoped-for 2019 launch subject to funding; other proposed tracking products were estimated to require $75,000–$100,000. Research and development spending was zero in both 2017 and 2016.
- Key risks include financing needs, supplier concentration, reliance on Amazon and key executive David Phipps, foreign-exchange exposure, competition, potential dilution from convertible preferred stock, and thin trading in OTC shares. Convertible preferred stock could represent approximately 2.006 million common shares before ownership limits. The company also disclosed ineffective disclosure controls and ineffective internal controls over financial reporting, including limited internal audit resources and inadequate segregation of duties.
- The filing reports no pending material litigation. It lists $112,397 of liabilities from discontinued operations, unchanged from 2016.
Important facts for investors to verify
- Confirm the issuer: the request names Nextplat Corp., while this filing is for Orbital Tracking Corp.
- Review the audited financial statements and notes, especially the going-concern disclosures and the company’s actual post-year-end financing and cash position.
- Reconcile the balance sheet: total assets are stated as $3.063 million, but total liabilities and stockholders’ equity are stated as $3.603 million; the supplied filing text does not explain this apparent inconsistency.
- Confirm the status and terms of the proposed $5–$7 million offering, and quantify potential dilution from preferred-stock conversions and authorized but unissued common shares.
- Assess the sustainability of sales growth given margin compression, Amazon dependence, supplier concentration and currency effects; also monitor remediation of reported control deficiencies.