Filing summary
Entity discrepancy: The supplied filing identifies the registrant as Orbital Tracking Corp. and its subsidiaries, not Nextplat Corp. This summary reflects the filing as provided.
Business context and reporting period
Unaudited Form 10-Q for the three months ended March 31, 2019, compared with the three months ended March 31, 2018. The company distributes and develops satellite communications hardware, airtime, tracking products and related services internationally.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $1,298,371 | $1,667,938; down 22.2% |
| Gross profit / margin | $245,929 / 18.9% | $379,096 / 22.7% |
| Operating expenses | $482,731 | $520,177; down 7.2% |
| Net loss | $307,623 | $145,458 |
| Basic and diluted loss per share | $0.26 | $0.15 |
| Operating cash flow | $(113,837) | $(28,456) |
| Cash at period end | $109,790 | $216,532 at March 31, 2018 |
| Current assets / current liabilities | $743,680 / $1,326,614 | Working capital was negative $582,934 |
Total assets were $2,397,525 and stockholders’ equity was $1,070,911 at March 31, 2019. The balance sheet reported $17,595 net current convertible debt and a $101,925 current derivative liability; the note’s stated principal was $84,500, including original issue discount. The company had no investing cash outflow in Q1 2019. Financing provided $82,134, including $65,000 from convertible notes and $17,134 of related-party proceeds.
Material changes versus prior period
- Revenue declined $369,567. Management attributed the decrease to larger contracts in Q1 2018 and insufficient inventory to support sales; sales fell 14.1% at GTCL and 39.4% at Orbital Satcom.
- Gross margin contracted 3.8 percentage points. Management cited a decrease in lower-margin phone sales, partly offset by higher-margin product sales.
- Operating expenses decreased 7.2%, but the net loss more than doubled, reflecting lower gross profit and higher other expense, including derivative remeasurement and interest.
- Cash declined $33,098 during the quarter. Current liabilities increased 25.6% from year-end, compared with a 4.0% increase in current assets.
- Amazon accounted for 36.2% of revenue, up from 29.2%. Europe represented 77.0% of revenue, versus 60.9% a year earlier.
Outlook, risks, contingencies and unusual items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern for one year from issuance. It cites a $10.0 million accumulated deficit, negative working capital, quarterly losses and dependence on raising additional capital. There is no assurance financing will be available.
- Financing after quarter-end: In May 2019 the company issued $805,000 of convertible notes, bearing 6% interest and maturing in three years, with optional conversion at $0.10 per share subject to adjustments and ownership limits. Proceeds were intended for debt repayment and general corporate purposes. The filing also describes preferred shares exchanged for $168,270 of notes; $43,284 had been repaid by May 14, leaving $124,986. The January $65,000 Power Up note was repaid May 14 for $87,778, including a prepayment penalty and interest.
- Potential dilution: The May financing is convertible into common shares, and the company reported numerous outstanding convertible preferred shares and options. Preferred-stock conversions and conversions to notes after quarter-end also changed the capital structure.
- Management outlook: The company expects expenses to increase as it expands, but says it cannot estimate the amount. It gives no quantified revenue or earnings guidance. Management also cited working-capital constraints affecting inventory availability.
- Controls: Management concluded disclosure controls were ineffective as of March 31, 2019, citing limited internal audit capability and insufficient levels of transaction review. It was pursuing accounting software upgrades but gave no assurance remediation would be timely or adequate.
- Other risks: The filing identifies competition, pricing pressure, technology changes, demand and economic conditions, foreign currency exposure, and supplier concentration. Four suppliers each represented at least 10% of purchases in Q1 2019; Network Innovations accounted for 29.8%.
- Reporting inconsistency: The income statement labels $70,821 as “total other income,” although the arithmetic and MD&A describe it as other expense, consistent with the net loss. The MD&A also contains inconsistent descriptions of the net-loss figure in its operating-cash-flow discussion.
Important facts for investors to verify
- Confirm the registrant identity: the filing is for Orbital Tracking Corp., despite the request metadata naming Nextplat Corp.
- Review the company’s ability to fund operations, including cash runway, working-capital deficit and status and terms of post-quarter financing.
- Assess dilution from convertible debt, preferred-stock conversions, options and the reported May share issuances; reconcile share counts across the filing and subsequent events.
- Verify the presentation of other income/expense and the inconsistent figures in the MD&A against the financial statements.
- Monitor inventory availability, revenue concentration in Amazon and Europe, and progress in remediating ineffective disclosure controls.