Business Context and Reporting Period
The supplied filing is Orbital Tracking Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018, filed November 14, 2018. This does not match the request metadata identifying Nextplat Corp.; confirm the intended issuer. Orbital Tracking sells satellite communications and tracking hardware, airtime, and related services through U.S. and U.K. subsidiaries.
Financial Performance and Position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $1.387 million | $1.588 million | $4.655 million | $4.547 million |
| Gross profit / margin | $246,210 / 17.6% | $347,812 / 21.9% | $981,379 / 21.1% | $957,954 / 21.1% |
| Operating expenses | $529,387 | $554,506 | $1.519 million | $2.200 million |
| Net loss | $324,387 | $265,699 | $593,465 | $3.609 million |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $(497,068) | $(356,133) |
At September 30, 2018, cash was $203,449; current assets were $1.030 million and current liabilities $1.013 million, giving working capital of $16,169. Total assets were $2.821 million, liabilities $1.013 million, and stockholders’ equity $1.808 million. The balance sheet reports no conventional long-term debt; related-party payable was $11,540, and liabilities from discontinued operations were $112,397. Cash declined $29,877 during the nine-month period. Preferred-stock issuance provided $500,000 of financing cash.
Changes Versus Prior Period
- Q3 revenue decreased 12.7%; management attributed the comparison partly to unusually strong Q3 2017 sales from hurricane-related demand and a substantial tracker contract. Nine-month revenue rose 2.4%.
- Q3 gross margin fell to 17.6% from 21.9%, while the nine-month margin was unchanged at 21.1%.
- Q3 net loss widened, despite lower operating expenses, as lower gross profit offset savings. Nine-month net loss narrowed substantially, largely because 2017 included $2.309 million of preferred-stock price-protection expense.
- Nine-month operating cash use increased by $140,935 year over year. The company had no deferred revenue at September 30, versus $215,989 at December 31, 2017.
Outlook, Risks, and Unusual Items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern for one year from issuance, citing a $593,465 nine-month loss, $9.134 million accumulated deficit, and need for additional capital. Management intended to seek additional funds, but gave no assurance financing would be available.
- Management expected operating costs and cost of sales to increase as the business expands but said it could not estimate the amounts. No quantified revenue or earnings guidance was provided.
- Foreign exchange affected reported results: management estimated nine-month 2018 revenue would have been $180,854 lower if the stated comparison exchange rate had applied. Europe generated 67.8% of nine-month revenue.
- Supplier concentration was significant: Network Innovations represented 41.7% of purchases for the nine months; three other suppliers each represented approximately 11%–14%.
- Disclosure controls and procedures were deemed ineffective due to limited internal audit capability and insufficient levels of transaction review. Management was evaluating accounting-system upgrades; timing and adequacy were not assured.
- In May 2018, the company raised $500,000 through Series J and Series L preferred securities; Series L units included warrants. In June, it granted 275,000 options under its 2018 plan. The filing also describes substantial executive employment agreements, including two-times-base-salary severance provisions in specified termination circumstances.
- The filing reported no pending material litigation, no disclosed subsequent events, and no material off-balance-sheet arrangements.
Key Investor Verification Points
- Confirm issuer identity: the filing names Orbital Tracking Corp., not Nextplat Corp.
- Assess funding needs, cash burn, and whether the company obtained financing after the filing; the going-concern warning is explicit.
- Verify the sustainability of gross margins and the causes of Q3 revenue softness, including the effect of prior-year hurricane-related sales and contract timing.
- Review remediation of ineffective disclosure controls and any subsequent financial-reporting issues.
- Reconcile equity dilution and option disclosures: the filing’s MD&A refers to 250,000 options issued, while the notes state 275,000; also review the preferred conversions, warrants, reverse split, and reported share counts.