Filing summary
Issuer and period: The supplied filing is Orbsat Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021, filed August 16, 2021. This does not match the request metadata identifying Nextplat Corp; confirm the intended issuer before relying on this summary. Orbsat sells satellite hardware, airtime and related services internationally.
Financial performance and position
| Metric | Q2 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Net sales | $1.956 million | $3.418 million |
| Gross profit / margin | $541,490 / 27.69% | $979,007 / 28.65% |
| Operating expenses | $1.091 million | $1.827 million |
| Operating loss | $549,336 | $848,265 |
| Net loss | $1.458 million | $2.262 million |
| Net loss per share, basic and diluted | $(0.58) | $(1.30) |
| Operating cash flow | Not separately stated for the quarter | $(1.271) million |
Cash was $14.416 million at June 30, 2021, versus $728,762 at December 31, 2020. Working capital was reported as positive $14.119 million; total current liabilities were $2.187 million. Total liabilities were $2.487 million and stockholders’ equity was $14.944 million. Convertible notes were reported at zero at quarter-end; Coronavirus loans totaled approximately $345,700, including $51,686 current and $294,014 long-term. Operating lease liabilities were also reported.
Financing activities provided $14.998 million in the first half, primarily from the June public offering and related over-allotment. The company issued 2.88 million units at $5.00 per unit, with additional shares and warrants sold through the over-allotment. Investing cash outflow was $27,248.
Changes versus prior comparable periods
- First-half sales rose 27.1% from $2.688 million; Q2 sales rose 60.3% from $1.220 million.
- Gross margin increased to 28.65% from 22.53% for the first half, and to 27.69% from 21.12% for Q2. Management attributed the improvement to a greater proportion of higher-margin sales and changes in VAT treatment, while cautioning that higher margins may not continue.
- First-half operating expenses increased 85.3% to $1.827 million. Higher salaries and payroll costs included executive compensation and bonuses associated with the Nasdaq listing; professional fees also rose with board, investor-relations, capital-raising and listing costs.
- Net results weakened: Q2 recorded a $1.458 million loss versus $26,566 income in Q2 2020; the first-half loss was $2.262 million versus $258,294 in the prior-year period. Much of the increase in other expense reflects convertible-debt discount amortization and related interest expense.
- Operating cash flow shifted from $47,890 provided in the first half of 2020 to $1.271 million used in 2021, including cash tied up in inventory and VAT receivables.
Outlook, risks and unusual items
- Management said existing cash and borrowing availability should support planned operations for at least 12 months after issuance of the financial statements. It also stated plans to raise additional capital in 2021 and expects expenses to continue increasing as the business expands; no specific revenue or earnings guidance was provided.
- COVID-19 has affected inventory availability, staffing, rental and direct website sales, suppliers and customer demand. Management said the duration and full financial effect remain uncertain.
- Customer concentration is significant: Amazon represented approximately 64.6% of first-half revenue, compared with 57.5% in the prior-year period. Multiple suppliers each represented at least 10% of first-half purchases.
- The company reported that disclosure controls and procedures were not effective at June 30, 2021, citing limited internal-audit capacity and insufficient levels of transaction review. It planned to implement cloud-based ERP software and add personnel, targeting full operation by Q2 2022.
- Orbsat disclosed a dispute with former CFO Thomas Seifert over his termination and compensation claims; the company said it believed it had adequate defenses and did not expect to seek substantial monetary relief.
- Subsequent events included warrant exercises generating additional cash, an Alibaba.com storefront agreement with a stated annual fee of $5,999, and an ERP implementation agreement. The filing also describes executive employment agreements and subsequent amendments that add compensation and benefits.
Important facts for investors to verify
- Confirm the intended issuer: the filing is for Orbsat Corp., not Nextplat Corp.
- Reconcile revenue disclosures: the statements report first-half sales of $3.418 million, while the geographic revenue table totals $3.519 million; the Q2 geographic total also differs from reported net sales. The filing text does not explain these differences clearly.
- Review the large noncash convertible-debt interest and discount-amortization charges and their effect on reported losses; also assess potential dilution from 3.455 million warrants and 550,009 options outstanding at June 30.
- Assess reliance on Amazon and key suppliers, as well as inventory growth, supply constraints and the collectability/timing of VAT receivables.
- Monitor remediation of ineffective disclosure controls, the Seifert dispute, and whether management’s 12-month liquidity assessment and growth plans are achieved.