Business context and reporting period
The supplied filing is Orbsat Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021—not a filing identified as Nextplat Corp. Orbsat sells satellite hardware, airtime and related services, including through subsidiaries in the U.S. and U.K. Its common stock and warrants trade on Nasdaq as OSAT and OSATW.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2.25 million | $1.48 million | $5.67 million | $4.16 million |
| Gross profit | $493,136 | $398,464 | $1.47 million | $1.00 million |
| Gross margin | 21.9% | 27.0% | 26.0% | 24.1% |
| Net loss | $2.31 million | $1.10 million | $4.57 million | $1.36 million |
| Basic and diluted loss per share | $0.37 | $7.12 | $1.40 | $13.72 |
At September 30, 2021, cash was $17.14 million, current assets $19.01 million, current liabilities $1.24 million, and working capital $17.77 million. Total assets were $20.16 million; total liabilities were $1.51 million; stockholders’ equity was $18.65 million. The company reported no convertible debt outstanding; Coronavirus loan balances were $324,471, including current and long-term portions. Operating cash outflow was $3.00 million and investing outflow $95,598 for the nine months. Financing provided $19.47 million, principally from the public offering and warrant exercises. Cash increased from $728,762 at year-end 2020.
Material changes versus prior periods
- Nine-month revenue increased 36.1%; Q3 revenue increased 52.5%. Management attributed growth to new product lines and higher U.S. Amazon sales, partly offset by foreign-exchange effects.
- Nine-month gross margin improved 1.9 percentage points, while Q3 margin declined 5.1 points. Management cited sales mix and VAT treatment as drivers of margin changes and cautioned that improved margins may not persist.
- Nine-month operating expenses rose 145% to $4.56 million, including higher personnel and selling costs, professional fees, and $1.32 million of stock-based compensation. Interest expense included $1.43 million of convertible-debt discount amortization.
- The June 2021 public offering, over-allotment and warrant exercises substantially increased cash and equity. Shares outstanding were 6,469,263 at September 30 and 6,479,263 at November 15, 2021.
Outlook, risks and unusual items
- Management said cash resources and borrowing availability were sufficient for planned operations for at least 12 months after issuance of the statements. The filing also notes the prior-year auditor’s going-concern paragraph; this quarter still reported a $4.57 million nine-month net loss and accumulated deficit of $18.45 million.
- No specific earnings or revenue guidance was provided. Management expected expenses to continue increasing as the company expands. It planned to make its full catalog of more than 500 products and connectivity services available through Alibaba.com by early 2022.
- COVID-19-related supply shortages, demand effects and operating disruption remained uncertain risks. Amazon generated approximately 64% of nine-month 2021 revenue, and several suppliers each represented at least 10% of purchases.
- Disclosure controls and procedures were deemed ineffective as of September 30 due to limited internal audit capability and insufficient levels of transaction review. Management planned an ERP implementation, expected to be operational by Q2 2022, and additional personnel.
- Two lawsuits arose from former CFO Thomas Seifert’s termination; the company said it believed it had defenses to his claims and did not expect substantial monetary recovery in its own action. The filing also describes substantial executive compensation and equity grants, including a $3 million restricted-stock award to the chairman/CEO and significant option awards.
- Cash-flow discussion and certain narrative descriptions contain apparent inconsistencies with the financial statements; verify figures against the filed statements and notes.
Important facts for investors to verify
- Confirm the issuer identity: the provided document names Orbsat Corp., whereas the request metadata names Nextplat Corp.
- Review whether revenue growth can be sustained and whether Q3 gross-margin decline persists, given customer and supplier concentration.
- Assess operating cash burn, planned spending and management’s 12-month liquidity assertion, including the timing and cost of growth initiatives and ERP implementation.
- Review dilution from the offering, warrants, options, restricted shares and executive awards, including outstanding securities and potential vesting.
- Track remediation of ineffective disclosure controls, CFO succession and the outcomes or potential costs of the Seifert litigation.