Filing summary
Entity note: The supplied filing identifies the registrant as Orbital Tracking Corp., not Nextplat Corp. This is an unaudited Form 10-Q for the quarter ended March 31, 2015; confirm the filing matches the intended company.
Business context and reporting period
Orbital Tracking provides satellite communications hardware, airtime, rentals and related services. It is developing tracking devices for retail customers. In February 2015, it acquired Global Telesat Communications Limited (GTCL) in a share exchange accounted for as a reverse acquisition and recapitalization, with GTCL treated as the accounting acquirer. The company had previously abandoned its potash business plans.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Net sales | $799,698 | $666,235; up 20.0% |
| Gross profit / margin | $226,387 / 28.3% | $204,599 / 30.7% |
| Operating expenses | $639,367 | $139,776 |
| Operating loss | $412,980 | Operating income of $64,823 |
| Net loss / income | $421,980 loss | $65,908 income |
| Operating cash flow | $195,187 used | $28,768 provided |
| Investing cash flow | $376,539 used | $8,369 used |
| Financing cash flow | $1,038,192 provided | $42,018 used |
| Cash at quarter-end | $531,934 | $65,892 at December 31, 2014 |
Gross margin declined as management attributed greater competition in retail website sales. SG&A rose to $568,907, primarily due to higher wages and delivery costs; depreciation and amortization increased to $70,460, partly reflecting acquired and newly recognized assets. The balance sheet reported $1.18 million in current assets and $868,646 in current liabilities, or working capital of $314,298. Total assets were $3.49 million and total liabilities $868,646. Current liabilities included a $122,536 note payable, due February 2016 and bearing no interest, and $112,397 of liabilities from discontinued operations. The filing reports no long-term debt balance.
Material changes and unusual items
- The GTCL transaction involved $375,000 cash, a $122,536 one-year note, 2.54 million common shares and 8.746 million Series E preferred shares. Series E shares are convertible into 10 common shares each and carry voting rights, subject to a beneficial-ownership limit.
- The company raised $1.1 million gross through a February private placement; the cash-flow statement reports $1,097,500 of proceeds from common and preferred stock sales. It also issued shares for services, intellectual property and settlement of $175,000 in debt.
- Prepaid license fees totaled $2.15 million, including $1.93 million classified as long-term; $55,555 was amortized in the quarter. The company also reported $293,750 of net intangible assets.
- Stock-based compensation and option expense included $42,500 for shares and $107,500 for fully vested options granted to the former CEO/CFO. The filing lists 205.2 million potential common equivalents, primarily convertible preferred stock; loss-period diluted EPS excludes anti-dilutive securities.
- Supplier concentration is notable: one supplier accounted for 30.3% of Q1 2015 purchases. No customer accounted for 10% or more of revenue.
Outlook, risks and controls
Management expects cost of revenue and operating expenses to continue increasing as the business expands, but provided no estimate of the amounts and no specific revenue or earnings guidance. Forward-looking statements cite risks including competition and pricing pressure, changing demand, technology shifts and broader economic conditions. The filing reports no pending material litigation and no material off-balance-sheet arrangements.
Management concluded disclosure controls were not effective at March 31, 2015, citing inadequate segregation of duties and the need for an updated accounting system. Remediation was being considered, with no assurance it would be completed timely or prove adequate. Cash balances exceeded the $250,000 FDIC insurance limit. On May 19, 2015, David Rector resigned as CFO and director, and David Phipps was appointed CFO.
Important facts for investors to verify
- Confirm the registrant identity: the supplied filing is for Orbital Tracking Corp., despite the request naming Nextplat Corp.
- Review the GTCL acquisition accounting, the substantial prepaid license-fee balance, and the terms and recoverability of those license rights.
- Assess dilution and control implications of preferred-stock conversion, voting rights, options and warrants.
- Reconcile cash-flow and income-statement net loss figures: the cash-flow statement shows $421,982, while the operations statement shows $421,980.
- Monitor liquidity, ongoing operating cash use, supplier concentration and the effectiveness of planned control remediation.