UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172022
OR
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ______________to _______________.
Commission File Number 000-25097001-40447
ORBITAL TRACKING CORP.NEXTPLAT CORP
(Exact name of small business issuerregistrant as specified in its charter)
| Nevada | 65-0783722 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 3250 Mary St., Suite 410, Coconut Grove, FL | 33133 | |
| (Address of principal executive offices | (Zip Code) |
18851 NE 29th Avenue, Suite 700(305)-560-5355
Aventura, FL 33180
Telephone: (305)-560-5355
(Address, including zip code, andRegistrant’s telephone number,
including area code
Securities registered pursuant to Section 12(b) of registrant’s principal executive offices)the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, par value $0.0001 | NXPL | The Nasdaq Stock Market Inc. | ||
| Warrants | NXPLW | The Nasdaq Stock Market Inc. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☒ No ☐
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer | ||
| Non-accelerated filer ☒ | Smaller reporting company | ||
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined inby Rule 12b-2 of the Exchange Act). Yes [ ] ☐ No [X] ☒
TheIndicate the number of shares outstanding of each of the Registrant’s Common Stock outstandingregistrant’s classes of common stock as of November 14, 2017 was 74,977,104.the latest practicable date.
| Class | Outstanding at August 15, 2022 | |
| Common Stock, $0.0001 par value |
FORM 10-Q
INDEX
| i |
The Company’s unaudited condensed consolidated financial statements of NextPlat Corp, F/K/A/ Orbsat Corp, (“NextPlat,” the “Company,” “we,” or “our”), for the ninethree and six months ended SeptemberJune 30, 20172022 and for comparable periods in the prior year are included below. The condensed consolidated financial statements should be read in conjunction with the notes to condensed consolidated financial statements that follow.
ORBITAL TRACKINGNEXTPLAT CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 20,467,722 | $ | 17,267,978 | ||||
| Accounts receivable, net | 344,915 | 349,836 | ||||||
| Inventory | 1,370,425 | 1,019,696 | ||||||
| Unbilled revenue | 120,816 | 100,422 | ||||||
| VAT receivable | 459,541 | 491,417 | ||||||
| Prepaid expenses – current portion | 64,523 | 97,068 | ||||||
| Other current assets | 2,873 | 48,539 | ||||||
| Total current assets | 22,830,815 | 19,374,956 | ||||||
| Property and equipment, net | 1,243,631 | 1,042,859 | ||||||
| Right of use | 909,908 | 22,643 | ||||||
| Intangible assets, net | 62,500 | 75,000 | ||||||
| Prepaid expenses – long term portion | 42,424 | 49,867 | ||||||
| Total assets | $ | 25,089,278 | $ | 20,565,325 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 1,085,698 | $ | 1,063,344 | ||||
| Contract liabilities | 27,110 | 36,765 | ||||||
| Note payable Coronavirus loans– current portion | 60,825 | 56,391 | ||||||
| Due to related party | - | 35,308 | ||||||
| Lease liabilities - current | 203,561 | 19,763 | ||||||
| Provision for income taxes | 16,876 | 56,781 | ||||||
| Stock subscription payable | - | 1,400,000 | ||||||
| Liabilities from discontinued operations | 112,397 | 112,397 | ||||||
| Total current liabilities | 1,506,467 | 2,780,749 | ||||||
| Long term liabilities: | ||||||||
| Note payable Coronavirus loans– long term | 187,544 | 253,757 | ||||||
| Lease liabilities - long term | 696,426 | - | ||||||
| Total Liabilities | 2,390,437 | 3,034,506 | ||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $ par value; shares authorized | - | - | ||||||
| Common stock, ($ par value; shares authorized, shares issued and outstanding as of June 30, 2022 and outstanding at December 31, 2021, respectively) | 929 | 705 | ||||||
| Additional paid-in capital | 47,206,953 | 39,513,093 | ||||||
| Accumulated (deficit) | (24,492,159 | ) | (21,986,215 | ) | ||||
| Accumulated other comprehensive income (loss) | (16,882 | ) | 3,236 | |||||
| Total stockholders’ equity | 22,698,841 | 17,530,819 | ||||||
| Total liabilities and stockholders’ equity | $ | 25,089,278 | $ | 20,565,325 | ||||
| September 30, 2017 | December 31, 2016 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 268,216 | $ | 114,733 | ||||
| Accounts receivable, net | 508,256 | 96,758 | ||||||
| Inventory | 397,988 | 335,267 | ||||||
| Unbilled revenue | 65,690 | 54,344 | ||||||
| Prepaid expenses | 151,102 | 171,164 | ||||||
| Other current assets | 59,668 | 29,841 | ||||||
| Total current assets | 1,450,920 | 802,107 | ||||||
| Property and equipment, net | 1,796,517 | 1,978,338 | ||||||
| Intangible assets, net | 231,250 | 250,000 | ||||||
| Total assets | $ | 3,478,687 | $ | 3,030,445 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 982,128 | $ | 536,906 | ||||
| Deferred revenue | 126,735 | 2,624 | ||||||
| Related party payable | 67,891 | 67,453 | ||||||
| Derivative liabilities – current portion | - | 1,237 | ||||||
| Liabilities from discontinued operations | 112,397 | 112,397 | ||||||
| Total current liabilities | 1,289,151 | 720,617 | ||||||
| Total Liabilities | - | 720,617 | ||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $0.0001 par value; 50,000,000 shares authorized | ||||||||
| Series A ($0.0001 par value; 20,000 shares authorized, and no shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | - | - | ||||||
| Series B ($0.0001 par value; 30,000 shares authorized, 6,666 and 6,666 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 1 | 1 | ||||||
| Series C ($0.0001 par value; 4,000,000 shares authorized, 3,540,365 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 354 | 354 | ||||||
| Series D ($0.0001 par value; 5,000,000 shares authorized, 3,008,984 and 3,428,984 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 301 | 343 | ||||||
| Series E ($0.0001 par value; 8,746,000 shares authorized, 7,002,877 and 7,929,651 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 700 | 793 | ||||||
| Series F ($0.0001 par value; 1,100,000 shares authorized, 1,099,998 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 110 | 110 | ||||||
| Series G ($0.0001 par value; 10,090,000 shares authorized, 10,083,351 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 1,008 | 1,008 | ||||||
| Series H ($0.0001 par value; 200,000 shares authorized, 87,500 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 9 | 9 | ||||||
| Series I ($0.0001 par value; 114,944 shares authorized, 92,944 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 9 | 9 | ||||||
| Series J ($0.0001 par value; 125,000 shares authorized, 54,669 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 5 | |||||||
| Series K ($0.0001 par value; 1,250,000 shares authorized, 1,166,652 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) | 117 | |||||||
| Common Shares, $0.0001 par value; 750,000,000 shares authorized, 74,977,104 and 57,309,364 outstanding as of September 30, 2017 and December 31, 2016, respectively | 7,498 | 5,731 | ||||||
| Additional paid-in capital | 10,390,184 | 6,935,817 | ||||||
| Accumulated (deficit) | (8,210,745 | ) | (4,601,406 | ) | ||||
| Accumulated other comprehensive loss | (15 | ) | (32,941 | ) | ||||
| Total stockholder equity | 2,189,536 | 2,309,828 | ||||||
| Total liabilities and stockholders’ equity | $ | 3,478,687 | $ | 3,030,445 | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 2 |
ORBITAL TRACKINGNEXTPLAT CORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS
AND COMPREHENSIVECOMPREHNSIVE LOSS
FOR THE THREE AND NINE MONTHS ENDED
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||
| Net sales | $ | 2,871,479 | $ | 1,956,260 | $ | 6,449,257 | $ | 3,417,688 | ||||||||
| Cost of sales | 2,304,090 | 1,414,770 | 5,080,775 | 2,438,681 | ||||||||||||
| Gross profit | 567,389 | 541,490 | 1,368,482 | 979,007 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 1,160,855 | 282,006 | 1,735,205 | 443,696 | ||||||||||||
| Salaries, wages and payroll taxes | 670,797 | 479,538 | 1,306,373 | 687,712 | ||||||||||||
| Professional fees | 156,990 | 256,034 | 483,203 | 548,916 | ||||||||||||
| Depreciation and amortization | 111,996 | 73,248 | 211,565 | 146,948 | ||||||||||||
| Total operating expenses | 2,100,638 | 1,090,826 | 3,736,346 | 1,827,272 | ||||||||||||
| Loss before other expenses and income taxes | (1,533,249 | ) | (549,336 | ) | (2,367,864 | ) | (848,265 | ) | ||||||||
| Other (income) expense | ||||||||||||||||
| Gain on debt extinguishment | - | (20,832 | ) | - | (20,832 | ) | ||||||||||
| Interest earned | (4,616 | ) | - | (9,572 | ) | - | ||||||||||
| Interest expense | 3,681 | 940,907 | 6,924 | 1,461,601 | ||||||||||||
| Foreign currency exchange rate variance | 123,547 | (11,017 | ) | 140,728 | (27,498 | ) | ||||||||||
| Total other (income) expense | 122,612 | 909,058 | 138,080 | 1,413,271 | ||||||||||||
| Net loss | $ | (1,655,861 | ) | $ | (1,458,394 | ) | $ | (2,505,944 | ) | $ | (2,261,536 | ) | ||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss | (1,655,861 | ) | (1,458,394 | ) | (2,505,944 | ) | (2,261,536 | ) | ||||||||
| Comprehensive Income: | ||||||||||||||||
| Net loss | (1,655,861 | ) | (1,458,394 | ) | (2,505,944 | ) | (2,261,536 | ) | ||||||||
| Foreign currency translation adjustments | (4,788 | ) | (14,345 | ) | (20,118 | ) | (12,734 | ) | ||||||||
| Comprehensive loss | $ | (1,660,649 | ) | $ | (1,472,739 | ) | $ | (2,526,062 | ) | $ | (2,274,270 | ) | ||||
| NET LOSS INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||||||||||||||||
| Weighted number of common shares outstanding – basic & diluted | 9,293,096 | 5,668,522 | 9,230,335 | 5,299,399 | ||||||||||||
| Basic and diluted net loss per share | $ | (0.18 | ) | $ | (0.26 | ) | $ | (0.27 | ) | $ | (0.43 | ) | ||||
(Unaudited)
| Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | Nine months Ended September 30, 2017 | Nine months Ended September 30, 2016 | |||||||||||||
| Net sales | $ | 1,588,466 | $ | 1,299,373 | $ | 4,547,491 | $ | 3,783,230 | ||||||||
| Cost of sales | 1,240,654 | 1,035,278 | 3,589,537 | 2,935,631 | ||||||||||||
| Gross profit | 347,812 | 264,095 | 957,954 | 847,599 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and general administrative | 158,312 | 150,024 | 456,935 | 456,881 | ||||||||||||
| Salaries, wages and payroll taxes | 178,762 | 158,720 | 513,349 | 503,556 | ||||||||||||
| Stock based compensation | - | - | 600,000 | - | ||||||||||||
| Professional fees | 163,754 | 192,834 | 432,320 | 881,318 | ||||||||||||
| Depreciation and amortization | 74,143 | 70,219 | 224,319 | 216,375 | ||||||||||||
| Total operating expenses | 574,971 | 571,797 | 2,226,923 | 2,058,130 | ||||||||||||
| (Loss) before other expenses and income taxes | (227,159 | ) | (307,702 | ) | (1,268,969 | ) | (1,210,531 | ) | ||||||||
| Other (income) expense | ||||||||||||||||
| Change in fair value of derivative instruments, net | - | (944 | ) | (1,237 | ) | (425,790 | ) | |||||||||
| Interest expense | 10 | 441 | 446 | 603,427 | ||||||||||||
| Other expense – Subscription Holders Preferred | - | - | 2,308,981 | |||||||||||||
| Foreign currency exchange rate variance | 38,530 | 31,473 | 32,180 | 64,295 | ||||||||||||
| Total other expense | 38,540 | 30,970 | 2,340,370 | 241,932 | ||||||||||||
| Net loss | $ | (265,699 | ) | $ | (338,672 | ) | $ | (3,609,339 | ) | $ | (1,452,463 | ) | ||||
| Comprehensive Loss: | ||||||||||||||||
| Net loss | (265,699 | ) | (338,672 | ) | (3,609,339 | ) | (1,452,463 | ) | ||||||||
| Foreign currency translation adjustments | 18,485 | 19,888 | 32,926 | 17,513 | ||||||||||||
| Comprehensive loss | (247,214 | ) | (318,874 | ) | (3,576,413 | ) | (1,434,950 | ) | ||||||||
| NET INCOME LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||||||||||||||||
| Weighted number of common shares outstanding - basic | 72,669,412 | 39,545,787 | 44,087,590 | 29,272,457 | ||||||||||||
| Weighted number of common shares outstanding - diluted | 72,669,412 | 39,545,787 | 44,087,590 | 29,272,457 | ||||||||||||
| Basic net (loss) per share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | (0.05 | ) | ||||
| Diluted net (loss) per share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | (0.05 | ) | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
ORBITAL TRACKINGNEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Six Months Ended June 30, 2022
| Common Stock | Additional | |||||||||||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, December 31, 2021 | 7,053,146 | $ | 705 | $ | 39,513,093 | $ | (21,986,215 | ) | $ | 3,236 | $ | 17,530,819 | ||||||||||||
| Issuance of common related to offering | 2,229,950 | 223 | 7,004,815 | - | - | 7,005,038 | ||||||||||||||||||
| Issuance of common related to restricted stock award | 10,000 | 1 | 34,799 | - | - | 34,800 | ||||||||||||||||||
| Stock based compensation in relation to restricted stock award | - | - | 654,246 | - | - | 654,246 | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | (20,118 | ) | (20,118 | ) | ||||||||||||||||
| Net loss | - | - | - | (2,505,944 | ) | - | (2,505,944 | ) | ||||||||||||||||
| Balance, June 30, 2022 | 9,293,096 | $ | 929 | $ | 47,206,953 | $ | (24,492,159 | ) | $ | (16,882 | ) | $ | 22,698,841 | |||||||||||
For the Six Months Ended June 30, 2021
| Common Stock | Additional | |||||||||||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, December 31, 2020 | 817,450 | $ | 82 | $ | 14,486,492 | $ | (13,878,553 | ) | $ | (42,832 | ) | $ | 565,189 | |||||||||||
| Issuance common stock from convertible debt | 1,345,468 | 135 | 1,644,132 | - | - | 1,644,267 | ||||||||||||||||||
| Issuance of common related to offering | 2,880,000 | 288 | 12,661,696 | - | - | 12,661,984 | ||||||||||||||||||
| Issuance of common for over-allotment | 432,000 | 43 | 1,983,226 | - | - | 1,983,269 | ||||||||||||||||||
| Issuance of warrants for over-allotment | - | - | 4,320 | - | - | 4,320 | ||||||||||||||||||
| Issuance of common stock from exercise of warrant | 1,000 | - | 5,000 | - | - | 5,000 | ||||||||||||||||||
| Issuance of common for services | 1,000 | - | 14,200 | - | - | 14,200 | ||||||||||||||||||
| Beneficial conversion feature of convertible debt | - | - | 340,420 | - | - | 340,420 | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | (12,734 | ) | (12,734 | ) | ||||||||||||||||
| Net loss | - | - | - | (2,261,536 | ) | - | (2,261,536 | ) | ||||||||||||||||
| Balance, June 30, 2021 | 5,476,918 | $ | 548 | $ | 31,139,486 | $ | (16,140,089 | ) | $ | (55,566 | ) | $ | 14,944,379 | |||||||||||
| 4 |
For the Three Months Ended June 30, 2022
| Common Stock | Additional | |||||||||||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, March 31, 2022 | 9,293,096 | $ | 929 | $ | 46,552,707 | $ | (22,836,298 | ) | $ | (12,094 | ) | $ | 23,705,244 | |||||||||||
| Stock based compensation in relation to restricted stock award | - | - | 654,246 | - | - | 654,246 | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | (4,788 | ) | (4,788 | ) | ||||||||||||||||
| Net loss | - | - | - | (1,655,861 | ) | - | (1,655,861 | ) | ||||||||||||||||
| Balance, June 30, 2022 | 9,293,096 | $ | 929 | $ | 47,206,953 | $ | (24,492,159 | ) | $ | (16,882 | ) | $ | 22,698,841 | |||||||||||
For the Three Months Ended June 30, 2021
| Common Stock | Additional | |||||||||||||||||||||||
| $0.0001 Par Value | Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, March 31, 2021 | 1,236,887 | $ | 124 | $ | 15,299,161 | $ | (14,681,695 | ) | $ | (41,221 | ) | $ | 576,369 | |||||||||||
| Issuance common stock from convertible debt | 927,031 | 93 | 1,186,083 | - | - | 1,186,176 | ||||||||||||||||||
| Issuance of common related to offering | 2,880,000 | 288 | 12,661,696 | - | - | 12,661,984 | ||||||||||||||||||
| Issuance of common for over-allotment | 432,000 | 43 | 1,983,226 | - | - | 1,983,269 | ||||||||||||||||||
| Issuance of warrants for over-allotment | - | - | 4,320 | - | - | 4,320 | ||||||||||||||||||
| Issuance of common stock from exercise warrant | 1000 | - | 5,000 | - | - | 5,000 | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | (14,345 | ) | (14,345 | ) | ||||||||||||||||
| Net loss | - | - | - | (1,458,394 | ) | - | (1,458,394 | ) | ||||||||||||||||
| Balance, June 30, 2021 | 5,476,918 | $ | 548 | $ | 31,139,486 | $ | (16,140,089 | ) | $ | (55,566 | ) | $ | 14,944,379 | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED
(Unaudited)
| June 30, 2022 | June 30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (2,505,944 | ) | $ | (2,261,536 | ) | ||
| Adjustments to reconcile net loss to net cash (used in) operating activities: | ||||||||
| Depreciation expense | 199,065 | 134,448 | ||||||
| Amortization of intangible asset | 12,500 | 12,500 | ||||||
| Amortization of convertible debt, net | - | 1,425,366 | ||||||
| Amortization of right to use | - | 15,476 | ||||||
| Stock based compensation | 689,046 | 14,200 | ||||||
| Gain on debt extinguishment | - | (20,832 | ) | |||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | 4,921 | (158,079 | ) | |||||
| Inventory | (350,729 | ) | (790,536 | ) | ||||
| Unbilled revenue | (20,394 | ) | (10,171 | ) | ||||
| VAT receivable | 31,876 | (279,215 | ) | |||||
| Prepaid expense | 39,988 | - | ||||||
| Other current assets | 45,666 | (3,664 | ) | |||||
| Accounts payable and accrued liabilities | 22,354 | 662,022 | ||||||
| Lease liabilities | (7,041 | ) | (15,512 | ) | ||||
| Provision for income taxes | (39,905 | ) | 227 | |||||
| Contract liabilities | (9,655 | ) | 4,469 | |||||
| Net cash used in operating activities | (1,888,252 | ) | (1,270,837 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (395,245 | ) | (27,248 | ) | ||||
| Net cash used in investing activities | (395,245 | ) | (27,248 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible note payable | - | 350,000 | ||||||
| Proceeds from (repayments) to note payable, related party, net | (35,308 | ) | 114,981 | |||||
| Proceeds from common stock offering | 5,605,038 | 12,661,984 | ||||||
| Proceeds from warrant offering | - | 1,987,589 | ||||||
| Repayments to note payable Coronavirus loans | (30,413 | ) | - | |||||
| Proceeds from exercise of warrant | - | 5,000 | ||||||
| Repayment of note payable | - | (121,848 | ) | |||||
| Net cash provided by financing activities | 5,539,317 | 14,997,706 | ||||||
| Effect of exchange rate on cash | (56,076 | ) | (12,734 | ) | ||||
| Net increase (decrease) in cash | 3,199,744 | 13,686,887 | ||||||
| Cash beginning of period | 17,267,978 | 728,762 | ||||||
| Cash end of period | $ | 20,467,722 | $ | 14,415,649 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for | ||||||||
| Interest | $ | 6,102 | $ | 3,228 | ||||
| Income tax | $ | 38,555 | $ | - | ||||
| Non-cash adjustments during the period for | ||||||||
| Beneficial conversion feature on convertible debt | $ | - | $ | 340,420 | ||||
| Recognition of operating lease liability | $ | 904,744 | $ | - | ||||
| Conversion of convertible debt into common shares | $ | - | $ | 1,644,268 | ||||
| September 30, 2017 | September 30, 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (3,609,339 | ) | $ | (1,452,463 | ) | ||
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||
| Change in fair value of derivative liabilities | (1,237 | ) | (425,790 | ) | ||||
| Depreciation expense | 205,569 | 197,625 | ||||||
| Amortization of intangible asset | 18,750 | 18,750 | ||||||
| Preferred stock-based price protection expense | 2,308,981 | - | ||||||
| Amortization of notes payable discount | - | 602,515 | ||||||
| Stock based compensation | 600,000 | - | ||||||
| Amortization of prepaid expense in connection with the issuance of common stock issued for prepaid services | 121,096 | 164,608 | ||||||
| Imputed interest | 446 | 912 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (411,498 | ) | (28,139 | ) | ||||
| Inventory | (62,721 | ) | (99,202 | ) | ||||
| Unbilled revenue | (11,346 | ) | 17,415 | |||||
| Prepaid expense | (101,034 | ) | 115,359 | |||||
| Other current assets | (29,827 | ) | (1,909 | ) | ||||
| Accounts payable and accrued liabilities | 491,916 | 131,321 | ||||||
| Deferred revenue | 124,111 | (13,937 | ) | |||||
| Net (used in) operating activities | (356,133 | ) | (772,935 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (20,676 | ) | (34,967 | ) | ||||
| Net (cash used) in investing activities | (20,676 | ) | (34,967 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments of convertible notes payable | (100,834 | ) | ||||||
| Proceeds from sale of preferred stock | 500,000 | - | ||||||
| Proceeds (repayments) of note payable, related party, net | 438 | 57,807 | ||||||
| Net cash provided by (used in) financing activities | 500,438 | (43,027 | ) | |||||
| Effect of exchange rate on cash | 29,854 | 5,849 | ||||||
| Net increase (decrease) in cash | 153,482 | (845,081 | ) | |||||
| Cash beginning of period | 114,733 | 963,329 | ||||||
| Cash end of period | $ | 268,216 | $ | 118,248 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for | ||||||||
| Interest | $ | - | $ | - | ||||
| Income tax | $ | - | $ | 3,898 | ||||
| NON CASH FINANCE AND INVESTING ACTIVITY | ||||||||
| Common stock issued for prepaid services | $ | - | $ | 100,000 | ||||
| Preferred stock issued for accounts payable | $ | 46,694 | $ | 22,500 | ||||
| Preferred stock issued for conversion of debt | $ | - | $ | 650,670 | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The unaudited financial statements for the three and six months ending June 30, 2022, are not necessarily indicative of the results for the remainder of the fiscal year. The consolidated financial statements as of December 31, 20162021, have been audited by an independent registered public accounting firm. The accounting policies and procedures employed in the preparation of these condensed consolidated financial statements have been derived from the audited financial statements of the Company“Company” for the year ended December 31, 2016,2021, which are contained in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on April 7, 2017.March 31, 2022. The consolidated balance sheet as of December 31, 20162021 was derived from those financial statements.
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information.. The condensed consolidated financial statements of the Company include the Company and its wholly owned subsidiaries.wholly-owned subsidiaries, Orbital Satcom Corp, Global Telesat Communications Ltd and NextPlat B.V. All material intercompany transactionsbalances and balancestransactions have been eliminated. All adjustments (consistingeliminated in consolidation.
.
Description of normal recurring items) necessary to present fairlyBusiness
Overview
Leveraging the e-commerce experience of the Company’s financial position as of September 30, 2017,management team and the resultsCompany’s existing e-commerce platforms, the Company has embarked upon the rollout of operationsa state-of-the-art e-commerce platform to collaborate with businesses to optimize their ability to sell their goods online, domestically, and cash flowsinternationally, and enabling customers and partners to optimize their e-commerce presence and revenue, which we expect will become the focus of the Company’s business in the future. Historically, the business of NextPlat has been, the provision of a comprehensive array of Satellite Industry communication services, and related equipment sales. As detailed in Online Storefronts and E-Commerce Platforms below, the Company operates two main e-commerce websites as well as 25 third-party e-commerce storefronts such as Alibaba, Amazon and Walmart. These e-commerce venues form an effective global network serving thousands of consumers, enterprises, and governments. NextPlat has announced its intention to broaden its e-commerce platform and is implementing comprehensive systems upgrade to support this initiative. The Company has also begun the design and development of a next generation platform for digital assets built for Web3 (an internet service built using decentralized blockchains). This new platform (“NextPlat Digital”) is currently in the design and development phase and will enable the use of a range of digital assets, such as non-fungible tokens (“NFTs”), in e-commerce and in community-building activities.
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Online Storefronts and E-Commerce Platforms
We operate two e-commerce websites offering a range of MSS products and solutions through our subsidiaries, Orbital Satcom, which targets customers in North and South America, and GTC which targets customers in the UK, EU, Middle East, Asia and rest of the world. These websites produce sales and attract enquiries from customers and potential customers from all around the world. Over the long term, we plan to develop additional country-specific websites to target customers in South America, Asia and Europe where we anticipate there will be substantial further demand for our products.
In addition to our two main e-commerce websites, we make portable satellite voice, data and tracking solutions easier to find and buy online through our various third-party e-commerce storefronts such as Alibaba, Amazon and Walmart. We currently operate 25 storefronts across various countries in 5 continents. We have invested in personnel to translate our listings correctly in the different countries we are represented in and intend to regularly improve and increase our listings on all e-commerce sites. We currently have more than 9,000 product listings on all third-party sites and invest significantly in inventory to hold at Amazon’s various fulfillment centers around the world to ensure that orders are shipped to customers as quickly as possible. The products include handheld satellite phones, personal and asset tracking devices, portable high-speed broadband terminals, and satellite Wi-Fi hotspots. Our Amazon Marketplaces represented approximately 49.5% and 64.6% of the Company’s revenues during the six months ended June 30, 2022 and 2021, respectively. For the years ended December 31, 2021 and 2020, Amazon online marketplaces represented approximately 63.6% and 73.3% of total sales, respectively. We anticipate that these marketplaces will continue to represent a significant portion of our sales for the foreseeable future. Our e-commerce storefronts enable us to attract a significantly diversified level of sales from all over the world, ensuring we are not overly reliant on any single market or sector for our sales revenue. Furthermore, many products we sell require subscription-based services which allow us to increase our recurring revenue airtime sales.
With consumer behavior drastically changing because of COVID-19, e-commerce traffic witnessed double-digit gains in 2021 and 2020, respectively, as stores closed and shoppers used digital options. This significant change in consumer shopping habits resulted in a substantial increase of U.S., EU and U.K. consumers electing to shop online. During 2021, senior management of the Company determined to invest in a comprehensive systems upgrade project which commenced in September with the goal of building a state-of-the-art e-commerce platform. This implementation is anticipated to be substantially complete within the next six to nine months, and three months ended September 30, 2017 have been included. The resultsthe Company intends to collaborate with businesses to optimize their ability to sell their goods online, domestically, and internationally, and enabling customers and partners to optimize their e-commerce presence and revenue.
NextPlat Digital
We intend to develop a next generation platform for digital assets built for Web3, an internet service built using decentralized blockchains. Our new platform (“NextPlat Digital”), which is currently in the design and development phase in collaboration with consultants and contracted developers, will initially enable the use of operationsnon-fungible tokens (“NFTs”), in e-commerce and in community-building activities. NextPlat Digital may in the future also enable the posting and use of other digital or “crypto” assets once applicable legal and regulatory requirements are addressed. As currently contemplated, NextPlat Digital will facilitate the creation/minting, purchase and sale of a broad range of non-yield-generating and non-fractionalized NFT products, including, but not limited to, art, music, collectables, digital real estate, video games, game items and certificates of authenticity. We also anticipate developing and deploying NFTs for use in tokenizing data for use in brand loyalty programs.
NextPlat Digital, as currently planned, will be used by us to create both (a) public marketplaces, for us and third-parties, where anyone with a crypto wallet or credit card can buy an NFT from an authorized user, or, if authorized, sell their own NFTs, and (b) private market places that only allow a particular company or entity to sell their own NFTs within a branded market (such as for the promotion of a particular brand or product). We anticipate that NextPlat Digital will be substantially complete within the next six to nine months.
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The legal status of NFTs under a myriad of state and three months ended September 30, 2017federal laws and regulatory regimes (including securities, banking, and commodities laws) is highly uncertain and unresolved, and the applicability of various of those regimes to any NFTs that we may propose to post on our platform is also unresolved. Our creation and operation of NextPlat Digital will present a number of new regulatory and legal compliance obligations for the Company. As an initial matter we will need to make a determination whether a particular NFT could reasonably be considered a security for federal and state law purposes, and if so we would be required to comply with the applicable securities registration requirements or obtain comfort that our activities would fall within applicable exemptions from registration. To the extent that we determine that a particular NFT could be deemed a “security” within the meaning of the U.S. federal and/or securities laws, we intend to obtain contractual comfort from licensed broker-dealer authorized to act as a trading system for those digital assets that such broker-dealer will comply with the applicable “Know Your Customer” (“KYC”) rules and custom and practice, as well as with the applicable Anti-Money Laundering laws and regulations (“AML”) and Combating the Financing of Terrorism (“CFT”), administered and enforced by the U.S. Treasury Financial Crimes and Enforcement Network discussed below, among others. We may have legal exposure for any alleged failures on the part of such licensed broker-dealer to fulfil its obligations under its contracts with us.
With respect to the securities status of an NFT that we propose to post to our platform, we will follow an internally developed model that will permit us to make a risk-based assessment regarding the likelihood that a particular NFT could be deemed a “security” within the meaning of the U.S. federal and/or state securities laws in determining if and how an NFT can be posted on our platform. This process will involve employees trained to identify the indicia of a “security” who will also work with outside legal counsel experienced in crypto asset regulatory matters to make a determination with respect to each NFT, or category of NFT, proposed to be posted on our platform. These processes and procedures are risk-based assessments and are not necessarily indicativea legal standard or binding on regulators or courts. In the event an NFT or other digital asset is deemed by us, pursuant to the above analysis, to possess a reasonable likelihood of being deemed a security, we will (a) comply with applicable laws and regulations by forming, acquiring or engaging a licensed broker-dealer authorized to act as an trading system for those digital assets, or (b) transact in such digital assets offshore in a way that complies with applicable laws and regulations; or (c) not transact in the subject NFT. We expect our risk assessment policies will continuously evolve to take into account developments in case law, applicable facts, developments in technology, and changes in applicable regulatory schemes.
We do not currently intend to undertake or participate in “initial coin offerings”, the minting of “coins” or the mining of cryptocurrencies.
Irrespective of a particular NFT’s status as a security, we will need to assess whether we needed to comply with other applicable regulations and laws (including but not limited to AML and CFT regulations). If we are deemed to be involved in the exchange or transmission of value that substitutes for currency, or fall under other evolving requirements, we may be deemed to be a “money transmitter” and will be subject to AML and CFT regulations. Depending on the particular attributes of an NFT, the manner in which it is marketed, and the nature of the resultsclientele, we could be subject to other legal and regulatory regimes as well. We will endeavor to comply with all applicable laws in connection with our NextPlat Digital business, but the uncertain application of those laws to our proposed business may create substantial risk to the Company.
When onboarding new users, we intend to utilize third-party tools to proactively screen for high-risk crypto wallets, including explicitly sanctioned addresses and addresses associated with sanctioned entities. Crypto wallets protect the identity of the owner of the wallet, store the owner’s private keys, secure and provide access by the owner to the cryptocurrency owned by it and allow the owner to send, receive, and transact business with cryptocurrencies. Such wallets by their nature obfuscate the identity of the owner of the wallet and limit access to the transaction history of that wallet and its owner. Consequently, crypto wallets and cryptocurrencies may be used by persons seeking to avoid legal oversight and to violate the law. For example, they can be used to launder money and to promote terrorism. The applicable legal requirements and our compliance obligations will vary depending on the nature of the client, the service or product provided and jurisdiction. For example, if we engage, form or acquire a broker dealer in order to post, trade or sell NFTs or other digital assets that are securities, we will attempt to fully comply with all applicable KYC, AML and CFT compliance requirements. If, on the other hand, we facilitate the distribution of free promotional corporate collectable NFTs that are not deemed to be expectedsecurities, our compliance requirements will be significantly less. In either event there can be no assurance that our efforts to fully comply with applicable law will be successful.
In determining to engage in transactions in an NFT, we will attempt to comply with all applicable laws. However, given the substantial legal uncertainties that may presented by those laws and given the informational constraints presented by crypto wallets we may not be successful in our efforts. As a consequence, we may be exposed to regulatory enforcement and civil or criminal sanction should a legal authority determine that our approach is inadequate or inappropriate, as well as to claims asserting civil liability. Moreover, governmental agencies may seek to apply laws to our NextPlat Digital business that we believe are inapplicable and may seek sanctions relating to our alleged failure to comply with those laws.
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Communications Services
Through our Global Telesat Communications Ltd and Orbital Satcom Corp business units, we provide Mobile Satellite Services (“MSS”) solutions to fulfill the growing global demand for satellite-enabled voice, data, personnel and asset tracking, Machine-to-Machine (M2M) and Internet of Things (IoT) connectivity services. We provide these solutions for businesses, governments, military, humanitarian organizations, and individual users, enabling them to communicate, connect to the full year.internet, track and monitor remote assets and lone workers, or request SOS assistance via satellite from almost anywhere in the world, even in the most remote and hostile of environments.
DescriptionWe provide voice, data communications, IoT and M2M services via Geostationary and Low Earth Orbit (“LEO”) satellite constellations and offer reliable connectivity in areas where terrestrial wireless or wireline networks do not exist or are limited, including remote land areas, open ocean, airways, the polar regions and regions where terrestrial networks are not operational, for example due to political conflicts and natural or man-made disasters.
We have expertise and long-term experience in providing tracking and monitoring services via satellite, specifically through the Globalstar Low Earth Orbit satellite network. We own unique network infrastructure devices, known as appliqués, which are located in various Globalstar ground stations around the world and provide the signal receipt and processing technology that enables and powers the Globalstar simplex data service. Our ownership of Businessthese appliqués provides us with competitive access to the global simplex data service which addresses the market demand for a small and cost-effective solution for sending data, such as geographic coordinates, from assets or individuals in remote locations to a central monitoring station and is used in numerous applications such as tracking vehicles, asset shipments, livestock, and monitoring unattended remote assets. In addition, we also provide tracking and monitoring solutions using Automatic Identification System (AIS), 2G-5G, Push-to-Talk and two-way radio technology.
We generate revenue from both the provision of services and the sale of equipment. Higher margin recurring service revenue from the sale of monthly, annual, and prepaid airtime or messaging plans has historically represented an increasing proportion of our revenue, and we expect that trend to continue as we introduce new products requiring associated airtime or messaging plans.
We provide our products and services directly to end users and reseller networks located both in the United States and internationally through our subsidiaries, U.S. based Orbital Tracking Corp. (the “Company”Satcom Corp (“Orbital Satcom”) was formerly Great West Resources, Inc., a Nevada corporation. The Company, through its wholly owned subsidiaries,and U.K. based Global Telesat Communications Limited (“GTCL”GTC”). We have a physical presence in the United States and the United Kingdom, as well as an ecommerce storefront presence in 16 countries across 5 continents. We have a diverse geographical customer base having provided solutions to more than 50,000 customers located in more than 165 countries across most every continent in the world.
MSS Products
Our MSS products rely on satellite networks for voice, data and tracking connectivity and thus are not reliant on cell towers or other local infrastructure. As a result, our MSS solutions are suitable for recreational travelers and adventurers, government and military users, and corporations and individuals wishing to communicate or connect to the internet from remote locations, or in the event of an emergency such as a power outage, following a hurricane or other natural disaster during which regular cell phone, telephone and internet service may not be available.
Our satellite communications products enable users to make voice calls, send and receive text messages and emails, and transmit GPS location coordinates from virtually anywhere on the planet, no matter how remote the location and regardless of the availability of local communication infrastructure. Our range of satellite data products allow users around the world to connect to the internet, stream live video, and communicate via voice and data applications.
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We are a provider of GPS enabled emergency locator distress beacons that can save lives, on land and at sea. Our distress beacons enable essential communication between our customers and search and rescue organizations during emergency situations and pinpoint locational information to Search and Rescue services, essential during an emergency.
We provide a wide range of satellite tracking devices used to monitor the location, movements, and history of almost anything that moves. We specialize in offering satellite tracking services through the Globalstar satellite network and have supplied tens of thousands of tracking devices which are used around the world to locate lone workers, track shipping containers, livestock, vehicles, and vessels along with many other types of assets.
The first product launched by the Company, SolarTrack, is a compact, lightweight, IoT tracking device powered by the sun and operating on one of the most modern satellite networks in the world. It is designed for tracking and monitoring anything that moves, or any remote asset used outdoors, almost anywhere in the world and we anticipate strong demand from customers looking for a low cost, low maintenance tracking device to monitor remote assets.
Mapping and Tracking Portal
Our advanced subscription-based mapping and tracking portal, GTCTrack, is available for use by registered customers who pay a monthly fee to access it. This mapping portal provides a universal and hardware-agnostic, cloud-based data visualization and management platform that allows managers to track, command, and control assets in near-real-time. Asset location reports including position, speed, altitude, heading and past location and movement history reports for a wide range of tracking devices and other products sold by us are available through GTCTrack.
Organizational History
The Company was originally incorporated in 1997 in Florida. On April 21, 2010, the Company merged with and into a wholly-owned subsidiary for the purpose of changing its state of incorporation to Delaware, effecting a 2:1 forward split of its common stock, and changing its name to EClips Media Technologies, Inc. On April 25, 2011, the Company changed its name to Silver Horn Mining Ltd. pursuant to a merger with a wholly owned subsidiary.
Global Telesat Communications Limited (“GTC”) was formed under the laws of England and Wales in 2008. On February 19, 2015, we entered into a share exchange agreement with GTC and all of the holders of the outstanding equity of GTC pursuant to which GTC became a wholly owned subsidiary of ours.
On March 28, 2014, we merged with a newly-formed wholly-owned subsidiary of ours solely for the purpose of changing our state of incorporation to Nevada from Delaware, effecting a 1:150 reverse split of our common stock, and changing our name to Great West Resources, Inc. in connection with the plans to enter into the business of potash mining and exploration. During late 2014, we abandoned our efforts to enter the potash business.
A wholly owned subsidiary, Orbital Satcom Corp. (“Orbital Satcom”) is, a providerNevada corporation was formed on November 14, 2014.
On January 22, 2015, we changed our name to “Orbital Tracking Corp” from “Great West Resources, Inc.” pursuant to a merger with a newly formed wholly owned subsidiary.
Effective March 8, 2018, following the approval of satellite based hardware, airtimea majority of our shareholders, we effected a reverse split of our common stock at a ratio of 1 for 150. On August 19, 2019, we effected a reverse split of our common stock at a ratio of 1 for 15. As a result of the reverse split, our common stock now has the CUSIP number: 68557F100. All share and related services bothper share, information in the United Statesaccompanying consolidated financial statements and internationally.footnotes has been retroactively restated to reflect these reverse splits.
Also, on August 19, 2019, we changed our name to “Orbsat Corp” from “Orbital Tracking Corp.” pursuant to a merger with a newly formed wholly owned subsidiary.
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On March 24, 2021, the Company’s shareholders via majority shareholder consent authorized a stock split not to exceed 1 for 5 reverse stock split. A definitive Information Statement relating to the shareholder consent was filed with the SEC on March 13, 2021. The Company’s principal focus isBoard of Directors subsequently approved a 1-for-5 reverse stock split. The Company has filed a Certificate of Change to its Amended and Restated Articles of Incorporation to effect a reverse stock split of its issued and outstanding common stock, at a ratio of 1-for-5. The effective time of the reverse stock split was 12:01 a.m. ET on growingMay 28, 2021. The Company’s common stock began trading on a split-adjusted basis commencing upon market open on May 28, 2021. The common stock has been assigned a new CUSIP number, 68557F 209. The warrants were assigned the CUSIP number, 68557F 118. No fractional shares of common stock were issued as a result of the reverse stock split. Stockholders of record who would otherwise be entitled to receive a fractional share were received a whole share.
On January 18, 2022, the Company filed a Certificate of Amendment of the Amended and Restated Articles of Incorporation of the Company with the Secretary of State of the State of Nevada in order to change the Company’s existing satellite based hardware, airtime and related services business line and developingcorporate name from Orbsat Corp to NextPlat Corp. This name change was effective as of January 21, 2022. The name change was approved by the Company’s own tracking devices for use by retail customers worldwide.stockholders at the 2021 annual meeting of stockholders held on December 16, 2021.
On June 22, 2022, the Company formed NextPlat B.V., a Netherlands limited liability company, as a wholly-owned subsidiary. At present, NextPlat B.V., has no active operations.
All information presented in this Quarterly Report on Form 10-Q other than in Company’s consolidated financial statements and the notes thereto assumes a 1-for-5 reverse stock split of Company’s outstanding shares of common stock and unless otherwise indicated, all such amounts and corresponding conversion price or exercise price data set forth in this Quarterly Report on Form 10-Q have been adjusted to give effect to such assumed reverse stock split.
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NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities preferred deemed dividend and common stock issued for services.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.$250,000. All cash amounts in excess of $250,000, $19,920,186, are unsecured. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.
Accounts receivable and allowance for doubtful accounts
The Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expenseoffset against sales and relieved from accounts receivable, after all means of collection have been exhausted and the potential for recovery is considered remote. As of SeptemberJune 30, 2017,2022, and December 31, 2016,2021, there is an allowancewere no allowances for doubtful accounts of $427 and $6,720.accounts.
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Inventories
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are valued at the lower of cost or market,net realizable value, using the first-in first-out cost method. The Company assesses the valuation of its inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analysis and assumptions including, but not limited to, historical usage, expected future demand and market requirements. A change to the carrying value of inventories is recorded to cost of goods sold.
Prepaid expenses
Prepaid expenses amounted to $106,947 and $146,935, at June 30, 2022 and December 31, 2021, respectively. Prepaid expenses include prepayments in cash for rent, insurance and software license fees which are being amortized over the terms of the respective agreement. The current portion consists of costs paid for future services which will occur within a year.
Foreign Currency Translation
The Company’s reporting currency is USU.S. Dollars. The accounts of one of the Company’s subsidiaries, GTCL, is maintained using the appropriate local currency, (GreatGreat British Pound)Pound, as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are deferredreported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuationfluctuations on transactions denominated in a currency other than the functional currency isare included in the statements of operations.
The relevant translation rates are as follows: for the three and ninesix months ended SeptemberJune 30, 20172022, closing rate at 1.33991.2165 US$: GBP, quarterly average rate at 1.308421.256640 US$: GBP and 1.27500yearly average rate at 1.29979 US$: GBP. ForGBP, for the three and ninesix months ended SeptemberJune 30, 20162021, closing rate at 1.298201.382800 US$: GBP, quarterly average rate at 1.313201.397146 US$: GBP and 1.39353yearly average rate at 1.388107 US$: GBP, and for the year ended 20162021 closing rate at 1.23451.353372 US$: GBP, yearly average rate at 1.355851.375083 US$: GBP.
Global Telesat Communications LTD, (GTCL) represents 67.4% of total company sales for the nine months ended September 30, 2017 and as such, currency rate variances have an impact on results. For the nine months ended September 30, 2017 the net effect on revenues were impacted by the differences in exchange rate from yearly average exchange of 1.39353 to 1.27500. Had the yearly average rate remained, sales for the nine months would have been higher by $287,576. GTCL comparable sales in GBP, its home currency, increased 21% or £425,714, from £2,000,471 to £2,426,185, for the nine months ended September 30, 2017 as compared to September 30, 2016.
Revenue Recognition and Unearned Revenue
The Company recognizes revenue from satellite services when earned, as services are rendered or delivered to customers. Equipment sales revenue is recognized when the equipment is delivered to and accepted by the customer. Only equipment sales are subject to warranty. Historically, the Company has not incurred significant expenses for warranties. Equipment sales which have been prepaid, before the goods are shipped are recorded as contract liabilities and once shipped is recognized as revenue. The Company also records as contract liabilities, certain annual plans for airtime, which are paid in advance. Once airtime services are incurred, they are recognized as revenue. Unbilled revenue is recognized for airtime plans whereby the customer is invoiced for its data usage the following month after services are incurred.
The Company’s customers generally purchase a combination of our products and services as part of a multiple element arrangement. The Company’s assessment of which revenue recognition guidance is appropriate to account for each element in an arrangement can involve significant judgment. This assessment has a significant impact on the amount and timing of revenue recognition.
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Revenue
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is recognizedapplied to contracts when allit is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the following criteria have been met:transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
In accordance with ASC 605-25,ASU No. 2016-12, Revenue Recognitionfrom Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient—Multiple-Element Arrangements,based, which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact as a result of adopting this ASU on the financial statements and related disclosures. Based on the terms and conditions of the product arrangements, the Company believes that its products and services can be accounted for separately as its products and services have value to the Company’s customers on a stand-alone basis. When a transaction involves more than one product or service, revenue is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized as products are delivered or as services are provided over the term of the customer contract.
Contract liabilities is shown separately in the unaudited condensed consolidated balance sheets as current liabilities. At June 30, 2022 and December 31, 2021, we had contract liabilities of approximately $27,110 and $36,765, respectively.
Cost of Product Sales and Services
Cost of sales consists primarily of materials, airtime and overhead costs incurred internally and amounts incurred to contract manufacturers to produce our products, airtime and other implementation costs incurred to install our products and train customer personnel, and customer service and third-party original equipment manufacturer costs to provide continuing support to our customers. There are certain costs which are deferred and recorded as prepaids, until such revenue is recognized. Refer to revenue recognition above as to what constitutes deferred revenue.
Shipping and handling costs are included as a component of costs of product sales in the Company’s consolidated statements of operations because the Company includes in revenue the related costs that the Company bills its customers.
Intangible assets
Intangible assets include customer contracts purchased and recorded based on the cost to acquire them. These assets are amortized over 10 years. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable.
Goodwill and other intangible assets
In accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Factors the Company considers to be important which could trigger an impairment review include the following:
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NEXTPLAT CORP AND SUBSIDIARIES
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and Equipmentequipment
Property and equipment are carried at historical cost less accumulated depreciation. Depreciation is based on the estimated service lives of the depreciable assets and is calculated using the straight-line method. Expenditures that increase the value or productive capacity of assets are capitalized. Fully depreciated assets are retained in the property and equipment, and accumulated depreciation accounts until they are removed from service. When property and equipment are retired, sold or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Repairs and maintenance are expensed as incurred. Leasehold improvements have an estimated service life of the term of the respective lease.
The estimated useful lives of property and equipment are generally as follows:
SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
| Years | ||||
| Office furniture and fixtures | 4 | |||
| Computer equipment | 4 | |||
| Rental equipment | 4 | |||
| Leasehold improvements | 5 | |||
| Appliques | 10 | |||
| Website development | 2 | |||
Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not consider it necessary to record any impairment charges during the periods ended SeptemberJune 30, 20172022 and December 31, 2016,June 30, 2021, respectively.
Fair value of financial instrumentsAccounting for Derivative Instruments
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”, for assets and liabilities measuredDerivatives are required to be recorded on the balance sheet at fair valuevalue. These derivatives, including embedded derivatives in the Company’s structured borrowings, are separately valued and accounted for on a recurring basis. ASC 820 establishes a common definitionthe Company’s balance sheet. Fair values for fair value to be applied to existing US GAAP that require the use of fair value measurements which establishes a framework for measuring fair valueexchange traded securities and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputsderivatives are prioritized below:
Level 1: Observable inputs such asbased on quoted market prices. Where market prices in active markets for identical assets or liabilities
Level 2: Observableare not readily available, fair values are determined using market-based inputs or unobservable inputs that are corroborated bypricing models incorporating readily observable market data and requiring judgment and estimates.
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3) from January 1, 2017 to September 30, 2017:
Conversion Feature Derivative Liability | Warrant Liability | Total | ||||||||||
| Balance at January 1, 2017 | $ | - | $ | 1,237 | $ | 1,237 | ||||||
| Change in fair value included in earnings | - | (1,237 | ) | (1,237 | ) | |||||||
| Balance September 30, 2017 | $ | - | $ | - | $ | - | ||||||
The Company did not identify any other assets or liabilities that are required to be presented on the condensed consolidated balance sheets at fair value in accordance with the accounting guidance. The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued expenses approximate their estimated fair market value based on the short-term maturity of the instruments.
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NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50,718, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date. Further, ASC Topic 718, provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, such as the repricing of share options, which would revalue those options and the accounting for the cancellation of an equity award whether a replacement award or other valuable consideration is issued in conjunction with the cancellation. If not, the cancellation is viewed as a replacement and not a modification, with a repurchase price of $.
Income Taxes
The Company has adopted Accounting Standards Codification subtopicaccounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income TaxesTaxes” (“ASC740-10”ASC 740-10”) which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition of deferred tax liabilitiesassets and assetsliabilities for the expected future tax consequences of events that have been included intemporary differences between the financial statement orcarrying amounts and the tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basisbases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expectedliabilities. A valuation allowance is provided to reverse. Valuation allowances are recorded to reduce theoffset any net deferred tax assets to an amount that willfor which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely than not recognition threshold areis measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25, “Definition of Settlement”,Settlement,” which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
Leases
Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
In calculating the right of use asset and lease liability, the Company has elected to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
At June 30, 2022 and December 31, 2021, the Company had aggregated current and long-term operating lease liabilities of $899,987 and $19,763, respectively, and right of use assets of $909,908 and $22,643, respectively.
The Company continues to account for leases in the prior period financial statements under ASC Topic 840.
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NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Research and Development
The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. For the six months ended June 30, 2022 and the June 30, 2021, there were 0 expenditures on research and development.
Net income (loss) per common share is calculated in accordance with ASC Topic 260: Earnings per Share (“ASC 260”). Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. For the three months and nine months ended September 30, 2017 and September 30, 2016, respectively,In periods where the Company hadhas a net loss, therefore all dilutive securities are excluded.
The following are dilutive common stock equivalents during the periodyear ended:
SCHEDULE OF DILUTIVE COMMON STOCK EQUIVALENTS
| September 30, 2017 | September 30, 2016 | |||||||
| Convertible preferred stock | 366,207,379 | 209,416,215 | ||||||
| Stock options | 42,850,000 | 2,850,000 | ||||||
| Stock warrants | - | 5,000 | ||||||
| Total | 409,057,379 | 212,271,215 | ||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Stock Options | 929,701 | 550,009 | ||||||
| Stock Warrants | 2,530,092 | 3,455,000 | ||||||
| Total | 3,459,793 | 4,005,009 | ||||||
Related Party Transactions
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.party, (see Note 11).
Reclassifications
Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation. These reclassifications had no effect on previously reported results of operations. The Company reclassified certain expense accounts to conform to the currents year’s treatment.
Recent Accounting Pronouncements
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NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting Pronouncements Recently Adopted
In May 2014,2021, the FASB issued ASU No. 2014-09, “2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The ASU provides guidance to clarify whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. ASU 2021-04 is effective for annual beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements.
In October 2021, the FASB issued guidance which requires companies to apply Topic 606, Revenue from Contracts with Customers, (Topic 606).” The amendments to this update supersede nearly all existing revenue recognitionrecognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. Public entities must adopt the new guidance under GAAP, including the revenue recognition requirements in ASC Topic 605, “Revenue Recognition.”- The standard was originally set to become effective in annual periodsfor fiscal years beginning after December 15, 20162022 and for interim and annual reporting periods thereafter. In August 2015, the FASB issued ASU 2015-14“Revenue from Contractswithin those fiscal years, with Customers; Deferral of the Effective Date,” which defers the effective date of ASU 2014-09 for all entities by one year, thereby delaying the effective date of the standard to January 1, 2018, with an option that would permit companies to adopt the standard as early as the original effective date. Early adoption prior to the original effective date is not permitted. The core principle of this Topic is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. This Topic defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Company is currently assessingevaluating the impact and timing of ASU 2014-09adoption of this guidance
Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on ourthe consolidated financial statements to be completed by the end of 2017.upon adoption.
Management does not believe that any recently issued, but not effective,Other accounting standards if currently adopted, wouldthat have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material effectimpact on the Company’s financial statements.
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying unaudited condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are prepared assuming the Company will continue as a going concern. At September 30, 2017, the Company hadnot anticipated to have an accumulated deficit of approximately $8,210,745, working capital of approximately $161,768 and net loss of approximately $3,609,339 during the nine months ended September 30, 2017. These factors raise substantial doubt about the Company’s abilityimpact on or are unrelated to continue as a going concern for one year from the issuance of theits financial statements. The ability of the Company to continue as a going concern is dependent upon obtaining additional capital and financing. Management intends to attempt to raise additional funds by way of a public or private offering. While the Company believes in the viability of its strategy to raise additional funds, there can be no assurances to that effect. The unaudited condensed consolidated financial statements do not include any adjustments relating to classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – ORBITAL TRACKING CORP AND GLOBAL TELESAT COMMUNICATIONS LIMITED SHARE EXCHANGE, REVERSE ACQUISITION AND RECAPITALIZATION
On February 19, 2015, the Company entered into a Share Exchange Agreement with Global Telesat Communications Limited, a Private Limited Company formed under the laws of England and Wales (“GTCL”) and all of the holders of the outstanding equity of GTCL (the “GTCL Shareholders”). Upon closing of the transactions contemplated under the Exchange Agreement the GTCL Shareholders (7 members) transferred all of the issued and outstanding equity of GTCL to the OTC in exchange for (i) an aggregate of 2,540,000 shares of the common stock of the OTC and 8,746,000 shares of the newly issued Series E Convertible Preferred Stock of the OTC with each share of Series E Convertible Preferred Stock convertible into ten shares of common stock, (ii) a cash payment of $375,000 and (iii) a one-year promissory note in the amount of $122,536. Such exchange caused GTCL to become a wholly owned subsidiary of the Company.
For accounting purposes, this transaction is being accounted for as a reverse acquisition and has been treated as a recapitalization of Orbital Tracking Corp. with Global Telesat Communications Limited considered the accounting acquirer, and the financial statements of the accounting acquirer became the financial statements of the registrant. The completion of the Share Exchange resulted in a change of control. The Share Exchange was accounted for as a reverse acquisition and re-capitalization. The GTCL Shareholders obtained approximately 39% of voting control on the date of Share Exchange. GTCL was the acquirer for financial reporting purposes and the Orbital Tracking Corp. was the acquired company. The consolidated financial statements after the acquisition include the balance sheets of both companies at historical cost, the historicalcondition, results of GTCL and the results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization. As part of agreement, OTC shareholders retained 5,383,172 shares of the Common Stock, 20,000 shares of series A Convertible Preferred Stock, 6,666 shares of series B Convertible Preferred Stock, 1,197,442 shares of series C Convertible Preferred Stock and 5,000,000 shares of series D Convertible Preferred Stock.operations, cash flows or disclosures.
| 19 |
| Property and equipment | $ | 4,973 | ||
| Accounts receivable | 34,585 | |||
| Cash in bank | 30,934 | |||
| Prepaid expenses | 2,219,677 | |||
| Inventory | 40,161 | |||
| Intangible asset | 250,000 | |||
| Current liabilities | (469,643 | ) | ||
| Due to related party | (2,174 | ) | ||
| Derivative liability | (4,936 | ) | ||
| Liabilities of discontinued operations | (112,397 | ) | ||
| Total purchase price/assets acquired | $ | 1,991,180 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 42 - STOCKHOLDERS’ EQUITY (DEFICIT)INVENTORIES
Preferred Stock
As of SeptemberAt June 30, 2017, there were 50,000,000 shares of Preferred Stock authorized.
As of September 30, 2017, there were 20,000 shares of Series A Convertible Preferred Stock authorized2022 and 0 shares issued and outstanding, due to the conversion of 20,000 shares of Series A into 20,000 shares of common stock.
As of September 30, 2017, there were 30,000 shares of Series B Convertible Preferred Stock authorized and 6,666 shares issued and outstanding.
As of September 30, 2017, there were 4,000,000 shares of Series C Convertible Preferred Stock authorized and 3,540,365 shares issued and outstanding.
As of September 30, 2017, there were 5,000,000 shares of Series D Convertible Preferred Stock authorized and 3,008,984 shares issued and outstanding.
As of September 30, 2017, there were 8,746,000 shares of Series E Convertible Preferred Stock authorized and 7,002,877 shares issued and outstanding.
As of September 30, 2017, there were 1,100,000 shares of Series F shares authorized and 1,099,998 shares issued and outstanding.
As of September 30, 2017, there were 10,090,000 shares of Series G shares authorized and 10,083,351 shares issued and outstanding.
As of September 30, 2017, there were 200,000 shares of Series H shares authorized and 87,500 shares issued and outstanding.
As of September 30, 2017, there were 114,944 shares of Series I shares authorized and 92,944 shares issued and outstanding.
As of September 30, 2017, there were 125,000 shares of Series J shares authorized and 54,669 issued and outstanding.
As of September 30, 2017, there were 1,250,000 shares of Series K shares authorized and 1,166,652 issued and outstanding
Common Stock
As of September 30, 2017, there were 750,000,000 shares of Common Stock authorized and 74,977,104 shares issued and outstanding.
On January 3, 2017, the Company issued an aggregate of 816,810 shares of common stock upon the conversion of 35,000 shares of Series D Preferred Stock and 11,681 shares of Series E Preferred Stock.
On January 4, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares of Series E Preferred Stock.
On January 6, 2017, the Company issued an aggregate of 6,140 shares of common stock upon the conversion of 614 shares of Series E Preferred Stock.
On January 11, 2017, the Company issued an aggregate of 1,200,000 shares of common stock upon the conversion of 60,000 shares of Series D Preferred Stock.
On JanuaryDecember 31, 2017, the Company issued an aggregate of 2,500,000 shares of common stock upon the conversion of 125,000 shares of Series D Preferred Stock
On March 2, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 50,000 shares of Series D Preferred Stock.
On March 7, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares of Series E Preferred Stock.
On April 21, 2017, the Company issued an aggregate of 1,000,000 shares of common stock upon the conversion of 100,000 shares of Series E Convertible Preferred Stock.
On May 31, 2017, the Company entered separate subscription agreements with accredited investors relating to the issuance and sale of 50,000 of shares of Series J Preferred Stock at a purchase price of $10.00 per share, as well as, the issuance of 4,669 shares of Series J Preferred Stock for accounts payable of $46,694. The initial conversion price is $0.01 per share, subject to adjustment as set forth in the Series J certificate of designation. The Company is prohibited from effecting a conversion2021, inventories consisted of the Series J Preferred Stock tofollowing:
SCHEDULE OF INVENTORIES
| June 30, 2022 | December 31, 2021 | |||||||
| Finished goods | $ | 1,370,425 | $ | 1,019,696 | ||||
| Less reserve for obsolete inventory | - | - | ||||||
| Total | $ | 1,370,425 | $ | 1,019,696 | ||||
For the extent that, because of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock. Each share of Series J Preferred Stock entitles the holder to cast one vote per share of Series J Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. The Company received the necessary consents as required from prior subscription agreements, Series F Preferred Stock, Series G Preferred Stock and Preferred Series H Preferred Stock, as well as antidilution rights. The Company was required to issue 1,089,389 shares of Series K Preferred Stock, which is convertible into 108,938,900 shares of the Company’s common stock, to the certain holders for the consent and anti-dilution rights. In addition, the Company issued to a vendor as settlement of Preferred Series C Stock issued for services, 76,763 shares of Series K Preferred Stock, convertible into 7,676,300 shares of common stock, in lieu of Series C Preferred Stock. The additional issuances for the consent, anti-dilution rights and settlement, resulted in the recording of other expense and additional paid in capital of $2,308,981.
On July 18, 2017, the Company issued an aggregate of 2,000,000 shares of common stock upon the conversion of 200,000 shares of Series E Convertible Preferred Stock.
On September 27, 2017, the Company issued an aggregate of 2,000,000 shares of common stock upon the conversion of 200,000 shares of Series E Convertible Preferred Stock.
Stock Options
2014 Equity Incentive Plan
On January 21, 2014, the Board approved the adoption of a 2014 Equity Incentive Plan (the “2014 Plan”). The purpose of the 2014 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. The 2014 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and other types of stock-based awards to the Company’s employees, officers, directors and consultants. Pursuant to the terms of the 2014 Plan, either the Board or a board committee is authorized to administer the plan, including by determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards. Unless earlier terminated by the Board, the Plan shall terminate at the close of business on January 21, 2024. Up to 226,667 shares of common stock are issuable pursuant to awards under the 2014 Plan, as adjusted in a single adjustment for an issuance no later than sixty (60) days following the date of shareholder approval of the Plan in connection with (i) a private placement of the Company’s securities in which the Corporation receives gross proceeds of at least $1,000,000 and (ii) an acquisition of at least 50 mining leases and/or claims in the Holbrook Basin.
On December 28, 2015, the Company issued Ms. Carlise, Chief Financial Officer, a ten-year option to purchase 500,000 shares of common stock as compensation for services provided to the Company. The options have an exercise price of $0.05 per share, were fully vested on the date of grant and shall expire in December 2025. The 500,000 options were valued on the grant date at approximately $1.30 per option or a total of $650,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $1.30 per share (based on the closing price of the Company’s common stock of the date of issuance), volatility of 992%, expected term of 10 years, and a risk free interest rate of 1.05%. In connection with the stock option grant, the Company recorded stock based compensation for the threesix months ended SeptemberJune 30, 20172022 and for the year ended December 31, 2016 of $0 and $0, respectively.
Also on December 28, 2015,2021, the Company issued Mr. Delgado, its Director,did not make any change for reserve for obsolete inventory.
NOTE 3 – VAT RECEIVABLE
On January 1, 2021, VAT rules relating to imports and exports between the UK and EU changed as a ten-year option to purchase 200,000 shares of common stock as compensation for services provided to the Company. The options have an exercise price of $0.05 per share, were fully vested on the date of grant and shall expire in December 2025. The 200,000 options were valued on the grant date at approximately $1.30 per option or a total of $260,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $1.30 per share (based on the closing priceresult, of the Company’s common stock ofUK’s departure from the date of issuance), volatility of 992%, expected term of 10 years, and a risk free interest rate of 1.05%EU, (“BREXIT”). In connection withFor the stock option grant, the Company recorded stock based compensation for the threesix months ended SeptemberJune 30, 20172022 and for the year ended December 31, 2016 of $0 and $0, respectively.
On December 16, 2016,2021, the Company issued optionsrecorded a receivable in the amount of $459,541 and $491,417, respectively, for amounts available to Mr. Phipps,reclaim against the tax liability from UK and EU countries. Subsequently to purchase up to 10,000,000 shares of common stock. The options were issued outside ofJune 30, 2022, the Company’s 2014 Equity Incentive Plan and are not governed by the 2014 Plan. The options have an exercise price of $0.01 per share, vest immediately, and have a term of ten years. The 10,000,000 options were valued on the grant date at approximately $0.019 per option orCompany has received a total of $190,000£53,473 or $64,451, using a Black-Scholes option pricing model with the following assumptions: stock pricean exchange rate close of $0.019 per share (based on the closing price of the Company’s common stock of the date of issuance), volatility of 872%, expected term of 10 years, and a risk-free interest rate of 1.0500%. In connection with the stock option grant, the Company recorded stock based compensation for the year ended December 31, 2016 of $190,000, respectively.1.2053 GBP:USD, in regards to this receivable.
On May 26, 2017, the Company issued 5,000,000 options to Mr. Phipps, 3,750,000 options to Theresa Carlise, 1,250,000 options to Hector Delgado, its Director and 20,000,000 options to certain employees of the Company. The employees are the adult children of our Chief Executive Officer. The options were issued outside of the Company’s 2014 Equity Incentive Plan and are not governed by the 2014 Plan. The options have an exercise price of $0.01 per share, vest immediately, and have a term of ten years. The 30,000,000 options were valued on the grant date at approximately $0.02 per option or a total of $600,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.02 per share (based on the closing price of the Company’s common stock of the date of issuance), volatility of 736%, expected term of 10 years, and a risk-free interest rate of 1.30%. In connection with the stock option grant, the Company recorded stock based compensation for the nine months ended September 30, 2017 of $600,000, respectively.NOTE 4 – PREPAID EXPENSES
A summary of the status of the Company’s outstanding stock options and changes during the nine months ended September 30, 2017 is as follows:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2017 | 12,850,000 | $ | 0.02 | 9.10 | ||||||||
| Granted | 30,000,000 | 0.01 | 9.65 | |||||||||
| Exercised | — | — | — | |||||||||
| Forfeited | — | — | — | |||||||||
| Cancelled | — | — | ||||||||||
| Balance outstanding and exercisable at September 30, 2017 | 42,850,000 | $ | 0.01 | 9.26 | ||||||||
Stock Warrants
A summary of the status of the Company’s outstanding stock warrants and changes during the nine months ended September 30, 2017 is as follows:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2017 | 5,000 | $ | 4.50 | 0.35 | ||||||||
| Granted | — | — | — | |||||||||
| Exercised | — | — | — | |||||||||
| Forfeited (expired May 19, 2017) | 5,000 | 4.50 | — | |||||||||
| Cancelled | — | — | — | |||||||||
| Balance outstanding at September 30, 2017 | — | $ | — | — | ||||||||
NOTE 5 – PREPAID STOCK BASED COMPENSATION
Prepaid expenses amounted to $151,102$106,947 and $146,935, at SeptemberJune 30, 20172022 and $171,164 at December 31, 2016.2021, respectively. Prepaid expenses include prepayments in cash for professionalrent, insurance and software license fees and prepayments made with equity instruments which are being amortized over the terms of theirthe respective agreements. Amortization of the prepaid expense is included in professional fees. For the nine months ended September 30, 2017 and 2016, amortization expense was $121,096 and $173,009, respectively.agreement. The current portion consists primarily of costs paid for future services which will occur within a year.
NOTE 5 – PROPERTY AND EQUIPMENT
At June 30, 2022 and December 31, 2021, property and equipment, net of fully depreciated assets, consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| June 30, 2022 | December 31, 2021 | |||||||
| Office furniture and fixtures | $ | 95,917 | $ | 16,969 | ||||
| Computer equipment | 68,874 | 67,458 | ||||||
| Rental equipment | 47,906 | 53,296 | ||||||
| Leasehold improvements | 32,118 | - | ||||||
| Appliques | 2,160,096 | 2,160,096 | ||||||
| Website development | 519,950 | 247,541 | ||||||
| Less accumulated depreciation | (1,681,230 | ) | (1,502,501 | ) | ||||
| Total | $ | 1,243,631 | $ | 1,042,859 | ||||
Depreciation expense was $199,065 and $134,448 for the six months ended June 30, 2022 and 2021, respectively. For the year ended December 31, 2021, depreciation expense was $292,102.
NOTE 6 – INTANGIBLE ASSETS
On December 10, 2014, the Company entered the satellite voice and data equipment sales and service business through the purchase of certain contracts from Global Telesat Corp. (“GTC”). These contracts permit the Company to utilize the Globalstar, Inc. and Globalstar LLC (collectively, “Globalstar”) mobile satellite voice and data network. The purchase price for the contracts of $250,000 was paid by the Company under an asset purchase agreement by and among the Company, its wholly owned subsidiary, Orbital Satcom, GTC and World Surveillance Group, Inc.
| 20 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – INTANGIBLE ASSETS (continued)
On February 19, 2015,Included in the Company purchased an intangible asset valued at $250,000 for 1,000,000 sharesassets are: (i) the rights and benefits granted to GTC under each of common stock. the Globalstar Contracts, subject to certain exclusions, (ii) account and online access to the Globalstar Cody Simplex activation system, (iii) GTC’s existing customers who are serviced pursuant to the Globalstar Contracts (only as to their business directly and exclusively related to the Globalstar Contracts), and (iv) all of GTC’s rights and benefits directly and exclusively related to the Globalstar Contracts.
Amortization of customer contracts will beare included in generaldepreciation and administrative expenses. The Company began amortizingamortization. For the customer contracts in January 2015. Amortization expense for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016 was $6,2502021, the Company amortized $12,500 and $6,250, respectively, and $18,750 and $18,750,$12,500, respectively. Future amortization of intangible assets is as follows:
SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS
| 2022 | $ | 12,500 | ||
| 2023 | 25,000 | |||
| 2024 | 25,000 | |||
| Total | $ | 62,500 |
For the six months ended June 30, 2022 and 2021, there were 0 additional expenditures on research and development.
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
Accounts payable and accrued other liabilities consisted of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
| June 30, 2022 | December 31, 2021 | |||||||
| Accounts payable | $ | 898,752 | $ | 846,380 | ||||
| Rental deposits | 3,649 | 2,030 | ||||||
| Customer deposits payable | 57,976 | 59,733 | ||||||
| Accrued wages & payroll liabilities | 17,389 | 20,107 | ||||||
| VAT liability & sales tax payable | 12,739 | 6,203 | ||||||
| Pre-merger accrued other liabilities | 88,448 | 88,448 | ||||||
| Accrued interest | 381 | 138 | ||||||
| Accrued other liabilities | 6,364 | 40,305 | ||||||
| Total | $ | 1,085,698 | $ | 1,063,344 | ||||
| 21 |
| 2017 | 6,250 | |||
| 2018 | 25,000 | |||
| 2019 | 25,000 | |||
| 2020 | 25,000 | |||
| 2021 and thereafter | 100,000 | |||
| Total | $ | 181,250 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - CORONAVIRUS LOANS
On February 19, 2015,April 20, 2020, the Board of Directors the Company (the “Board”), approved for its wholly owned UK subsidiary, Global Telesat Communications LTD (“GTC”), to apply for a Coronavirus Interruption Loan, offered by the UK government, for an amount up to £. On July 16, 2020 (the “Issue Date”), GTC, entered into a Coronavirus Interruption Loan Agreement (“Debenture”) by and among the Company and HSBC UK Bank PLC (the “Lender”) for an amount of £, or USD $ at an exchange rate of GBP:USD of . The Debenture bears interest beginning July 16, 2021, at a rate of % per annum over the Bank of England Base Rate (% as of July 16, 2020), payable monthly on the outstanding principal amount of the Debenture. The Debenture has a term of years from the date of drawdown, , the “Maturity Date”. The first repayment of £ (exclusive of interest) was made 13 month(s) after July 16, 2020. The Debenture is secured by all GTC’s assets as well as a guarantee by the UK government, with the proceeds of the Debenture are to be used for general corporate and working capital purposes. The Debenture includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) non-compliance with covenants thereunder, (iii) bankruptcy or insolvency (each, an “Event of Default”). Upon the occurrence of an Event of Default, the Debenture becomes payable upon demand. As of June 30, 2022, and December 31, 2021, the Company has recorded $ and $ as current portion of notes payable and $187,544 and $253,757 as notes payable long term, respectively.
On May 8, 2020, NextPlat Corp was approved for the US funded Payroll Protection Program, (“PPP”) loan. The loan was for $ and had a term of years, of which the first 6 months are deferred at an interest rate of %. On May 23, 2021, BlueVine, the Company’s SBA approved mortgage lender and originator, notified the Company, that the loan in the amount of $, had been forgiven. As of December 31, 2021, the Company has recorded $20,832 as forgiveness of debt.
NOTE 9 - STOCKHOLDERS’ EQUITY
Capital Structure
On March 28, 2014, in connection with the Reincorporation (see Note 1), all share and per share values for all periods presented in the accompanying condensed consolidated financial statements are retroactively restated for the effect of the Reincorporation.
On March 5, 2016, the Company shareholders voted in favor of an amendment to its Articles of Incorporation to increase the total number of shares of authorized capital stock to 800,000,000 shares consisting of (i) shares of common stock and (ii) shares of preferred stock from 220,000,000 shares consisting of (i) shares of common stock and (ii) shares of preferred stock.
Effective March 8, 2018, we conducted a reverse split of our common stock at a ratio of 1 for 150. All share and per share information in the accompanying condensed consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split.
On July 24, 2019, the Company filed a Certificate of Change (the “Certificate of Change”) with the Nevada Secretary of State. The Certificate of Change provides for (i) a 1-for-15 reverse split (the “Reverse Split”) of the Company’s common stock, $ par value per share, and the Company’s preferred stock, $ par value per share, (ii) a reduction in the number of authorized shares of common stock in direct proportion to the Reverse Split (i.e. from shares to shares), and (iii) a reduction in the number of authorized shares of preferred stock in direct proportion to the Reverse Split (i.e. from shares to shares). No fractional shares will be issued 1,000,000in connection with the Reverse Split. Stockholders who otherwise would be entitled to receive fractional shares of common stock or preferred stock, as the case may be, will have the number of post-Reverse Split shares to which they are entitled rounded up to the nearest whole number of shares. No stockholders will receive cash in lieu of fractional shares. The Reverse Split was approved by FINRA on August 19, 2019.
| 22 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS’ EQUITY (continued)
On May 28, 2021, the Company effected a reverse stock split of its common stock at a ratio of 1-for-5 (the “Reverse Split”). No fractional shares of common stock were issued as a result of the Reverse Split. Stockholders of record who were otherwise entitled to receive a fractional share received a whole share. The conversion or exercise prices of Company’s issued and outstanding convertible securities, stock options and warrants will be adjusted accordingly. All information presented in this Quarterly Report on Form 10-Q, assumes a 1-for-5 reverse stock split of Company’s outstanding shares of common stock, and unless otherwise indicated, all such amounts and corresponding conversion price or exercise price data set forth in this Quarterly Report on Form 10-Q have been adjusted to give effect to such assumed reverse stock split.
Listing on the Nasdaq Capital Market
Our common stock and warrants have been trading on the Nasdaq Capital Market under the symbols “NXPL” and “NXPLW,” respectively, since January 21, 2022. Prior to January 21, 2022, our common stock and warrants were traded on the Nasdaq Capital Market under the symbols “OSAT” and “OSATW,” respectively.
The authorized capital of the Company consists of shares of common stock, par value $0.0001, at $0.05$ per share or $50,000, to a consultant as compensation for the design and delivery shares of dual mode gsm/Globalstar Simplex tracking devices and related hardware and intellectual property.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consistedpreferred stock, par value $ per share. As of the following:
| September 30, 2017 | December 31, 2016 | |||||||
| Office furniture and fixtures | $ | 98,115 | $ | 90,729 | ||||
| Computer equipment | 42,180 | 29,066 | ||||||
| Appliques | 2,160,096 | 2,160,096 | ||||||
| Website development | 114,985 | 100,436 | ||||||
| Less accumulated depreciation | (618,859 | ) | (401,989 | ) | ||||
| Total | $ | 1,796,517 | $ | 1,978,338 | ||||
Depreciation expense was $67,893 and $205,569 for the three and nine months ended SeptemberJune 30, 2017, respectively. For the three and nine months ended September 30, 2016 depreciation expense was $63,969 and $197,625, respectively.
NOTE 8 - INVENTORIES
At September 30, 20172022, and December 31, 2016, inventories consisted2021, there were and and shares of common stock and shares of preferred stock issued and outstanding, respectively.
Preferred Stock
As of June 30, 2022, there were shares of Preferred Stock authorized.
As of June 30, 2022, there were no shares of Series A, B, C, D, E, F, G, H, I, J, K and L convertible preferred stock authorized, and no shares issued and outstanding.
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NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS’ EQUITY (continued)
Warrants
As of June 30, 2022, there were registered warrants to purchase common stock authorized of which registered warrants were issued and outstanding, at an exercise price of $5.00 and unregistered underwriter warrants of issued and outstanding, at an exercise price of $5.50. The warrants expire in June of 2026.
A summary of the following:status of the Company’s total outstanding warrants and changes during the year ended December 31, 2021 and the six months ended June 30, 2022 is as follows:
SCHEDULE OF OUTSTANDING STOCK WARRANTS ACTIVITIES
| September 30, 2017 | December 31, 2016 | |||||||
| Finished goods | $ | 397,988 | $ | 335,267 | ||||
| Less reserve for obsolete inventory | - | - | ||||||
| Total | $ | 397,988 | $ | 335,267 | ||||
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2021 | 800 | $ | 300.00 | |||||||||
| Granted | 3,456,000 | 5.00 | - | |||||||||
| Exercised | (925,908 | ) | 5.00 | - | ||||||||
| Forfeited | - | - | - | |||||||||
| Cancelled | (800 | ) | 300.00 | - | ||||||||
| Balance outstanding and exercisable at December 31, 2021 | 2,530,092 | $ | 5.00 | |||||||||
| Balance at January 1, 2022 | 2,530,092 | $ | 5.00 | |||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Cancelled | - | - | - | |||||||||
| Balance outstanding and exercisable at June 30, 2022 | 2,530,092 | $ | 5.00 | |||||||||
Common Stock
As of June 30, 2022, there were shares of common stock authorized and shares issued and outstanding.
January 2022 Private Placement of Common Stock
On December 31, 2021, after markets closed, a securities purchase agreement (the “Purchase Agreement”) was circulated to, and signatures were received from, certain institutional and accredited investors (the “December Investors”) in connection with the sale in a private placement by the Company of shares of the Company’s common stock (the “December Offering”). On January 2, 2022, the Company delivered to December Investors a fully executed Purchase Agreement, which was dated December 31, 2021. The purchase price for the common stock sold in the December Offering was $ per share, the closing transaction price reported by Nasdaq on December 31, 2021.
The closing of the December Offering occurred on January 5, 2022. The Company received gross proceeds from the sale of the common stock in the December Offering of approximately $7.2 million. The Company intends to use the proceeds from the December Offering for general corporate purposes, including potential acquisitions and joint ventures. Approximately 73% of funds raised in the December Offering were secured from existing shareholders and from the members of the Company’s senior management and Board of Directors.
In connection with the December Offering, the Company entered into a registration rights agreement with the December Investors (the “Registration Rights Agreement”), pursuant to which, among other things, the Company agreed to prepare and file with the SEC a registration statement to register for resale the shares of the Company’s common stock sold in the Offering.
The shares of common stock offered and sold in the December Offering were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act and corresponding provisions of state securities or “blue sky” laws.
The terms of the transaction disclosed above, including the provisions of the Purchase Agreement and Registration Rights Agreement, were approved by the Board of Directors; and because some of the securities were offered and sold to officers and directors of the Company, such terms were separately reviewed and approved by the Audit Committee of the Board of Directors.
On January 5, 2022, the Company issued shares of common stock pursuant to a private placement offering at a per share price of $, resulting in gross proceeds of $7,225,038. Legal and registration fees amounted to $220,000, resulting in net proceeds of $7,005,038. Prior to the private placement close, proceeds of $1,400,000, were received and recorded as a stock subscription payable, for the year ended December 31, 2021.
Restricted Stock Award
On January 21, 2022, the Company issued shares of common stock, pursuant to a restricted stock award, “RSA” granted on January 7, 2022 and effective on January 20, 2022. The award is for restricted shares of common, which vest in two equal installments, the first on effective date and the remaining on the one year anniversary of the effective date, with a fair market value of $ per share, on the date of issuance. All shares were fully vested and upon issuance resulted in stock-based compensation of $34,800. Shares were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no general solicitation, and the transaction did not involve a public offering.
On May 23, 2021, the Company entered a three (3) year Employment Agreement (the “May Agreement”) with Mr. Charles M. Fernandez to serve as Chairman of the Board. However, two weeks later on June 2, 2021, the Company entered into a new employment agreement (the “June Agreement”) with Mr. Fernandez, which superseded and replaced “the May Agreement.” The June Agreement has an initial term of 5 years effective on May 28, 2021. Mr. Fernandez received the award of restricted stock with a grant date fair value equal to $ determined at the per unit offering price in the June Offering ($5 per Unit) (the “RSA”), which RSA will vest 1/3 at each of the three anniversaries of the grant date. The Grant Date for the RSA is May 28, 2021, as determined pursuant to the June Agreement. Notwithstanding the vesting schedule, full vesting will occur upon a Change in Control, as that term is defined in the Restricted Stock Agreement pursuant to which the RSA was made (the “June Restricted Stock Agreement”). If Mr. Fernandez’s employment is terminated for any reason at any time by the Company prior to the full vesting of the RSA without “Cause” (as that term is defined in the June Agreement), the RSA will vest and Mr. Fernandez will receive all right, title and interest in the balance of the securities granted to him in the RSA, in regard to the restricted stock award. The Company at its sole expense is obligated to register for reoffer and resale by Mr. Fernandez the securities granted to him pursuant to the May Restricted Stock Agreement.
For the ninesix months ended SeptemberJune 30, 20172022, pursuant to Mr. Fernandez employment agreement, the “June Agreement”, see Note 12, the Company recorded stock-based compensation and additional paid in capital, in the amount of $. The value of the award for the six months ended June 30, 2022 and the year ended December 31, 2016,2021 was $297,534 and $356,712 , respectively. The company has charged the full valuation since inception to its current period. The prior year charge had not been recognized and was deemed as immaterial in scope for further adjustments. The award is valued over the service period of the June Agreement, from the date of grant, May 28, 2021. On May 28, 2022, of the RSA or one third of the award, became vested and issuable. On July 22, 2022, the Company did not make any change for reserve for obsolete inventory.issued of restricted common stock, see Note 14.
| 24 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS’ EQUITY (continued)
Stock Options
SCHEDULE OF OUTSTANDING STOCK OPTIONS ACTIVITIES
| Number of Options | Weighted Average Exercise | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2021 | 600,009 | $ | 2.35 | |||||||||
| Granted | 400,000 | - | - | |||||||||
| Exercised | (19,200 | ) | - | - | ||||||||
| Forfeited | (917 | ) | - | - | ||||||||
| Cancelled | (50,000 | ) | - | - | ||||||||
| Balance outstanding and exercisable at December 31, 2021 | 929,892 | $ | 3.53 | |||||||||
| Balance at January 1, 2022 | 929,892 | $ | 3.53 | |||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | (191 | ) | - | - | ||||||||
| Cancelled | - | - | - | |||||||||
| Balance outstanding and exercisable at June 30, 2022 | 929,701 | $ | 3.42 | |||||||||
NOTE 10 - STOCK SUBSCRIPTION PAYABLE
On December 31, 2021, after markets closed, a securities purchase agreement (the “Purchase Agreement”) was circulated to, and signatures were received from, certain institutional and accredited investors (the “December Investors”) in connection with the sale in a private placement by the Company of shares of the Company’s common stock (the “December Offering”). On January 2, 2022, the Company delivered to December Investors a fully executed Purchase Agreement, which was dated December 31, 2021. The purchase price for the common stock sold in the December Offering was $ per share, the closing transaction price reported by Nasdaq on December 31, 2021.
For the six months ended June 30, 2022 and for the year ended December 31, 2021, the Company received gross proceeds of $0 and $1,400,000 of the $7,225,038, pursuant to the December Offering, respectively. On January 5, 2022, the Company received an additional $5,825,038, resulting in the issuance of shares of the Company’s common stock, eliminating the stock subscription payable as well as, the closing of the offering.
NOTE 11 - RELATED PARTY TRANSACTIONS
As of June 30, 2022, total related party payments due as of June 30, 2022, and December 31, 2021, are $0 and $35,308, respectively. These related party payables were non-interest bearing.
The Company’s UK subsidiary, GTC had an over-advance line of credit with HSBC, for working capital needs, which was not renewed by the Company on December 31, 2021. The over-advance limit was £25,000 or $33,834 at an exchange rate of GBP:USD 1.353372, with interest at 5.50% over Bank of England’s base rate or current rate of 6.25% variable. The advance was guaranteed by David Phipps, the Company’s President and Chief Executive Officer of Global Operations. The Company uses an American Express account for Orbital Satcom Corp and an American Express account for GTC, both in the name of David Phipps who personally guarantees the balance owed.
The Company employs three individuals who are related to Mr. Phipps. These three individuals earned gross wages totaling $71,899 and $76,416 for the six months ended June 30, 2022 and 2021, respectively.
The Company retained the services of the spouse of Mr. Fernandez for consulting fees of $8,960 for the six months ended June 30, 2022.
| 25 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES
NOTE 9 - RELATED PARTY TRANSACTIONS
COVID-19
The Companyimpact of the COVID-19 pandemic has received financingrapidly evolved around the globe, causing disruption in the U.S. and global economies. Although the global economy continued reopening in early 2022 and robust economic activity has supported a continued recovery, certain geographies, most notably China, have experienced setbacks.
The uncertainty surrounding the COVID-19 pandemic, including uncertainty regarding new variants of COVID-19 that have emerged and other factors have and may continue to contribute to significant volatility in the global markets. While vaccine availability and uptake has increased, the longer-term macro-economic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our performance, financial condition, and results of operations.
The ultimate magnitude of COVID-19, including the full extent of the material negative impact on our financial and operational results, will depend on future developments. The resumption of our normal business operations may be delayed or constrained by lingering effects of COVID-19 on our customers, suppliers and/or third-party service providers. Furthermore, the extent to which our mitigation efforts are successful, if at all, is not currently ascertainable. Due to the daily evolution of the COVID-19 pandemic and the responses to curb its spread, we cannot predict the full impact of the COVID-19 pandemic on our business and results of operations, but our business, financial condition, results of operations and cash flows have already been materially adversely impacted, and we anticipate they will continue to be adversely affected by the COVID-19 pandemic and its negative effects on global economic conditions. Any recovery from the Company’s Chief Executive Officer. No formal repayment termsCOVID-19 pandemic and related economic impact may also be slowed or arrangements existed priorreversed by a variety of factors, such as any increase in COVID-19 infections. Even after the COVID-19 pandemic has subsided, we may continue to February 19, 2015, whenexperience adverse impacts to our business as parta result of its national and, to some extent, global economic impact, including the current recession and any recession that may occur in the future.
The success of our business depends on our global operations, including our supply chain and consumer demand, among other things. As a result of COVID-19, we have experienced shortages in inventory due to manufacturing issues, a reduction in the volume of sales in some parts of our business, such as rental sales and direct website sales, and a reduction in personnel due to lockdown related issues. Our results of operations for the six months ended June 30, 2022 and for the years ended December 31, 2021 and December 31, 2020, reflect this impact; however, we expect that this trend may continue, and the full extent of the Share Exchangeimpact is unknown. In recent months, some governmental agencies in the US and Europe, where we produce the largest percentage of our sales, have lifted certain restrictions. However, if customer demand continues to be low, our future equipment sales, subscriber activations and sales margin will be impacted.
Appointment of Director; Compensatory Arrangements of Director
On January 7, 2022, the Board appointed Rodney Barreto as a new director to the Board, effective January 20, 2022. No decision has been made with respect to the naming of Mr. Barreto to any regular committees of the Board.
In connection with Mr. Barreto’s appointment to the Board, the Company executed a Director Services Agreement (the “Director Agreement”) with Mr. Barreto on January 11, 2022. The Director Agreement has a two-year term (subject to the director’s nomination and election) and provides for a cash retainer of $48,000 per year, plus an equity award of shares of restricted stock, half of which will be issued and vest on the day of grant, with the remaining half vesting and being issued on the first anniversary of the grant date. The Director Agreement also contains customary confidentiality and indemnification provisions and require the Company to maintain a specified amount of director and officer insurance. There are no arrangements or understandings between Mr. Barreto and any other person pursuant to which Mr. Barreto was selected as a director
| 26 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued)
Employment Agreements
2021 Phipps Employment Agreement
On June 5, 2021, the Company entered into a note with David Phipps where the stockholder loans bear no interest and are due February 19, 2016. On February 19, 2016, the note was extended an additionalthree year to February 19, 2017 and on January 9, 2017 the note was extended another additional year to February 19, 2018. The balance of the related party note payable was $15,004 as of September 30, 2017. The accounts payable due to related party includes advances for inventory due to David Phipps of $52,887. Total payments due to David Phipps as of September 30, 2017 and December 31, 2016 are $67,891 and $67,453, respectively.
Also, as part of the Share Exchange Agreement entered into on February 19, 2015, Mr. Phipps received a payment of $25,000 as compensation for transition services that he provided.
The Company employs two individuals who are related to Mr. Phipps, of which earned gross wages totaled $50,406 for the nine months ended September 30, 2017. For the nine months ended September 30, 2016, the Company employed two individuals who were related to Mr. Phipps of which earned gross wages of $45,164.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
On February 19, 2015, Orbital Satcom entered into an employment agreement with Mr. Phipps whereby Mr.that was effective as of June 2, 2021, (the “2021 Phipps agreed to serve as the President of Orbital Satcom for a period of two years, subject to renewal, in consideration for an annual salary of $180,000. Additionally, underEmployment Agreement”). Under the terms of the employment agreement,2021 Phipps Employment Agreement, Mr. Phipps shall be eligible for an annual bonus ifserves as the serve as President of the Company meets certain criteria, as established by the Boardand Chief Executive Officer of Directors. Mr. Phipps remains the sole director of GTCL following the closing of the Share Exchange. Mr. Phipps and the Company entered into an Indemnification Agreement at the closing.
Global Operations. The Company entered into an employment agreement with Ms. Carlise on June 9, 2015. The agreement has a term of one year, and shallwill be automatically be extended for additional one-year terms of one year each. The agreement provides for anthereafter unless terminated by the Company or Mr. Phipps by written notice. Mr. Phipps’ annual base salarycompensation under the 2021 Phipps Employment Agreement is an aggregate of $72,000.$. The Company may increase (but not decrease) his compensation during its term. In addition, to the base salary Ms. Carlise shall be eligibleMr. Phipps is entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors (the “Compensation Committee”). Mr. Phipps is also entitled to participate in any other executive compensation plans adopted by the Board of Directors, and shall beis eligible for such grants of awards under stock option or other equity incentive plans as the Compensation Committee may from time to time determine (the “Share Awards”). Share Awards will be subject to the applicable Plan terms and conditions, provided, however, that Share Awards will be subject to any additional terms and conditions as are provided in the granting documents or in any award certificate(s), which shall supersede any conflicting provisions governing Share Awards provided under the equity incentive plan. The Company is required to pay or to reimburse Mr. Phipps for all reasonable out-of-pocket expenses actually incurred or paid by Mr. Phipps in the course of his employment, consistent with the Company’s policy. Mr. Phipps will be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior employees. The 2021 Phipps Employment Agreement may be terminated based on death or disability of Mr. Phipps, for cause or without good reason, for cause or with good reason, and as a result of the Company.
On December 28, 2015, the Company amended her employment agreement. Effective December 1, 2015, the termchange of Ms. Carlise’s employment was extended to December 1, 2016 from June 9, 2016, her annual salary was increased to $140,000 from $72,000 and she agreed to devote her full business time tocontrol of the Company. The term2021 Phipps Employment Agreement also contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation covenants, indemnification provisions, etc. On August 7, 2021, the Original2021 Phipps Employment Agreement aswas amended byin order to, among other things, (i) increase Mr. Phipps’ compensation to include a car allowance of $1,000 a month and (ii) clarify Mr. Phipps position to be President of NextPlat Corp and the Amendment, shall automatically extend for additional termsChief Executive Officer of one year each, unless either party gives prior written notice of non-renewal to the other party no later than 60 days prior to the expiration of the initial term or the then current renewal term, as applicable.Global Operations.
Fernandez Employment Agreements
On March 3, 2016,May 23, 2021, the Company entered into a two-year Executivethree (3) year Employment Agreement (the “May Agreement”) with Mr. Phipps,Charles M. Fernandez to serve as Chairman of the Board.
However, two weeks later on June 2, 2021, the Company entered into a new employment agreement (the “June Agreement”) with Mr. Fernandez, which superseded and replaced “the May Agreement.” The June Agreement has an initial term of 5 years effective January 1, 2016.on May 28, 2021. Under the EmploymentJune Agreement, Mr. PhippsFernandez will serve as the Chairman and Chief Executive Officer of the Company. The June Agreement will be automatically extended for additional one-year terms unless terminated by the Company or Mr. Fernandez by written notice. Mr. Fernandez’s annual base compensation under the June Agreement is $ per year. The Company may increase (but not decrease) his compensation during the June Agreement’s term. In addition, Mr. Fernandez is entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee. Mr. Fernandez is also entitled to participate in any other executive compensation plans adopted by the Board and is eligible for such grants of Share Awards. Share Awards will be subject to the applicable Plan terms and conditions, provided, however, that Share Awards will be subject to any additional terms and conditions as are provided therein or in any award certificate(s), which will supersede any conflicting provisions governing Share Awards provided under the equity incentive plan. The Company is required to pay or to reimburse Mr. Fernandez for all reasonable out-of-pocket expenses actually incurred or paid by Mr. Fernandez in the course of his employment, consistent with the Company’s policy.
Mr. Fernandez is entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior employees. The June Agreement may be terminated based on death or disability of Mr. Fernandez, for cause or without good reason, for cause or with good reason, as a result of the change of control of the Company and at the option of Mr. Fernandez with or without cause. The June Agreement also contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation covenants, indemnification provisions, etc.
| 27 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued)
The Company will also reimburse Mr. Fernandez for any and all premium payments made by him to obtain and continue personal catastrophe and disability insurance coverages for himself, which policy will have policy limits not to exceed one hundred percent (100%) of his base salary per annum at any given time. In addition, the Company will pay for any and all travel-related expenses incurred by Mr. Fernandez and/or his immediate family members, not to exceed $10,000 per fiscal year, regardless of whether or not such expenses are incurred by Mr. Fernandez in connection with services or duties to be performed by him as an employee of the Company. The Company will also pay for any and all fees and costs incurred by Mr. Fernandez in connection with professional services provided to him, not to exceed $10,000 per year, including, without limitation, services provided to the Company by attorneys, accountants, financial planners and the like, regardless of whether or not such services are provided to Mr. Fernandez in connection with his employment with the Company.
In addition, the June Agreement (which repeats, but not duplicates, a grant of restricted stock made under the May Agreement), Mr. Fernandez received an award of restricted stock with a grant date fair value equal to $ determined at the per unit offering price in the June Offering ($ per Unit) (the “RSA”), which RSA will vest 1/3 at each of the three anniversaries of the grant date. The Grant Date for the RSA is May 28, 2021, as determined pursuant to the May Agreement. Notwithstanding the vesting schedule, full vesting will occur upon a Change in Control, as that term is defined in the Restricted Stock Agreement pursuant to which the RSA was made (the “May Restricted Stock Agreement”). The Company at its sole expense is obligated to register for reoffer and resale by Mr. Fernandez the securities granted to him pursuant to the May Restricted Stock Agreement.
If Mr. Fernandez’s employment is terminated for any reason at any time by the Company prior to the full vesting of the RSA without “Cause” (as that term is defined in the June Agreement), the RSA will vest and Mr. Fernandez will receive all right, title and interest in the balance of the securities granted to him in the RSA.
During the term of the June Agreement and so long as Mr. Fernandez is employed by the Company, he may nominate two directors to the Company’s Board of Directors. The appointment of these directors to the Board is subject to approval by the Board of Directors.
On August 7, 2021, the June Agreement was amended in order to, among other things, increase Mr. Fernandez’s compensation by (i) providing for medical plan coverage for Mr. Fernandez and his family at the expense of the Company, and (ii) providing for an auto allowance $1,000 per month.
Ellenoff Employment Agreement
On August 24, 2021, Douglas S. Ellenoff was appointed to the positions of Chief Business Development Strategist of the “Company” and Vice Chairman of the Board of Directors of the Company. The appointment was made on the approval and recommendation of the Nominating Committee of the Board. Mr. Ellenoff was not appointed to any committees of the Board.
In connection with Mr. Ellenoff’s appointment to the position of Chief Business Development Strategist of the Company, Mr. Ellenoff and the Company entered into a three year Employment Agreement, dated August 24, 2021 (the “Ellenoff Agreement”). Mr. Ellenoff will be nominated and renominated to serve on the Board during the term of the agreement. Under the terms of the Ellenoff Agreement, Mr. Ellenoff will receive, in lieu of cash compensation: (i) a restricted stock award of 100,000 shares of Common Stock of the Company, 40,000 were issued within 5 business days of the execution of the Ellenoff Employment Agreement and vest immediately, and the remaining 60,000 of which will be issued and vest at the rate of 20,000 shares at the end of each of the next three annual anniversaries of his employment, provided that Mr. Ellenoff serves on the Board at any time during such year; and (ii) options to purchase a total of 1,500,000 shares of the Company’s Common Stock, 300,000 of which were within 5 business days of the execution of the Ellenoff Employment Agreement and vested immediately, 150,000 of which will vest on each of the next three annual anniversaries of the commencement of his employment, and the remaining 750,000 of which will vest at the rate of 250,000 per year on each of the first three anniversaries of the commencement of his employment if during each such year Mr. Ellenoff introduces the Company to twelve (12) or more potential Business Transactions (as defined in the Ellenoff Agreement and which transactions need not be consummated); provided that the Company’s Chief Executive Officer may, in his sole discretion, waive the vesting requirement in any given year. Such options have an exercise price of $ per share and President,will terminate years after they vest. These equity awards to Mr. Ellenoff were material to induce Mr. Ellenoff to enter into the Ellenoff Agreement and were issued outside of a shareholder approved stock or option plan pursuant to the Nasdaq “inducement grant” exception (Nasdaq Listing Rule 5635(c)(4)).
| 28 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued)
Carlise Employment Agreement
On June 22, 2021, the Company appointed Theresa Carlise as Controller, Treasurer and Secretary. In connection with Ms. Carlise’s appointment, Ms. Carlise and the Company entered into an employment agreement (the “Carlise Agreement”) with an initial term of one year The term of the Carlise Agreement will be automatically extended for additional one-year terms unless terminated by the Company or Ms. Carlise by written notice. Ms. Carlise’s annual base compensation is $. The Carlise Agreement provides for medical plan coverage and an auto allowance. The Company may increase (but not decrease) her compensation during its term. In addition, Ms. Carlise will be entitled to receive an annual base salary equal to the sum of $144,000 and £48,000, or $61,200 at the yearly conversion rate of 1.27500. Mr. Phipps is also eligible forcash bonus compensation in an amount equal to up to fifty (50%) percent of his then-current base salary if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors. Ms. Carlise is also entitled to participate in any other executive compensation plans adopted by the Board of Directors and is eligible for such grants of awards under stock option or other equity incentive plans as the Compensation Committee of the Company may from time to time determine. The Company is required to pay or to reimburse Ms. Carlise for all reasonable out-of-pocket expenses actually incurred or paid by Ms. Carlise in the course of her employment, consistent with the Company’s policy. Ms. Carlise shall be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, or Board and equity awards as the Company provides to its senior Employees. The Carlise Agreement may be approved interminated based on death or disability of the discretionexecutive, for cause or without good reason, for cause or with good reason, and as a result of the change of control of the Company. The Carlise Agreement also contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation covenants, indemnification provisions, etc. On August 7, 2021, on the approval and recommendation of the Compensation Committee, or Board. Alsothe Company entered into the Carlise Agreement to, among other things, change Ms. Carlise’s title to “Chief Accounting Officer, Secretary and Treasurer. On October 8, 2021, on March 3, 2016the approval and effective January 1, 2016,recommendation of the Compensation Committee, and following the subsequent approval of the Board, the Company entered into an amendment to Carlise, the Company’s wholly owned subsidiary Orbital Satcom Corp.Chief Accounting Officer, Treasurer and Secretary, to extend the initial term of her employment agreement from 1 year to 3 years (the “Carlise Amendment”).
Thomson Employment Agreement
On August 24, 2021, Paul R. Thomson was appointed to the position of Executive Vice President of the Company. Mr. Phipps,Thomson’s appointment as Executive Vice President was effective on August 24, 2021, the date of that certain Employment Agreement between Mr. Thomson and the Company (the “Thomson Agreement”). The Thomson Agreement has an initial term of three (3) years and will be automatically extended for additional 1-year term unless terminated by the Company or Mr. Thomson by written notice. Mr. Thomson’s annual base compensation is $. The Company may increase (but not decrease) his compensation during its term. In addition, Mr. Thomson will be entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board. Mr. Thomson is also entitled to participate in any other executive compensation plans adopted by the Board and is eligible for such grants of awards under stock option or other equity incentive plans as the Compensation Committee of the Company may from time to time determine (the “Share Awards”).
In connection with Mr. Thomson’s employment, and as a material inducement to enter into the Thomson Agreements, Mr. Thomson received (i) immediately vested options to purchase 25,000 shares of Common Stock at a per share price of $5.35, and having a term of 5 years; and (ii) a restricted stock grant of 25,000 shares of Common Stock, 10,000 of which vest immediately, and the remaining 15,000 of which will vest at the rate of 5,000 shares at the end of each of the next three annual anniversaries of his employment. These equity awards to Mr. Thomson were issued outside of a shareholder approved stock or option plan pursuant to the Nasdaq “inducement grant” exception (Nasdaq Listing Rule 5635(c)(4)). On October 7, 2021, the Board of Directors of the Company (the “Board”) appointed Paul R. Thomson, the Executive Vice President of the Company, to the additional position of Chief Financial Officer of the Company effective October 9, 2021. As Chief Financial Officer, Mr. Thomson became the Company’s principal financial officer, effective October 9, 2021. On October 8, 2021, on the approval and recommendation of the Compensation Committee of the Board (the “Compensation Committee”), and following subsequent approval of the Board, the Company entered into an amendment to the Company’s current employment agreement with Mr. Thomson to reflect his new title of “Executive Vice President and Chief Financial Officer” effective October 9, 2021 (the “Thomson Amendment”).
| 29 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued)
Cohen Employment Agreement
On October 7, 2021, the Board appointed Andrew Cohen as Senior Vice President of Operations of the Company, effective October 8, 2021. In connection with Mr. Cohen’s appointment, the Company entered into an employment agreement, between them dated February 19, 2015October 8, 2021 (the “Cohen Agreement”), that sets forth the terms of his employment.
The Cohen Agreement has an initial term of three (3) years and will be automatically extended for additional 1-year terms unless terminated by the Company or Mr. Cohen by written notice. Mr. Cohen’s annual base compensation is $. The Company may increase (but not decrease) his compensation during its term. In addition, Mr. Cohen will be entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board. Mr. Cohen is also entitled to participate in any other executive compensation plans adopted by the Board and is eligible for such grants of awards under stock option or other equity incentive plans as the Compensation Committee may from time to time determine. The Company is required to pay or to reimburse Mr. Cohen for all reasonable out-of-pocket expenses actually incurred or paid by Mr. Cohen in the course of his employment, consistent with the Company’s policy. Mr. Cohen will be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior employees. The Cohen Agreement may be terminated based on, among other things, the death or disability of Mr. Cohen, for cause, for good reason, and as a result of the change of control of the Company. The Cohen Agreement also contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation covenants.
In connection with Mr. Cohen’s employment, and as a material inducement to enter into the Cohen Agreement, Mr. Cohen received (i) immediately vested options to purchase 25,000 shares of Common Stock at a per share price of $5.35, and having a term of 5 years; and (ii) a restricted stock grant of 25,000 shares of Common Stock, 10,000 of which vest immediately, and the remaining 15,000 of which will vest at the rate of 5,000 shares at the end of each of the next three annual anniversaries of his employment. These equity awards to Mr. Cohen were issued outside of a shareholder approved stock or option plan pursuant to which Mr. Phipps was employedthe Nasdaq “inducement grant” exception (Nasdaq Listing Rule 5635(c)(4)).
On May 2, 2022, the Company amended the Cohen Agreement, “Amendment No.1 Cohen”, as Presidentfollows: Section 4(a) of Orbital Satcomthe Agreement shall be deleted and replaced to read as follows; the Corporation shall pay the Employee as compensation for his services hereunder, in monthly installments during the Term, the sum of $ (the “Annual Base Salary”), less such deductions as shall be required to be withheld by applicable law and regulations, and monthly advances against the salary, if any. The Corporation shall review the Base Salary on an annual basebasis and has the right, but not the obligation, to increase it, but such salary shall not be decreased during the Term. In addition, Section 6(c) of $180,000.the Agreement shall be deleted and replaced to read as follows: upon termination of the Employee’s employment pursuant to Section 5(a)(v) or other than pursuant to Section 5(a)(i), 5(a)(ii), 5(a)(iii), 5(a)(iv), or 5(a)(vi) (i.e., without “Cause”), in addition to the accrued but unpaid compensation and vacation pay through the end of the Term, or any then applicable extension of the Term, and any other benefits accrued to him under any Benefit Plans outstanding at such time and the reimbursement of documented, unreimbursed expenses incurred prior to such date, the Employee shall be entitled to the following severance benefits: (i) a cash payment equal to $75,000, to be paid in a single lump sum payment not later than sixty (60) days following such termination, less withholding of all applicable taxes; (ii) continued provision for a period of twelve (12) months after the date of termination of the benefits under Benefits Plans extended from time to time by the Corporation to its senior Employees; and (iii) payment on a pro-rated basis of any bonus or other payments earned in connection with any bonus plan to which the Employee was a participant as of the date of the Employee’s termination of Employment. In addition, any options or restricted stock shall be immediately vested upon termination of Employee’s employment pursuant to Section 5(a)(v) or by the Corporation without “Cause.”
Lease Agreements
On December 2, 2021, the Company entered a 62-month lease for 4,141 square feet of office space for $186,345 annually. The other termsrent increases 3% annually. The lease commenced on June 13, 2022 and will expire on August 31, 2027.
Effective July 24, 2019, a three-year lease was signed for 2,660 square feet for £25,536 annually, for our facilities in Poole, England, “UK lease”, for £2,128 per month, or USD $2,765 per month at the yearly average conversion rate of this agreement1.299279. The Poole lease expired July 23, 2022 and the Company is continuing to lease the facility on a month-to-month basis, as we may seek to expand to a larger facility.
The leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not have any leases classified as financing leases.
Future minimum lease payments under these leases are as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
| Minimum | ||||
| Lease | ||||
| Years Ending December 31, | Payment | |||
| 2022 | $ | 84,848 | ||
| 2023 | 180,815 | |||
| 2024 | 194,814 | |||
| 2025 | 200,659 | |||
| 2026 | 206,679 | |||
| 2027 | 122,869 | |||
| Total undiscounted future non-cancelable minimum lease payments | 990,683 | |||
| Less: Imputed interest | (90,696 | ) | ||
| Present value of lease liabilities | $ | 899,987 | ||
| Weighted average remaining term | 5.24 | |||
Amortization expenses for the six months ended June 30, 2022, and 2021 were $17,479 and $15,476, respectively.
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NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued)
At June 30, 2022, the Company had current and long-term operating lease liabilities of $899,987 and right of use assets of $909,908.
Net rent expense for the six months ended June 30, 2022 and 2021 were $17,815 and $18,933, respectively.
Litigation
On June 22, 2021, Thomas Seifert’s employment as the Company’s Chief Financial Officer was terminated for cause. Mr. Seifert asserts that the termination was not for cause and that he is owed compensation payable under his June 2, 2021 employment agreement. The Company’s position is that Mr. Seifert is not owed any additional compensation relating to his prior service with the Company or arising under any employment agreement. The Company and Mr. Seifert are identicalcurrently engaged in litigation over the matter of his employment and termination. The Company believes it has adequate defenses to Mr. Seifert’s claims and has asserted affirmative claims for relief against Mr. Seifert including, but not limited to, breach of the employment agreement, breach of the fiduciary, fraud in the inducement in connection with the employment agreement, fraudulent misrepresentation, and constructive fraud. The Company does not expect to seek substantial monetary relief in the litigation. This dispute is pending before the District Court for the Southern District of Florida under Case No. 1:21-cv-22436-DPG.
On June 24, 2021, Seifert submitted an online whistleblower complaint to the termsOccupational Safety and Health Administration (OSHA) alleging that NextPlat engaged in retaliatory employment practices in violation of Mr. Phipps’ employment agreement with Orbital Satcom described above.the Sarbanes-Oxley Act. NextPlat responded by moving to dismiss Seifert’s complaint, citing Seifert’s failure to make a prima facie showing that a protected activity contributed to the adverse action alleged in the complaint. On July 21, 2022, following an investigation by the Regional Administrator for OSHA, Region IV, the Secretary of Labor issued its findings, dismissing Seifert’s complaint on the grounds that the OSHA investigator found that the evidence did not support Seifert’s claims.
Litigation
From time to time, the Company may become involved in litigation relating to claims arising out of our operations in the normal course of business. The Company is not currently involved in any pending legal proceeding or litigation, and to the best of our knowledge, no governmental authority is contemplating any proceeding to which the Company is a party or to which any of the Company’s properties is subject, which would reasonably be likely to have a material adverse effect on the Company’s business, financial condition and operating results.
NOTE 13 - CONCENTRATIONS
Customers:
Amazon accounted for 49.5% and 64.6% of the Company’s revenues during the six months ended June 30, 2022 and 2021, respectively. No other customer accounted for 10% or more of the Company’s revenues for either period.
| 31 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11– DERIVATIVE LIABILITY13 – CONCENTRATIONS (continued)
In June 2008 a FASB approved guidance relatedSuppliers:
The following table sets forth information as to the determination of whether a freestanding equity-linked instrument should be classified as equity or debt under the provisions of FASB ASC Topic No. 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Stock. The adoption of this requirement will affect accounting for convertible instruments and warrants with provisionseach supplier that protect holders from declines in the stock price (“down-round” provisions). Warrants with such provisions are no longer recorded in equity and are reclassified as a liability.
Instruments with down-round protection are not considered indexed to a company’s own stock under ASC Topic 815, because neither the occurrence of a sale of common stock by the company at market nor the issuance of another equity-linked instrument with a lower strike price is an input to the fair value of a fixed-for-fixed option on equity shares.
In connection with the issuance of its 6% convertible debentures and related warrants, the Company has determined that the terms of the convertible warrants include down-round provisions under which the exercise price could be affected by future equity offerings. Accordingly, the warrants are accounted for as liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date. On May 17, 2016, the Company entered into exchange agreements with holders of the Company’s outstanding convertible notes in the amount of $504,168 originally issued on December 28, 2015 (the “Notes”) pursuant to which the Notes were cancelled and the exchanging holders were issued an aggregate of 10,083,351 shares of newly designated Series G Convertible Preferred Stock. Upon the conversion of the Series G Convertible Preferred Stock, additional paid in capital increased by $649,662 from the decrease in the Notes payable of $504,168, decrease in derivative liabilities of $146,502 and increase in Series G Convertible Preferred Stock of $1,008.
The Notes were accounted for as liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date. The Company recorded amortization for the discount to the Notes of $0 and $602,515 at September 30, 2017 and December 31, 2016. As of September 30, 2017, and December 31, 2016, the Company has an unamortized discount balance of $0. The Company has recognized derivative liabilities of $0 at September 30, 2017 and December 31, 2016, respectively. The gain (loss) resulting from the decrease (increase) in fair value of this convertible instrument was $422,974 for the year ended December 31, 2016. The Company has recognized derivative liabilities for related warrants of $0 and $1,237 at September 30, 2017 and December 31, 2016, respectively. The gain resulting from the decrease in fair value of this convertible instrument was $1,237 and $3,119 for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. On May 19, 2017, the related warrant expired.
| Conversion feature derivative liability | Warrant liability | Total | ||||||||||
| Balance at January 1, 2016 | $ | 614,035 | $ | 4,356 | $ | 618,391 | ||||||
| Change in fair value included in earnings | (422,974 | ) | (3,119 | ) | (426,093 | ) | ||||||
| Net effect on additional paid in capital | (191,061 | ) | - | (191,061 | ) | |||||||
| Balance at December 31, 2016 | $ | - | $ | 1,237 | $ | 1,237 | ||||||
| Change in fair value included in earnings | - | (1,237 | ) | (1,237 | ) | |||||||
| Balance at September 30, 2017 | $ | - | $ | - | $ | - | ||||||
NOTE 12 - CONCENTRATIONS
Customers:
No customer accounted for 10% or more of the Company’s revenues duringpurchases for the threesix months ended SeptemberJune 30, 20172022 and 2016.2021.
SCHEDULE OF CONCENTRATION RISK
| June 30, 2022 | June 30, 2021 | |||||||||||||||
| Globalstar Europe | $ | 212,488 | 4.2 | % | $ | 565,207 | 10.3 | % | ||||||||
| Garmin | $ | 999,101 | 19.7 | % | $ | 1,051,557 | 19.2 | % | ||||||||
| Network Innovations | $ | 521,142 | 10.3 | % | $ | 343,801 | 6.3 | % | ||||||||
| Cygnus Telecom | $ | 1,195,597 | 23.6 | % | $ | 772,478 | 14.1 | % | ||||||||
| Satcom Global | $ | 477,998 | 9.4 | % | $ | 851,314 | 15.5 | % | ||||||||
Suppliers:
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the three months ended SeptemberJune 30, 20172022 and 2016.2021.
| June 30, 2022 | June 30, 2021 | |||||||||||||||
| Globalstar Europe | $ | 119,687 | 5.7 | % | $ | 162,313 | 8.2 | % | ||||||||
| Garmin | $ | 583,136 | 27.8 | % | $ | 304,638 | 15.5 | % | ||||||||
| Network Innovations | $ | 200,626 | 9.6 | % | $ | 189,984 | 9.6 | % | ||||||||
| Cygnus Telecom | $ | 254,683 | 12.2 | % | $ | 271,971 | 13.8 | % | ||||||||
| Satcom Global | $ | 195,168 | 9.3 | % | $ | 349,046 | 17.7 | % | ||||||||
Geographic:
The following table sets forth revenue as to each geographic location, for the six months ended June 30, 2022 and 2021:
SCHEDULE OF REVENUE FROM EACH GEOGRAPHIC LOCATION
| June 30, 2022 | June 30, 2021 | |||||||||||||||
| Europe | $ | 5,064,843 | 78.5 | % | $ | 2,361,328 | 69.1 | % | ||||||||
| North America | 899,958 | 14.0 | % | 709,797 | 20.8 | % | ||||||||||
| South America | 22,306 | 0.3 | % | 15,839 | 0.5 | % | ||||||||||
| Asia & Pacific | 397,540 | 6.2 | % | 290,582 | 8.5 | % | ||||||||||
| Africa | 64,610 | 1.0 | % | 40,142 | 1.2 | % | ||||||||||
| Revenue | $ | 6,449,257 | $ | 3,417,688 | ||||||||||||
The following table sets forth revenue as to each geographic location, for the three months ended June 30, 2022 and 2021:
| June 30, 2022 | June 30, 2021 | |||||||||||||||
| Europe | $ | 2,165,445 | 75.4 | % | $ | 1,357,596 | 69.4 | % | ||||||||
| North America | 462,742 | 16.1 | % | 395,832 | 20.2 | % | ||||||||||
| South America | 10,533 | 0.4 | % | 7,825 | 0.4 | % | ||||||||||
| Asia & Pacific | 201,371 | 7.0 | % | 182,985 | 9.4 | % | ||||||||||
| Africa | 31,388 | 1.1 | % | 12,022 | 0.6 | % | ||||||||||
| Revenue | $ | 2,871,479 | $ | 1,956,260 | ||||||||||||
NOTE 14 - SUBSEQUENT EVENTS
On July 12, 2022, the Company hired Lauren Sturges Fernandez, the spouse of Mr. Fernandez, as Manager of Digital Assets. Mrs. Fernandez is an at-will employee with an annual salary of $95,000.
Restricted Stock Award
On July 22, 2022, the Company issued shares of restricted common stock to Charles M. Fernandez, pursuant to a restricted stock award, which vested on May 28, 2022, see Note 9.
Stock Option Agreement
On July 1, 2022, the Company granted Charles Fernandez, fully vested options, pursuant to compensation committee board approval on June 30, 2022. The options are issued under the Company’s 2021 Incentive Award Plan, the “2021 Plan”. The options have an exercise price of $ and a term of years.
Resignation
On July 29, 2022, Andrew Cohen resigned his position as Senior Vice President of Operations. Pursuant to the amendment to the Cohen Agreement on May 2, 2022, Mr. Cohen received $ severance, less applicable taxes and the remaining unvested portion of the restricted stock award granted on October 8, 2021. In relation to the above, on August 4, 2022, the Company issued shares of restricted common stock for stock-based compensation of $71,250, based on the fair market value of the market close of award date, October 8, 2021 of $. .. These equity awards to Mr. Cohen were issued outside of a shareholder approved stock or option plan pursuant to the Nasdaq “inducement grant” exception (Nasdaq Listing Rule 5635(c)(4)). See Note 12.
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| September 30, 2017 | September 30, 2016 | |||||||||||||||
| Cygnus Telecom | $ | 357,846 | 9.7 | % | $ | 383,922 | 13.6 | % | ||||||||
| Delorme | $ | 204,253 | 5.5 | % | $ | 299,113 | 10.6 | % | ||||||||
| Globalstar Europe | $ | 489,026 | 13.3 | % | $ | 412,621 | 14.6 | % | ||||||||
| Network Innovations | $ | 1,468,253 | 39.8 | % | $ | 1,139,080 | 40.4 | % | ||||||||
NOTE 13 - SUBSEQUENT EVENTS
On November 3, 2017, we held a special meeting of our shareholders in Miami, Florida. At the special meeting, our shareholders voted to approve a reverse split of our common stock at a ratio of not less than 1 for 300 and not more than 1 for 800, within the discretion of the Board of Directors, at any time prior to December 31, 2017. 61,517,335 votes, or 61.78% of the shareholder voting power, voted to approve the proposal. 16,123,364 votes were cast against the proposal, with 482,540 votes abstaining.
The date of the reverse split, as well as the specific split ratio, will be announced when determined and approved by our Board of Directors.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONOPERATIONS
The following information should be read in conjunction with the condensed consolidated financial statements and the notes thereto contained elsewhere in this report. Statements made in this Item 2, “Management’s Discussion and Analysis orand Plan of Operation,Financial Condition and Results of Operations,” and elsewhere in this quarterly report on Form 10-Q that do not consist of historical facts, are “forward-looking statements.” Statements accompanied or qualified by, or containing words such as “may,” “will,” “should,” “believes,” “expects,” “intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume,” and “assume” constitute forward-looking statements, and as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company’s products, as well as other factors, many or all of which may be beyond the Company’s control. Consequently, investors should not place undue reliance upon forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements in this report.
You should read the following information in conjunction with our financial statements and related notes contained elsewhere in this report. You should consider the risks and difficulties frequently encountered by early-stage companies, particularly those engaged in new and rapidly evolving markets and technologies. Our limited operating history provides only a limited historical basis to assess the impact that critical accounting policies may have on our business and our financial performance.
We encourage you to review our periodic reports filed with the SEC and included in the SEC’s EdgarEDGAR database, including the annual reportAnnual Report on Form 10-K filed for the year ended December 31, 2016,2021, filed with the SEC on April 7, 2017.June 30, 2022, and the Company’s subsequent public filings with the SEC.
Corporate Information
NextPlat Corp, formerly Orbsat Corp (“NextPlat”), is a Nevada corporation. Our headquarters and principal executive offices are located at 3250 Mary St., Suite 410, Coconut Grove, FL 33133. Our telephone number is (305) 686-3250, and our corporate website is www.nextplat.com. Unless the context requires otherwise, in this report the terms “the Company,” “we,” “us,” and, “our” refer to NextPlat and our wholly owned subsidiaries.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
COVID-19 Update
The impact of the COVID-19 pandemic has rapidly evolved around the globe, causing disruption in the U.S. and global economies. Although the global economy continued reopening in early 2022 and robust economic activity has supported a continued recovery, certain geographies, most notably China, have experienced setbacks.
The uncertainty surrounding the COVID-19 pandemic, including uncertainty regarding new variants of COVID-19 that have emerged and other factors have and may continue to contribute to significant volatility in the global markets. While vaccine availability and uptake has increased, the longer-term macro-economic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our performance, financial condition, and results of operations.
The ultimate magnitude of COVID-19, including the full extent of the material negative impact on our financial and operational results, will depend on future developments, such as the duration and severity of the pandemic, the extent of any additional increases in cases across the United States, and the related length of its impact on the global economy, as well as the timing and availability of effective medical treatments and vaccines, which remain uncertain and cannot be predicted at this time. The resumption of our normal business operations may be delayed or constrained by lingering effects of COVID-19 on our customers, suppliers and/or third-party service providers. Furthermore, the extent to which our mitigation efforts are successful, if at all, is not currently ascertainable. Due to the daily evolution of the COVID-19 pandemic and the responses to curb its spread, we cannot predict the full impact of the COVID-19 pandemic on our business and results of operations, but our business, financial condition, results of operations and cash flows have already been materially adversely impacted, and we anticipate they will continue to be adversely affected by the COVID-19 pandemic and its negative effects on global economic conditions. Any recovery from the COVID-19 pandemic and related economic impact may also be slowed or reversed by a variety of factors, such as any increase in COVID-19 infections. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of its national and, to some extent, global economic impact, including the current recession and any recession that may occur in the future.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The success of our business depends on our global operations, including our supply chain and consumer demand, among other things. As a result of COVID-19, we have experienced shortages in inventory due to manufacturing issues, a reduction in the volume of sales in some parts of our business, such as rental sales and direct website sales, and a reduction in personnel due to lockdown related issues. Our results of operations for the year ended December 31, 2020 reflected this impact. Recently, some governmental agencies in the US and Europe, where we produce the largest percentage of our sales, have lifted certain restrictions. We have incurred strong increases in sales outside of our Amazon marketplaces for the six months ended June 30, 2022. However due to uncertainties related to variants of COVID-19, we are uncertain as to the continuation of the increases to revenue.
Recent Events
Expanding beyond our current global network of online storefronts serving thousands of consumers, enterprises, and governments, the Company has embarked upon the rollout of a state-of-the-art e-commerce platform to collaborate with businesses to optimize their ability to sell their goods online, domestically, and internationally, and enabling customers and partners to optimize their e-commerce presence and revenue. We intend to develop a next generation platform for digital assets built for Web3, an internet service built using decentralized blockchains. Our new platform (“NextPlat Digital”), which is currently in the design and development phase in collaboration with consultants and contracted developers, will initially enable the use of non-fungible tokens (“NFTs”), in e-commerce and in community-building activities. NextPlat Digital may in the future also enable the posting and use of other digital or “crypto” assets once applicable legal and regulatory requirements are addressed. As currently contemplated, NextPlat Digital will facilitate the creation/minting, purchase and sale of a broad range of non-yield-generating and non-fractionalized NFT products, including, but not limited to, art, music, collectables, digital real estate, video games, game items and certificates of authenticity. We also anticipated developing and deploying NFTs for use in tokenizing data for use in brand loyalty programs.
NextPlat Digital, as currently planned, will be used by us to create both (a) public marketplaces, for us and third-parties, where anyone with a crypto wallet or credit card can buy an NFT from an authorized user, or, if authorized, sell their own NFTs, and (b) private market places that only allow a particular company or entity to sell their own NFTs within a branded market (such as for the promotion of a particular brand or product). We anticipate that NextPlat Digital will be substantially complete within the next six to nine months.
The legal status of NFTs under a myriad of state and federal laws and regulatory regimes (including securities, banking, and commodities laws) is highly uncertain and unresolved, and the applicability of various of those regimes to any NFTs that we may propose to post on our platform is also unresolved. Our creation and operation of NextPlat Digital will present a number of new regulatory and legal compliance obligations for the Company. As an initial matter we will need to make a determination whether a particular NFT could reasonably be considered a security for federal and state law purposes, and if so we would be required to comply with the applicable securities registration requirements or obtain comfort that our activities would fall within applicable exemptions from registration. To the extent that we determine that a particular NFT could be deemed a “security” within the meaning of the U.S. federal and/or securities laws, we intend to obtain contractual comfort from licensed broker-dealer authorized to act as a trading system for those digital assets that such broker-dealer will comply with the applicable “Know Your Customer” (“KYC”) rules and custom and practice, as well as with the applicable Anti-Money Laundering laws and regulations (“AML”) and Combating the Financing of Terrorism (“CFT”), administered and enforced by the U.S. Treasury Financial Crimes and Enforcement Network discussed below, among others. We may have legal exposure for any alleged failures on the part of such licensed broker-dealer to fulfill its obligations under its contracts with us.
Corporate InformationWith respect to the securities status of an NFT that we propose to post to our platform, we will follow an internally developed model that will permit us to make a risk-based assessment regarding the likelihood that a particular NFT could be deemed a “security” within the meaning of the U.S. federal and/or state securities laws in determining if and how an NFT can be posted on our platform. This process will involve employees trained to identify the indicia of a “security” who will also work with outside legal counsel experienced in crypto asset regulatory matters to make a determination with respect to each NFT, or category of NFT, proposed to be posted on our platform. These processes and procedures are risk based assessments and are not a legal standard or binding on regulators or courts. In the event an NFT or other digital asset is deemed by us, pursuant to the above analysis, to possess a reasonable likelihood of being deemed a security, we will (a) comply with applicable laws and regulations by forming, acquiring or engaging a licensed broker-dealer authorized to act as an trading system for those digital assets, or (b) transact in such digital assets offshore in a way that complies with applicable laws and regulations; or (c) not transact in the subject NFT. We expect our risk assessment policies will continuously evolve to take into account developments in case law, applicable facts, developments in technology, and changes in applicable regulatory schemes.
We do not currently intend to undertake or participate in “initial coin offerings”, the minting of “coins” or the mining of cryptocurrencies.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Irrespective of a particular NFT’s status as a security, we will need to assess whether we needed to comply with other applicable regulations and laws (including but not limited to AML and CFT regulations). If we are deemed to be involved in the exchange or transmission of value that substitutes for currency, or fall under other evolving requirements, we may be deemed to be a “money transmitter” and will be subject to AML and CFT regulations. Depending on the particular attributes of an NFT, the manner in which it is marketed, and the nature of the clientele, we could be subject to other legal and regulatory regimes as well. We will endeavor to comply with all applicable laws in connection with our NextPlat Digital business, but the uncertain application of those laws to our proposed business may create substantial risk to the Company.
When onboarding new users, we intend to utilize third-party tools to proactively screen for high-risk crypto wallets, including explicitly sanctioned addresses and addresses associated with sanctioned entities. Crypto wallets protect the identity of the owner of the wallet, store the owner’s private keys, secure and provide access by the owner to the cryptocurrency owned by it and allow the owner to send, receive, and transact business with cryptocurrencies. Such wallets by their nature obfuscate the identity of the owner of the wallet and limit access to the transaction history of that wallet and its owner. Consequently, crypto wallets and cryptocurrencies may be used by persons seeking to avoid legal oversight and to violate the law. For example, they can be used to launder money and to promote terrorism. The applicable legal requirements and our compliance obligations will vary depending on the nature of the client, the service or product provided and jurisdiction. For example, if we engage, form or acquire a broker dealer in order to post, trade or sell NFTs or other digital assets that are securities, we will attempt to fully comply with all applicable KYC, AML and CFT compliance requirements. If, on the other hand, we facilitate the distribution of free promotional corporate collectable NFTs that are not deemed to be securities, our compliance requirements will be significantly less. In either event there can be no assurance that our efforts to fully comply with applicable law will be successful.
In determining to engage in transactions in an NFT, we will attempt to comply with all applicable laws. However, given the substantial legal uncertainties that may presented by those laws and given the informational constraints presented by crypto wallets we may not be successful in our efforts. As a consequence, we may be exposed to regulatory enforcement and civil or criminal sanction should a legal authority determine that our approach is inadequate or inappropriate, as well as to claims asserting civil liability. Moreover, governmental agencies may seek to apply laws to our NextPlat Digital business that we believe are inapplicable and may seek sanctions relating to our alleged failure to comply with those laws.
January 2022 Private Placement of Common Stock
On January 22, 2015, the Company changed its nameDecember 31, 2021, after markets closed, a securities purchase agreement (the “Purchase Agreement”) was circulated to, “Orbital Tracking Corp.”and signatures were received from, “Great West Resources, Inc.” pursuant to a merger with a newly-formed wholly owned subsidiary.
On March 28, 2014, the Company merged with a newly-formed wholly-owned subsidiary of the Company solely for the purpose of changing its state of incorporation to Nevada from Delaware, effecting a 1:150 reverse split of its common stock,certain institutional and changing its name to Great West Resources, Inc.accredited investors (the “December Investors”) in connection with the plans to enter into the business of potash mining and exploration. During late 2014sale in a private placement by the Company abandoned its effortsof 2,229,950 shares of the Company’s common stock (the “December Offering”). On January 2, 2022, the Company delivered to enterDecember Investors a fully executed Purchase Agreement, which was dated December 31, 2021. The purchase price for the potash business.common stock sold in the December Offering was $3.24 per share, the closing transaction price reported by Nasdaq on December 31, 2021.
The closing of the December Offering occurred on January 5, 2022. The Company was originally incorporated in 1997 as a Florida corporation. On April 21, 2010,received gross proceeds from the Company merged with and into a newly-formed wholly-owned subsidiary forsale of the purpose of changing its state of incorporation to Delaware, effecting a 2:1 forward split of its common stock in the December Offering of approximately $7.2 million. The Company intends to use the proceeds from the December Offering for general corporate purposes, including potential acquisitions and changing its name to EClips Media Technologies, Inc. On April 25, 2011,joint ventures. Approximately 73% of funds raised in the Company changed its name to “Silver Horn Mining Ltd.” pursuant to a mergerDecember Offering were secured from existing shareholders and from the members of the Company’s senior management and Board of Directors.
In connection with a newly-formed wholly-owned subsidiary.
Global Telesat Communications Limited (“GTCL”) was formed under the laws of England and Wales in 2008. On February 19, 2015,December Offering, the Company entered into a share exchangeregistration rights agreement with GTCL and all of the holders of the outstanding equity of GTCLDecember Investors (the “Registration Rights Agreement”), pursuant to which, GTCL becameamong other things, the Company agreed to prepare and file with the SEC a wholly owned subsidiaryregistration statement to register for resale the shares of the Company.Company’s common stock sold in the Offering.
For accounting purposes, this transaction is being accounted for as a reverse acquisitionThe shares of common stock offered and has been treated as a recapitalization of Orbital Tracking Corp. with Global Telesat Communications Limited consideredsold in the accounting acquirer, andDecember Offering were sold in reliance on the financial statementsexemption from registration provided by Section 4(a)(2) of the accounting acquirer becameSecurities Act and Rule 506 of Regulation D promulgated under the financial statementsSecurities Act and corresponding provisions of state securities or “blue sky” laws.
The terms of the registrant. The completiontransaction disclosed above, including the provisions of the Share Exchange resulted in a changePurchase Agreement and Registration Rights Agreement, were approved by the Board of control. The Share Exchange was accounted for as a reverse acquisitionDirectors and re-capitalization. The GTCL Shareholders obtained approximately 39%because some of voting control on the date of Share Exchange. GTCL was the acquirer for financial reporting purposessecurities were offered and the Orbital Tracking Corp. was the acquired company. The consolidated financial statements after the acquisition include the balance sheets of both companies at historical cost, the historical results of GTCLsold to officers and the resultsdirectors of the Company, fromsuch terms were separately reviewed and approved by the acquisition date. All share and per share information inAudit Committee of the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization.Board of Directors.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
January 2022 Name Change
On January 18, 2022, the Company isfiled a distributor, developer and resellerCertificate of satellite enabled communications hardware and provides products, airtime and related services to customers located both in the United States and internationally through its subsidiaries, US based Orbital Satcom Corp. (“Orbital Satcom”) and UK based Global Telesat Communications Limited (“GTCL”). We sell equipment and airtime for use on all major satellite networks including Globalstar, Inmarsat, Iridium and Thuraya. We specialize in offering a range of satellite enabled personal and asset tracking products and provide an advanced mapping portal for customers using our range of GSM and satellite based GPS tracking devices. Additionally, we operate a short-term rental service for customers who require use of our equipment for a limited time without the up-front expense of purchasing hardware.
Our acquisition of GTCL in February 2015 expanded our global satellite based infrastructure and business, which was first launched in December 2014 through the purchase of certain contracts which entitle us to transmit GPS tracking coordinates and other information at preferential rates through oneAmendment of the world’s largest commercial satellite networks.
We now have a physical presence inAmended and Restated Articles of Incorporation of the UK and Miami, as well as our online storefront presence in more than 10 countries, and have in excess of 20,000 customers located in almost 80 countries across every continent in the world. Our customers include businesses, U.S. and foreign governments, non-governmental and charitable organizations, military users and private individuals located all over the world.
Recent Transactions
Acquisition of Global Telesat and Related Transactions
On February 19, 2015, the Company filed with the Secretary of State of the State of Nevada a Certificatein order to change the Company’s corporate name from Orbsat Corp to NextPlat Corp. This name change was effective as of Designation forJanuary 21, 2022. The name change was approved by the Series E Convertible PreferredCompany’s stockholders at the 2021 annual meeting of stockholders held on December 16, 2021.
Restricted Stock setting forth the rights, powers, and preferences of the Series E Convertible Preferred Stock. Pursuant to the Series E Certificate of Designation,Award
On January 21, 2022, the Company designated 8,746,000 shares of its blank check preferred stock as Series E Convertible Preferred Stock. Each share of Series E Convertible Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company, the holder of the Series E Convertible Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series E Convertible Preferred Stock’s preferential payment and over our common stock. The Series E Convertible Preferred is convertible into ten (10) shares of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series E Convertible Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding10,000 shares of common stock, calculated immediately after giving effectpursuant to a restricted stock award, “RSA” granted on January 7, 2022 and effective on January 20, 2022. The award is for 20,000 restricted shares of common, which vest in two equal installments, the first on effective date and the remaining on the one year anniversary of the effective date, with a fair market value of $3.48 per share, on the date of issuance. All shares were fully vested and upon issuance resulted in stock-based compensation of $34,800. Shares were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no general solicitation, and the transaction did not involve a public offering.
For the six months ended June 30, 2022, pursuant to Mr. Fernandez employment agreement, the “June Agreement”, see Note 12, the Company recorded stock-based compensation and additional paid in capital, in the amount of $654,246. This amount is valued from the date of the award May 28, 2021 to June 30, 2022. The value of the award for the year ended December 31, 2021 was $356,712 and for the six months ended June 30, 2022, $297,534. The award is valued over the service period of the June Agreement, five years from the date of grant, May 28, 2021. On June 2, 2022, 200,000 of the RSA or one third of the award, became vested and issuable. On July 22, 2022, the Company issued 200,000 of restricted common stock, see Note 14.
Enterprise Resource Planning System (ERP)
On April 1, 2022, the Company commenced with its implementation of an enterprise resource planning “ERP” system, to replace our legacy business applications. The new ERP platform will provide better support for our changing business needs and plans for future growth. The project includes software, external implementation assistance, testing, training, and support. For the six months ended June 30, 2022, approximately 26% of the cost was expensed in the period incurred to SGA and 74% was capitalized and depreciated over its useful life. The Company intends to maintain dual accounting systems, until such time it is deemed acceptable.
On June 22, 2022, the Company formed NextPlat B.V., a Netherlands limited liability company, as a wholly-owned subsidiary. At present, NextPlat B.V., has no active operations.
As of June 30, 2022, there were 50,000,000 shares of common stock upon the conversionauthorized and 9,293,096 shares issued and outstanding.
As of the Series E Convertible Preferred Stock. Each share of Series E Convertible Preferred Stock entitles the holderJune 30, 2022, there were 2,836,092 registered warrants to vote on all matters voted on by holders ofpurchase common stock as a single class. With respect to any such vote, each share of Series E Convertible Preferred Stock entitles the holder to cast ten (10) votes per share of Series E Convertible Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.
On February 19, 2015, the Company entered into a share exchange agreement with Global Telesat Communications Limited, a Private Limited Company formed under the laws of Englandauthorized and Wales (“GTCL”) and all of the holders of the outstanding equity of GTCL (the “GTCL Shareholders”). Upon closing of the transactions contemplated under the share exchange agreement, the GTCL Shareholders transferred all of the2,530,092 registered warrants issued and outstanding, equity of GTCL to the Company in exchange for (i) an aggregate of 2,540,000 shares of the common stock of the Company and 8,746,000 shares of the newly issued Series E Convertible Preferred Stock of the Company (the “Series E Preferred Stock”) with each share of Series E Preferred Stock convertible into ten shares of common stock, (ii) a cash payment of $375,000 and (iii) a one-year promissory note in the amount of $122,536. Such exchange caused GTCL to become a wholly owned subsidiary of the Company.
Also on February 19, 2015, David Phipps, the founder, principal owner and sole director of GTCL and the former founder and president of GTC, was appointed President of Orbital Satcom. Following the transaction, Mr. Phipps was appointed Chief Executive Officer and Chairman of the Board of Directors of the Company. The acquisition of GTCL expands the Company’s global satellite based business and enables the Company to operate as a vertically integrated satellite services business with experienced management operating from additional locations in Poole, England in the United Kingdom and Aventura, Florida.
On February 19, 2015, the Company issued to Mr. Rector, the former Chief Executive Officer, Chief Financial Officer and director of the Company, 850,000 shares of common stock and a seven year immediately vested option to purchase 2,150,000 shares of common stock at a purchase price of $0.05 per share as compensation for services provided to the Company.
On February 19, 2015, the Company sold an aggregate of 550,000 units at a per unit purchase price of $2.00, in a private placement to certain accredited investors for gross proceeds of $1,100,000. Each unit consists of: forty (40) shares of the Company’s common stock or, at the election of any purchaser who would, as a result of purchase of units become a beneficial owner of five (5%) percent or greater of the outstanding common stock of the Company, four (4) shares of the Company’s Series C Convertible Preferred Stock, par value $0.0001 per share, with each share convertible into ten (10) shares of common stock. The Company sold 15,000 units consisting of an aggregate of 600,000 shares of common stock and 535,000 units consisting of an aggregate of 2,140,000 shares of Series C Convertible Preferred Stock.
On February 19, 2015, the Company issued an aggregate of 1,675,000 shares of common stock to certain current consultants, former consultants and employees. These shares consist of (i) 250,000 shares of common stock issued to a consultant as compensation for services relating to the provision of satellite tracking hardware and related services, sales and lead generation, valued at $12,500 (ii) 1 million shares of common stock issued to a consultant as compensation for the design and delivery of dual mode gsm/Globalstar Simplex tracking devices and related hardware and intellectual property, valued at $50,000 (iii) 250,000 shares of common stock, subject to a one year lock up, issued to the Company’s controller, valued at $12,500 and (iv) 175,000 shares of common stock issued to MJI in full satisfaction of outstanding debts of $175,000. MJI agreed to sell only up to 5,000 shares per day and the Company has a nine month option to repurchase these shares at a purchase price of $0.75 per share.
GlobalStar License Acquisition
On October 13, 2015, the Company through its wholly owned subsidiary, Orbital Satcom Corp, purchased from World Surveillance Group, Inc., and its wholly owned subsidiary, Global Telesat Corp the “Globalstar” license and equipment, which it had previously leased. On December 10, 2014, the Company, entered into a License Agreement with World Surveillance Group, Inc., and its wholly owned subsidiary, Global Telesat Corp, by which the Company had an irrevocable non-exclusive license to use certain equipment, consisting of Appliques for a term of ten years. Appliques are demodulator and RF interfaces located at various ground stations for gateways. The Company issued 2,222,222 common shares, valued at $1 per share based on the quoted trading price on date of issuance, or $2,222,222. The company reflected the license as an asset on its balance sheet with a ten-year amortization, the term of the license. On October 13, 2015, the Company acquired the license for additional consideration of $125,000 in cash. The Company valued the asset at $2,160,016, which is the unamortized balance of the Appliques License, $2,043,010 plus the consideration of $125,000.
December 2015 Financings
On December 21, 2015, the Company entered into a Placement Agent Agreement with Chardan Capital Markets LLC, as Agent, pursuant to which the Placement Agent agreed to serve as the non-exclusive placement agent for the Company in connection with any private placement from December 21, 2015 through January 15, 2017. The Company agreed to pay the Placement Agent a cash fee of $50,000 and issue the Placement agent 250,000 shares of common stock following the issuance of at least $900,000 of securities prior to the expiration of the term of the Placement Agent Agreement. On December 28, 2015, upon closing of the note purchase and Series F subscription agreements, the Company paid the respective fees and issued the common shares.
On December 28, 2015, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation for the Series F Convertible Preferred Stock, setting forth the rights, powers, and preferences of the Series F Convertible Preferred Stock. Pursuant to the Series F Certificate of Designation, the Company designated 1,100,000 shares of its blank check preferred stock as Series F Convertible Preferred Stock. Each share of Series F Convertible Preferred Stock has a stated value equal to its par value of $0.0001 per share. In the event of a liquidation, dissolution or winding up of the Company, the holder of the Series F Convertible Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series F Convertible Preferred Stock’s preferential payment and over our common stock. The Series F Convertible Preferred is convertible into one (1) share of the Company’s common stock. The Company is prohibited from effecting the conversion of the Series F Convertible Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series F Convertible Preferred Stock. Each share of Series F Convertible Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock as a single class. With respect to any such vote, each share of Series F Convertible Preferred Stock entitles the holder to cast one (1) vote per share of Series F Convertible Preferred Stock owned at the time of such vote, subject to the 4.99% beneficial ownership limitation.
On December 28, 2015, the Company entered into separate subscription agreements with accredited investors relating to the issuance and sale of $550,000 of shares of Series F convertible preferred stock at a purchase price of $0.50 per share. The Preferred F Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred F Share divided by the conversion price. The stated value of each Preferred F Share is $0.50 and the initial conversion price is $0.50 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price for a period of two years from the closing, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Preferred F Shares with a conversion price equal to the lower price issuance.
On December 28, 2015, the Company entered into separate note purchase agreements with accredited investors relating to the issuance and sale of an aggregate of $605,000 in principal amount of original issue discount convertible notes for an aggregate purchase price of $550,000.
The Notes mature on December 28, 2017. The Company must repay 1/24th of the principal of the Notes each month commencing January 18, 2016. The Notes do not bear interest except that all overdue and unpaid principal bears interest at a rate equal to the lesser of 18% per year or the maximum rate permitted by applicable law. The Notes are convertible into common stock at the option of the holder at a conversion price of $1.00, subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events; provided however, that the principal and interest, if any, on the Notes may not be converted to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Notes. Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price for a period of one year from the closing, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Notes with a conversion price equal to the lower price issuance.
Pursuant to the Subscription Agreement and Note Purchase Agreement, the Company agreed to use its reasonable best efforts to effectuate the increase of its authorized shares of common stock from 200,000,000 shares of common stock to 750,000,000 shares of common stock on or prior to January 31, 2016. The Company’s shareholders on March 5, 2016, approved the increase in authorized common and preferred shares. $350,000 of the proceeds from the sale of Preferred F Shares and the Notes are intended to be utilized for public relations and expenses associated with publications, reports and communications with shareholders and others concerning the company’s business. The Subscription Agreement provides the purchasers of the Preferred F Shares with a 100% right of participation in all future securities offerings of the Company, subject to customary exceptions.
On May 17, 2016, the Company entered into exchange agreements with holders of the Company’s outstanding $504,168 convertible notes originally issued on December 28, 2015, pursuant to which the Notes were cancelled and the exchanging holders were issued an aggregate of 10,083,351 shares of newly designated Series G Preferred Stock.
The terms of the shares of Series G Preferred Stock are set forth in the Certificate of Designation of Series G Preferred Stock as filed with the Secretary of State of the State of Nevada. The Series G COD authorizes 10,090,000 Preferred G Shares. The Preferred G Shares are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Preferred G Share divided by the conversion price. The stated value of each Preferred G Share is $0.05 and the initial conversion price is $0.05 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Company is prohibited from effecting a conversion of the Preferred G Shares to the extent that, as a result of such conversion, such investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Preferred G Shares. Each Preferred G Share entitles the holder to vote on all matters voted on by holders of common stock as a single class. with respect to any such vote, each Preferred G Share entitles the holder to cast one vote per share of Series G Preferred Stock owned at the time of such vote subject to the 4.99% beneficial ownership limitation. Subject to certain specified exceptions, in the event the Company issues securities at a per share price less than the conversion price prior to December 28, 2016, each holder will be entitled to receive from the Company additional shares of common stock such that the holder shall hold that number of conversion shares, in total, had such holder purchased the Preferred G Shares with a conversion price equal to the lower price issuance.
The exchanging holders, GRQ Consultants Inc. 401K, Michael Brauser and Intracoastal Capital LLC, are each holders of over 5% of a class of the Company’s voting securities.
Key Compensation Arrangements
On December 28, 2015, the Company and Theresa Carlise, its Chief Financial Officer, amended her employment agreement, dated June 9, 2015. Pursuant to the Amendment, which is effective December 1, 2015, the term of Ms. Carlise’s employment was extended to December 1, 2016 from June 9, 2016, her annual salary was increased to $140,000 from $72,000 and she agreed to devote her full business time to the Company. The term of the Original Agreement, as amended by the Amendment, shall automatically extend for additional terms of one year each, unless either party gives prior written notice of non-renewal to the other party no later than 60 days prior to the expiration of the initial term or the then current renewal term, as applicable.
Also on December 28, 2015, the Company issued Ms. Carlise options to purchase up to 500,000 shares of common stock and issued Hector Delgado, a director of the Company, options to purchase up to 200,000 shares of common stock. The options were issued outside of the Company’s 2014 Equity Incentive Plan and are not governed by the Plan. The options have an exercise price of $0.05 per share, vest immediately,$5.00, and have a term of ten years.
On January 15, 2016, the Company engaged IRTH Communications LLC., for a term of 12 months to provide investor relations, public relations, internet development, communication144,000 unregistered underwriter warrants issued and consulting services. As consideration for its services, IRTH will receive from the Corporation a monthly fee of $7,500 and as a single one-time retainer payment, $100,000 worth of shares of the Company’s common stock; calculated by the average closing price of the Company’s common stock on its principal exchange for the 10 (ten) trading days immediately prior to the execution of this Agreement; which shares shall be Restricted Securities, pursuant to the provisions of Rule 144. As additional compensation, in the event the Company, during or within two (2) years after the term of this Agreement, receives investment monies (debt, equity or a combination thereof) from investor(s) introduced to the Company by IRTH as described herein, Company agrees to pay IRTH a finder’s fee equal to three percent (3%) of all gross monies invested by investor(s) and received by Company.
On February 11, 2016, the Company issued 136,612 shares of its common stock, valuedoutstanding, at $0.60 per share, or $81,967, to IRTH Communications LLC for services, as disclosed above.
On March 3, 2016, the Company entered into an Executive Employment Agreement with David Phipps, its Chairman, President and Chief Executive Officer, effective January 1, 2016. Under the Employment Agreement, Mr. Phipps will serve as the Company’s Chief Executive Officer and President, and receive an annual base salary equal to the sum of $144,000 and £48,000. Mr. Phipps is also eligible for bonus compensation in an amount equal to up to fifty (50%) percent of his then-current base salary if the Company meets or exceeds criteria adopted by the Compensation Committee, if any, or Board and equity awards as may be approved in the discretion of the Compensation Committee or Board. Also on March 3, 2016 and effective January 1, 2016, the Corporation’s wholly owned subsidiary Orbital Satcom Corp. and Mr. Phipps terminated an employment agreement between them dated February 19, 2015 pursuant to which Mr. Phipps was employed as President of Orbital Satcom for an annual base salary of $180,000. The other terms of the Original Agreement are identical to the terms of the Employment Agreement. Mr. Phipps remains the President of Orbital Satcom.
On May 26, 2017, the Company issued 5,000,000 options to Mr. Phipps, 3,750,000 options to Theresa Carlise, 1,250,000 options to Hector Delgado, its Director and 20,000,000 options to certain employees of the Company. The employees are the adult children of our Chief Executive Officer. All of the options are fully vested and have an exercise price of $0.01 per share and a term$5.50. The warrants expire in June of 10 years.2026.
Series H Preferred Stock Financing
On October 26, 2016, the Company entered separate subscription agreements with accredited investors relating to the issuance and saleAs of $350,000, out of a maximum of $800,000, ofJune 30, 2022, there were no shares of Series A, B, C, D, E, F, G, H, I, J, K and L Convertible Preferred Stock authorized, and no shares issued and outstanding.
We had net cash used in operations of $1,888,252 during the six months ended June 30, 2022. At June 30, 2022, we had working capital of $21,324,348. Additionally, at a purchase priceJune 30, 2022, we had an accumulated deficit of $4.00 per share. The initial conversion price is $0.04 per share, subject to adjustment as set forth in the Series H COD. The Company is prohibited from effecting a conversion$24,492,159 and stockholder’s equity of the Series H Preferred Stock to the extent that, because of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series H Preferred Stock. Each Series H Preferred Stock entitles the holder to cast one vote per share of Series H Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation. The Company received the necessary consents as required from prior subscription agreements, Preferred Series C, Preferred Series G and Preferred Series H, as well as antidilution rights. Certain shareholders have waived their right to adjustment, equal treatment, most favored nations and other rights to which they were entitled pursuant to the Prior Offerings, including without limitation, certain rights granted to holders of our Series C Preferred Stock, Series F Preferred Stock and G Preferred Stock. The Company was required to issue 550,000 shares of its Preferred Series C, which is convertible into 5,500,000 shares of the Company’s common stock and 114,944 shares of Preferred Series I, which is convertible into 11,494,400 shares of the Company’s common stock. Preferred Series I was issued to certain holders in lieu of Preferred Series G and Preferred Series H.$22,698,841.
Series J Preferred Stock Financing
On May 31, 2017, the Company entered into separate subscription agreements with accredited investors relating to the issuance of shares of Series J Preferred Stock at a purchase price of $10.00 per share for sale of $500,000 proceeds and settlement of $46,694 accounts payable. The Series J Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to (i) multiplying the number of shares to be converted by the stated value thereof, and then (ii) dividing the result by the conversion price in effect immediately prior to such conversion. The stated value of each Series J Preferred Stock is $10.00 and the initial conversion price is $0.01 per share, subject to adjustment as set forth in the Series J COD. The Company is prohibited from effecting a conversion of the Series J Preferred Stock to the extent that, as a result of such conversion, the investor would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock. Each Series J Preferred Stock entitles the holder to cast one vote per share of Series J Preferred Stock owned as of the record date for the determination of shareholders entitled to vote, subject to the 4.99% beneficial ownership limitation.
In connection with the Series J Offering, the Company obtained the consent of certain shareholders, as required under the agreements entered into by the Company and issued shares pursuant to applicable anti-dilution obligations. The Company is required to issue to certain prior investors of Series G Preferred Stock additional shares of Series G Preferred Stock, which would be convertible into an aggregate of 38,805,668 shares of the Company’s common stock. However, in lieu of issuing such additional shares of Series G Preferred Stock, the Company will create a new series of preferred stock, to be designated as “Series K Preferred Stock” and will issue to such holders of Series G Preferred Stock an aggregate of 388,057 shares of Series K Preferred Stock, each of which shall be convertible into 100 shares of the Company’s common stock. In addition, in order to proceed with the Series J Offering, the Company agreed to issue additional shares of Series F Preferred Stock and Series H Preferred Stock to certain prior investors. However, in lieu of issuing such additional shares of Series F Preferred Stock and Series H Preferred Stock, the Company issued to such holders of Series F Preferred Stock and Series H Preferred Stock an aggregate of 701,832 shares of Series K Preferred Stock, each of which are convertible into 100 shares of the Company’s common stock, or 70,183,243 shares. In addition, certain creditors of the Company were also entitled to anti-dilution protection from issuances and as a result such creditors were, at the closing of the Series J Offering, issued an aggregate of 76,762 shares of Series K Preferred Stock convertible into 7,676,241 shares of common stock in full satisfaction of payments owed to them.
The following table describes the capital raised for the periods as described above:
| Date | Units | Stated Value | Total Proceeds | Common Equivalents | Anti-Dilution Issuances | Total Common Equivalents | ||||||||||||||||||||||
| Preferred Series C | 2/19/2015 | 550,000 | $ | 2.00 | $ | 1,100,000 | 22,000,000 | 5,500,000 | 27,500,000 | |||||||||||||||||||
| Preferred Series F | 12/28/2015 | 1,099,998 | $ | 0.50 | $ | 550,000 | 1,099,998 | 53,899,902 | 54,999,900 | |||||||||||||||||||
| Preferred Series G | 5/17/2016 | 10,083,351 | $ | 0.05 | $ | 504,168 | 10,083,351 | 40,333,449 | 50,416,800 | |||||||||||||||||||
| Preferred Series H | 10/31/2016 | 87,500 | $ | 4.00 | $ | 350,000 | 8,750,000 | 26,250,000 | 35,000,000 | |||||||||||||||||||
| Preferred Series J | 5/31/2017 | 50,000 | $ | 10.00 | $ | 500,000 | 5,000,000 | - | 5,000,000 | |||||||||||||||||||
| $ | 3,004,168 | 46,933,349 | 125,983,351 | 172,916,700 | ||||||||||||||||||||||||
Reverse Stock Split
On November 3, 2017, we held a special meeting of our shareholders in Miami, Florida. At the special meeting, our shareholders voted to approve a reverse split of our common stock at a ratio of not less than 1 for 300 and not more than 1 for 800, within the discretion of the Board of Directors, at any time prior to December 31, 2017. 61,517,335 votes, or 61.78% of the shareholder voting power, voted to approve the proposal. 16,123,364 votes were cast against the proposal, with 482,540 votes abstaining.
The date of the reverse split, as well as the specific split ratio, will be announced when determined and approved by our Board of Directors.
Results of Operations for the Three and NineSix Months Ended SeptemberJune 30, 20172022, compared to the Three and NineSix Months Ended SeptemberJune 30, 20162021
Revenue.Revenue. Net Sales for the three and ninesix months ended SeptemberJune 30, 20172022, consisted primarily of sales of satellite phones, tracking devices, accessories and airtime plans. For the six months ended June 30, 2022, revenues generated were $6,499,257 compared to $3,417,688 of revenues for the six months ended June 30, 2021, an increase in total revenues of $3,031,569 or 88.7%. Total net sales for Global Telesat Communications Ltd. were $4,542,671 for the six months ended June 30, 2022, as compared to $2,398,912 for the six months ended June 30, 2021, an increase of $2,143,759 or 89.4%. Total net sales for Global Telesat Communications Ltd as valued in its home currency of GBP was £3,496,302, for the six months ended June 30, 2022, as compared to £1,728,190, for the six months ended June 30, 2021, an increase of £1,768,112 or 102.3%. The net effect of the exchange rate GBP:USD on revenue for the six months ended June 30, 2022, was reduced by $310,570, using GBP:USD exchange rate yearly average of 1.299279 for the six months ended June 30, 2022 as compared to GBP:USD 1.38811 for the six months ended June 30, 2021. Total net sales for Orbital Satcom Corp. were $1,906,586 for the six months ended June 30, 2022, as compared to $1,018,776, for the six months ended June 30, 2021, an increase of $887,810 or 87.1%.
Net sales for the three months ended June 30, 2022, consisted primarily of sales of satellite phones, tracking devices, accessories, and airtime plans. For the three months ended SeptemberJune 30, 2017,2022, revenues generated were approximately $1,588,466$2,871,479 compared to approximately $1,299,373$1,956,260 of revenues for the three months ended SeptemberJune 30, 2016,2021, an increase in total revenues of $289,093$915,219 or 22.3%46.8%. SalesTotal sales for Global Telesat Communications Ltd. were $1,946,831 for the ninethree months ended SeptemberJune 30, 2017 were $4,547,4912022, as compared to approximately $3,783,230 of revenues during$1,392,609 for the ninethree months ended SeptemberJune 30, 2016, a $764,2612021, an increase in total revenuesof $554,221 or 20.2%39.8%. Total sales for Orbital Satcom Corp. were $924,648 for the three months ended June 30, 2022 as compared to $563,650, for the three months ended June 30, 2021, an increase of $360,998 or 64.0%. The Company attributes the increaseschanges in revenue to an increase in recurring revenue related customer and the introduction of new product lines, increased inventory, and additional e-commerce storefronts, offset by exchange rate variances as described above.disruption of sales due to economic sanctions imposed on Russia.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Cost of Sales.Sales. During the threesix months ended SeptemberJune 30, 2017,2022, cost of revenuessales increased to $1,240,654$5,080,775 compared to $1,035,278$2,438,681, for the threesix months ended SeptemberJune 30, 2016,2021, an increase of $205,376$2,642,094 or 19.8%. For the nine months ended September 30, 2017, cost of revenues increased to $3,589,537 compared to $2,935,631 for the nine months ended September 30, 2016, an increase of $653,906 or 22.3%108.3%. Gross profit margins during the threesix months ended SeptemberJune 30, 20172022 were 21.9%21.2%, as compared to 20.3%28.7% for the comparable period in the prior year. During the ninethree months ended SeptemberJune 30, 2017,2022, cost of sales increased to $2,304,090 compared to $1,414,770, for the three months ended June 30, 2021, an increase of $889,320 or 62.9%. Gross profit margins during the three months ended June 30, 2022, were 19.8% as compared to 27.69% for the comparable period in the prior year. As indicated by the results for the three and six months, our gross profit margins have decreased by 7.9% and 7.4%, respectively. The decrease is primarily due to significant increases in the cost of inventory and freight, an increase in sales to distributors which attract lower percentage profits, as well as, selling some items at a discounted rate to charities for use in Ukraine.
Operating Expenses. Total operating expenses for the six months ended June 30, 2022 were 21.1%$3,736,346, an increase of $1,909,074 or 104.5%, from total operating expenses for the six months ended June 30, 2021 of $1,827,272. Total operating expenses for the three months ended June 30, 2022 were $2,100,638, an increase of $1,009,812 or 92.6%, from total operating expenses for the three months ended June 30, 2021 of $1,090,826. Factors contributing to the decrease are described below.
Selling, general and administrative expenses were $1,735,205 and $443,696 for the six months ended June 30, 2022 and 2021, respectively, an increase of $1,291,509 or 291.1%. Selling, general and administrative expenses were $1,160,855 and $282,006 for the three months ended June 30, 2022 and 2021, respectively, an increase of $878,849 or 311.6%. The increase, for the three and six months ended June 30, 2022, is attributable to an increase in non-cash stock-based compensation of $689,046, certain SG&A expenses such bank charges, credit card fees, Amazon fees, and shipping charges that fluctuate with sales volatility, an increase in medical, liability and D&O insurance and an increase in marketing initiatives.
Salaries, wages and payroll taxes were $1,306,373 and $687,712 for the six months ended June 30, 2022 and 2021, respectively, an increase of $618,661, or 90.0%. Salaries, wages and payroll taxes were $670,797 and $479,538 for the three months ended June 30, 2022, and 2021, respectively, an increase of $191,259, or 39.9%. The increase is a result of executive management additions, adjusted salaries and an increase in personnel.
Professional fees were $483,203 and $548,916 for the six months ended June 30, 2022 and 2021, respectively, a decrease of $65,713, or 12.0%. Professional fees were $156,990 and $256,034 for the three months ended June 30, 2022 and 2021, respectively, a decrease of $99,044, or 38.7%. The decrease during the three and six months ended June 30, 2022 as compared to 22.4%the same period in 2021, is attributable to the higher fees in the same period of 2021, that were associated with capital raising efforts and up-listing to Nasdaq.
Depreciation and amortization expenses were $211,565 and $146,948 for the six months ended June 30, 2022 and 2021, respectively, an increase of $64,617 or 44.0%. Depreciation and amortization expenses were $111,996 and $73,248 for the three months ended June 30, 2022 and 2021, respectively, an increase of $38,748 or 52.9%. The increase was primarily attributable capitalized expenditures for software and website development and equipment and leaseholds for the new corporate office space in Florida.
We expect our costexpenses in each of revenuesthese areas to continue to increase during fiscal 20172022 and beyond as we expand our operations and begin generating additional revenues under our current business. However, weWe are unable at this time to estimate the amount of the expected increases. Gross margins reacted negatively with
Total Other Expense. Our total other expense was $138,080, compared to $1,413,271 during the devaluation of GBP against US$ following the BREXIT vote and in order to remain competitive we had to maintain product pricing. In addition, we attracted new reseller customers who buy in larger quantities at lower margins.
Operating Expenses.Total operating expenses for the threesix months ended SeptemberJune 30, 2017 were $574,971, an increase of $3,174, or 0.6%, from total operating expenses for the three months ended September 30, 2016 of $571,797. For the nine months ended September 30, 2017 total operating expenses were $2,226,923, as compared to $2,058,131, for the same period in 2016, an increase of $168,792 or 8.2%. Factors contributing to the increase are described below.
Selling, general2022 and administrative expenses were $158,312 and $150,024 for the three months ended September 30, 2017 and 2016, respectively, an increase of $8,288 or 5.5%. For the nine months ended September 30, 2017, selling, general and administrative expenses were $456,935 as compared to $456,881, an increase of $54 or 0.01%. The increase for the three and nine months ended September 30, 2017, was due to lower exchange rates in the current period offset by variable expenses which increase as revenue increases.
Salaries, wages and payroll taxes were $178,762 and $158,720, for the three months ended September 30, 2017 and 2016, respectively, an increase of $20,042, or 12.6%. For the nine months ended September 30, 2017, salaries, wages and payroll taxes were $513,349 as compared to $503,556, an increase of $9,793, or 1.9%, for the same period in the prior year. For the three and nine months ended September 30, 2017, the increase is attributable to an increase in compensation as a result of additional employees, offset by the decrease in the exchange rate.
Stock based compensationwas $0 and $600,000 for the three and nine months ended September 30, 2017, as compared to $0 for the three and nine months ended September 30, 2016. On May 26, 2017, the Company issued 5,000,000 options to Mr. Phipps, 3,750,000 options to Theresa Carlise and 20,000,000 options to certain employees of the Company. The employees are the adult children of our Chief Executive Officer. All of the options are fully vested and have an exercise price of $0.01 per share and a term of 10 years.
Professional fees were $163,754 and $192,834 for the three months ended September 30, 2017 and 2016,2021, respectively, a decrease of $29,080,$1,275,191 or 15.1%90.2%. For the nine months ended September 30, 2017, professional fees were $432,320 as compared to $881,318, a decrease of $448,998 or 51.0% from the nine months ended September 30, 2016. The decrease was primarily attributable to the Company’s decrease of investor relation fees from the same period in the prior year.
Depreciation and amortizationexpenses were $74,143 and $70,219 for the three months ended September 30, 2017 and 2016, respectively, an increase of $3,924 or 5.6%. For the nine months ended September 30, 2017 depreciation and amortization expenses were $224,319 as compared to $216,375, an increase of $7,944, or 3.7% from the same period in the prior year. For the three and nine months, the increase in depreciation is proportionately related to an increased in website development, which has a shorter useful life and an increase in computer equipment, respectively.
We expect our expenses in each of these areas to continue to increase during fiscal 2017 and beyond as we expand our operations and begin generating additional revenues under our current business. However, we are unable at this time to estimate the amount of the expected increases.
Total Other (Income) Expense. Our total other (income) expenses were $38,540expense was $122,612 compared to $30,970$909,058 during the three months ended SeptemberJune 30, 20172022 and 2016 respectively, an increase of $7,570. Our total other (income) expenses were $2,340,3702021, respectively. The decrease for the three and six months ended June 30, 2022, as compared to $241,932 during the nine months ended September 30, 2017 and 2016 respectively, an increase of $2,098,438. The increaseprior year, is primarily attributable to the reduction in interest expense from the prior year of $2,308,981 related$1,454,677, offset by an increase in foreign exchange rate of $168,226 and an increase in interest earned of $9,572. The decrease in interest expense is relative to the Series J Preferred stock issuance,elimination of all debt, except for price protection to certain Subscribersthe balance of Preferred Series F, Preferred Series G and Preferred Series H. The additional issuance for price protection, while expensed as other expense, also results as an increase to additional paid in capital.$248,369, representing the coronavirus loan debt from the prior year.
Net Income (Loss)Loss
. We recorded net loss before income tax of $265,699,$1,655,861 and $2,505,944 for the three and six months ended SeptemberJune 30, 20172022 as compared tonet loss of $1,458,394 and a net loss of $338,672,$2,261,536, for the three and six months ended SeptemberJune 30, 2016. We recorded net loss before income tax of $3,609,339, for the nine months ended September 30, 2017 as compared to a net loss of $1,452,463, for the nine months ended September 30, 2016.2021. The increase in netthe loss is a result of the factors as described above.
Comprehensive (Loss) IncomeLoss
We recorded a gainloss for foreign currency translation adjustments for the three and six months ended SeptemberJune 30, 20172022 of $4,788 and 2016, of $18,485 and $19,888, respectively.$20,118. For the ninethree and six months ended SeptemberJune 30, 2017 and 2016,2021 we recorded a gainloss of $32,926$14,345 and $17,513, respectively. The fluctuationsa loss of the increase are primarily attributed to the increase recognized due to exchange rate variances.$12,734.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At SeptemberJune 30, 2017,2022, we had a cash balance of $268,216.$20,467,722. Our working capital is $161,769$21,324,348 at SeptemberJune 30, 2017.2022.
Our current assets at SeptemberJune 30, 20172022 increased by approximately 80.9%$3,455,859 or 18% from December 31, 20162021 and included cash, accounts receivable, VAT receivable, prepaid expenses, unbilled revenue, inventory prepaid and other current assets.
Our current liabilities at SeptemberJune 30, 2017 increased by 78.9%2022 decreased $1,274,282 or 45.8% from December 31, 20162021 and included our accounts payable, derivative liabilities, due to related party, and deferred revenueprovision for income taxes, contract liabilities, lease liabilities and other liabilities in the ordinary course of our business.
Our recent sourcesAt June 30, 2022, the Company had an accumulated deficit of financing$24,492,159, working capital of $21,324,348 and net loss of $2,505,944 during the six months ended June 30, 2022.
As of the date of this report, the Company’s existing cash resources and existing borrowing availability are discussed in more detail under “Recent Transactions,” above. Growing andsufficient to support planned operations for the next 12 months. As a result, management believes that the existing financial resources are sufficient to continue operating our business will require significant cash outlays, liquidity reserves and capital expenditures and commitments to respond to business challenges, including developing or enhancing new or existing products.activities for at least one year past the issuance date of the financial statements.
Operating Activities
Net cash flows used in by operating activities for the ninesix months ended SeptemberJune 30, 20172022 amounted to $356,133$1,888,252 and were primarily attributable to our net loss of $3,609,339,$2,505,944, total amortization expense of $18,750,$12,500 and depreciation of $205,569, imputed interest of $446,$199,065, stock based compensation of $600,000, preferred price based stock protection expense of $2,308,981, amortization of prepaid expense for stock based compensation for services of $121,096 offset by change in fair value of derivative liabilities of $1,237$689,046 and net change in assets and liabilities of $399,$282,919, primarily attributable to decrease in accounts receivable of $4,921, an increase in inventory of $350,729, an increase in unbilled revenue of $20,394, a decrease in prepaid expense of $39,988, a decrease in VAT receivable of $31,876, a decrease in other current assets of $45,666, a decrease in operating lease liabilities of $7,041, an increase in accounts payable of $22,354, a decrease in contract liabilities of $9,655, and decrease in provision for income taxes of $39,905.
Net cash flows used by operating activities for the six months ended June 30, 2021 amounted to $1,270,837 and were primarily attributable to our net loss of $2,261,536, total amortization expense of $12,500 and depreciation of $134,448, amortization of discount on debt of $1,425,366, amortization of right to use of $15,476 gain on extinguishment of debt of $20,832, stock based compensation of $14,200 and net change in assets and liabilities of $590,459, primarily attributable to an increase in accounts receivable of $411,498,$158,079, an increase in inventory of $62,721,$790,536, an increase in unbilled revenue of $11,346,$10,171, an increase in prepaid expenseVAT receivable of $101,034,$279,215, an increase in other current assets of $29,827,$3,664, increase in accounts payable of $491,916$662,022, an increase in contract liabilities of $4,469, a decrease in lease liabilities of $15,512, and an increase in deferred revenueprovision for income taxes of $124,111.$227.
Net cash flows used in operating activities for the nine months ended September 30, 2016 amounted to $772,935 and were primarily attributable to our net loss of $1,452,463, amortization expense of $18,750, amortization of dept discount $602,515, depreciation of $197,625, imputed interest of $912, issuance of common stock for prepaid services of $164,608 and offset by change in fair value of derivative liabilities of $425,790 and net change in asset and liabilities of $120,908, primarily attributable to an increase in accounts receivable of $28,139, increase in inventory of $99,202, decrease in unbilled revenue of $17,415, decrease in prepaid expense of $115,359, increase in other current assets of $1,909, increase in accounts payable of $131,321 and an decrease in deferred revenue of $13,937.
Investing Activities
Net cash flows used in investing activities were $20,676$395,245 and $34,967$27,248 for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. We purchased property and equipment of $20,676 duringDuring the ninesix months ended SeptemberJune 30, 2017. We2022 and June 30, 2021, we purchased propertyequipment, website development and equipmentleaseholds of $34,967 during the nine months ended September 30, 2016.$395,245 and $27,248, respectively.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Financing Activities
Net cash flows provided by (used in) financing activities were $500,438$5,539,317 and ($43,027)$14,997,706 for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. Net cash flows provided by financing activities were $500,438$5,539,317 for the ninesix months ended SeptemberJune 30, 20172022 and were primarily attributed to proceeds from common stock offering of $5,605,038, offset by repayments of notes payable for $30,413 and repayments of related party payable $35,308.
Net cash flows provided by financing activities were $14,997,706 for the six months ended June 30, 2021 and were for, proceeds from sale of preferred stock for $500,000 and proceeds from tofrom; a related party of $438. Net cash used in financing activities were repayments of convertible notesnote payable of $100,834 and proceeds from$350,000, related party payable of $57,807, respectively$114,981, the June Offering, of $14,649,573, proceeds of warrant exercise of $5,000 which was offset by repayments of notes payable for $121,848.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Our company has not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under which we have
| ● | an obligation under a |
| ● | a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets, |
| ● | any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, or |
| ● | any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us. |
Critical Accounting Policies and Estimates
Critical accounting estimates are those that management deems to be most important to the portrayal of our financial condition and results of operations, and that require management’s most difficult, subjective or complex judgments, due to the need to make estimates about the effects of matters that are inherently uncertain. We have identified our critical accounting estimates which are discussed below.
Use of Estimates
The preparation ofIn preparing the consolidated financial statements, in conformity with generally accepted accounting principles requires management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities disclosuresas of contingent assets and liabilities at the date of the statements of financial statementscondition, and revenuerevenues and expenses duringfor the reporting period.years then ended. Actual results couldmay differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities and common stock issued for services.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Reclassification
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Basis of Presentation and Principles of Consolidation
The Company’s significant estimatesconsolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The consolidated financial statements of the Company include the Company and its wholly owned subsidiaries, Orbital Satcom Corp, Global Telesat Communications Ltd. and NextPlat B.V. All material intercompany balances and transactions have been eliminated in consolidation.
Accounts receivable and allowance for doubtful accounts
The Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are offset against sales and relieved from accounts receivable, after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2022, and 2021, there were no allowances for doubtful accounts.
Inventories
Inventories are valued at the lower of cost or net realizable value, using the first-in first-out cost method. The Company assesses the valuation of stockits inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based charges,on analysis and assumptions including, but not limited to, historical usage, expected future demand and market requirements. A change to the valuationcarrying value of derivativesinventories is recorded to cost of goods sold.
Prepaid expenses
Prepaid expenses amounted to $106,947 and $146,935, at June 30, 2022 and December 31, 2021, respectively. Prepaid expenses include prepayments in cash for rent, insurance and software license fees which are being amortized over the valuationterms of inventory reserves.the respective agreement. The current portion consists of costs paid for future services which will occur within a year.
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Effect of Exchange Rate on Results
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Foreign Currency Translation
The Company’s reporting currency is USU.S. Dollars. The accounts of one of the Company’s subsidiaries, GTCL, is maintained using the appropriate local currency, Great British Pound, as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.
The relevant translation rates are as follows: for the three and ninesix months ended SeptemberJune 30, 20172022, closing rate at 1.302401.2165 US$: GBP, quarterly average rate at 1.277791.256640 US$: GBP and 1.25801yearly average rate at 1.29979 US$: GBP. ForGBP, for the three and ninesix months ended SeptemberJune 30, 20162021, closing rate at 1.33111.382800 US$: GBP, quarterly average rate at 1.435441.397146 US$: GBP and 1.43414yearly average rate at 1.388107 US$: GBP, and for the year ended 20162021 closing rate at 1.23451.353372 US$: GBP, yearly average rate at 1.35585 US$ GBP.
Global Telesat Communications LTD, (GTCL) represents 67.4% of total company sales for the nine months ended September 30, 2017 and as such, currency rate variances have an impact on results. For the nine months ended September 30, 2017 the net effect on revenues were impacted by the differences in exchange rate from yearly average exchange of 1.39353 to 1.27500. Had the yearly average rate remained, sales for the nine months would have been higher by $287,576. GTCL comparable sales in GBP, its home currency, increased 21% or £425,714, from £2,000,471 to £2,426,185, for the nine months ended September 30, 2017 as compared to September 30, 2016.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information. All intercompany transactions and balances have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of September 30, 2017, and the results of operations and cash flows for the nine months ended September 30, 2017 have been included. The results of operations for the nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year.
Accounts Receivable
The Company extends credit to its customers based upon a written credit policy. Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate for the amount of probable credit losses in the Company’s existing accounts receivable. The Company establishes an allowance of doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Receivable balances are reviewed on an aged basis and account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not require collateral on accounts receivable. As of September 30, 2017, and December 31, 2016, there is an allowance for doubtful accounts of $427 and $6,720.
Accounting for Derivative Instruments
Derivatives are required to be recorded on the balance sheet at fair value. These derivatives, including embedded derivatives in the Company’s structured borrowings, are separately valued and accounted for on the Company’s balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates
Research and Development
Research and Development (“R&D”) expenses are charged to expense when incurred. The Company has consulting arrangements which are typically based upon a fee paid monthly or quarterly. Samples are purchased that are used in testing, and are expensed when purchased. R&D costs also include salaries and related personnel expenses, direct materials, laboratory supplies, equipment expenses and administrative expenses that are allocated to R&D based upon personnel costs.
Foreign Currency Translation
The Company’s reporting currency is US Dollars. The accounts of one of the Company’s subsidiaries is maintained using the appropriate local currency, (Great British Pound) GTCL as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are deferred as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are included in the statements of operations.
The relevant translation rates are as follows: for the three and nine months ended September 30, 2017 closing rate at 1.33991.375083 US$: GBP, average rate at 1.30842 US$: GBP and 1.27500 US$: GBP. For the three and nine months ended September 30, 2016 closing rate at 1.29820 US$: GBP, average rate at 1.31320 US$: GBP and 1.39353 US$: GBP and for the year ended 2016 closing rate at 1.2345 US$: GBP, average rate at 1.35585 US$ GBP.
Revenue Recognition and Unearned Revenue
The Company recognizes revenue from satellite services when earned, as services are rendered or delivered to customers. Equipment sales revenue is recognized when the equipment is delivered to and accepted by the customer. Only equipment sales are subject to warranty. Historically, the Company has not incurred significant expenses for warranties. Equipment sales which have been prepaid, before the goods are shipped are recorded as contract liabilities and once shipped is recognized as revenue. The Company also records as contract liabilities, certain annual plans for airtime, which are paid in advance. Once airtime services are incurred, they are recognized as revenue. Unbilled revenue is recognized for airtime plans whereby the customer is invoiced for its data usage the following month after services are incurred.
The Company’s customers generally purchase a combination of our products and services as part of a multiple element arrangement. The Company’s assessment of which revenue recognition guidance is appropriate to account for each element in an arrangement can involve significant judgment. This assessment has a significant impact on the amount and timing of revenue recognition.
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Revenue is recognized when all of the following criteria have been met:
In accordance with ASC 605-25,Revenue Recognition—Multiple-Element Arrangements,based on the terms and conditions of the product arrangements, the Company believes that its products and services can be accounted for separately as its products and services have value to the Company’s customers on a stand-alone basis. When a transaction involves more than one product or service, revenue is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized as products are delivered or as services are provided over the term of the customer contract.ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property and Equipmentequipment
Property and equipment are carried at historical cost less accumulated depreciation. Depreciation is based on the estimated service lives of the depreciable assets and is calculated using the straight-line method. Expenditures that increase the value or productive capacity of assets are capitalized. Fully depreciated assets are retained in the property and equipment, and accumulated depreciation accounts until they are removed from service. When property and equipment are retired, sold or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Repairs and maintenance are expensed as incurred. Leasehold improvements have an estimated service life of the term of the respective lease.
The estimated useful lives of property and equipment are generally as follows:
| Years | ||||
| Office furniture and fixtures | 4 | |||
| Computer equipment | 4 | |||
| Leasehold improvements | 5 | |||
| Appliques | 10 | |||
| Website development | 2 | |||
Intangible assets
Intangible assets include customer contracts purchased and recorded based on the cost to acquire them. These assets are amortized over 10 years. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not consider it necessary to record any impairment charges during the periods ended SeptemberJune 30, 20172022 and December 31, 2016,June 30, 2021, respectively.
Fair value of financial instrumentsAccounting for Derivative Instruments
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”, for assets and liabilities measuredDerivatives are required to be recorded on the balance sheet at fair valuevalue. These derivatives, including embedded derivatives in the Company’s structured borrowings, are separately valued and accounted for on a recurring basis. ASC 820 establishes a common definitionthe Company’s balance sheet. Fair values for fair value to be applied to existing US GAAP that require the use of fair value measurements which establishes a framework for measuring fair valueexchange traded securities and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputsderivatives are prioritized below:
Level 1: Observable inputs such asbased on quoted market prices. Where market prices in active markets for identical assets or liabilities
Level 2: Observableare not readily available, fair values are determined using market-based inputs or unobservable inputs that are corroborated bypricing models incorporating readily observable market data and requiring judgment and estimates.
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3) from January 1, 2016 to September 30, 2017:
| Conversion feature derivative liability | Warrant liability | Total | ||||||||||
| Balance at January 1, 2016 | $ | 614,035 | $ | 4,356 | $ | 618,391 | ||||||
| Change in fair value included in earnings | (422,974 | ) | (3,119 | ) | (426,093 | ) | ||||||
| Net effect on additional paid in capital | (191,061 | ) | - | (191,061 | ) | |||||||
| Balance at December 31, 2016 | $ | - | $ | 1,237 | $ | 1,237 | ||||||
| Change in fair value included in earnings | - | (1,237 | ) | (1,237 | ) | |||||||
| Balance at September 30, 2017 | $ | - | $ | - | $ | - | ||||||
The Company did not identify any other assets or liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with the accounting guidance. The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued expenses approximate their estimated fair market value based on the short-term maturity of the instruments.
Share-Based Payments
Compensation cost relating to share basedshare-based payment transactions are recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The ASU provides guidance to clarify whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. ASU 2021-04 is effective for annual beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Recent Accounting Pronouncements
In October 2021, the FASB issued guidance which requires companies to apply Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. Public entities must adopt the new guidance for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company doesis currently evaluating the impact and timing of adoption of this guidance
Any new accounting standards, not believedisclosed above, that any recentlyhave been issued accounting pronouncements willor proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial statements.condition, results of operations, cash flows or disclosures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this Item.
ITEM 3. QUANTITATIVE4. CONTROLS AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISKPROCEDURES
As a smallerOur management is responsible for establishing and maintaining adequate internal control over financial reporting company, as defined in Rule 12b-2Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the ExchangeSarbanes-Oxley Act of 2002. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2021, management identified significant deficiencies related to (i) our internal audit functions and (ii) a lack of segregation of duties within accounting functions. Therefore, our internal controls over financial reporting were not effective as of June 30, 2022.
Management has determined that our internal audit function is significantly deficient due to insufficient qualified resources to perform internal audit functions.
Due to our size and nature, segregation of all conflicting duties may not always be possible or economically feasible. However, to the extent possible, we are implementing procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.
We believe that the foregoing steps will remediate the significant deficiency identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate. Due to the nature of this significant deficiency in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could occur that would not requiredbe prevented or detected.
A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to providemerit attention by those responsible for oversight of the information required by this Item.company’s financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the six months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: OTHER INFORMATION
ITEM 4. CONTROLS AND PROCEDURES.
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With respect to the nine months ending September 30, 2017, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based upon our evaluation regarding the fiscal quarter ended September 30, 2017, our management, including our principal executive officer and principal financial officer, has concluded that our disclosure controls and procedures were ineffective due to our limited internal audit functions and lack of ability to have multiple levels of transaction review. The Company has been actively addressing the evaluation and is pursuing upgrading its accounting software.
Management is in the process of determining how best to change our current system and implement a more effective system to insure that information required to be disclosed in this quarterly report on Form 10-Q has been recorded, processed, summarized and reported accurately. Our management acknowledges the existence of this problem, and intends to develop procedures to address them to the extent possible given limitations in financial and manpower resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
On June 22, 2021, Thomas Seifert’s employment as the Company’s Chief Financial Officer was terminated for cause. Mr. Seifert asserts that the termination was not for cause and that he is owed compensation payable under his June 2, 2021 employment agreement. The Company’s position is that Mr. Seifert is not owed any additional compensation relating to his prior service with the Company or arising under any employment agreement. The Company and Mr. Seifert are currently engaged in litigation over the matter of his employment and termination. The Company believes it has adequate defenses to Mr. Seifert’s claims and has asserted affirmative claims for relief against Mr. Seifert including, but not limited to, breach of the employment agreement, breach of the fiduciary, fraud in the inducement in connection with the employment agreement, fraudulent misrepresentation, and constructive fraud. The Company does not expect to seek substantial monetary relief in the litigation. This dispute is pending before the District Court for the Southern District of Florida under Case No. 1:21-cv-22436-DPG.
On June 24, 2021, Seifert submitted an online whistleblower complaint to the Occupational Safety and Health Administration (OSHA) alleging that NextPlat engaged in retaliatory employment practices in violation of the Sarbanes-Oxley Act. NextPlat responded by moving to dismiss Seifert’s complaint, citing Seifert’s failure to make a prima facie showing that a protected activity contributed to the adverse action alleged in the complaint. On July 21, 2022, following an investigation by the Regional Administrator for OSHA, Region IV, the Secretary of Labor issued its findings, dismissing Seifert’s complaint on the grounds that the OSHA investigator found that the evidence did not support Seifert’s claims.
From time to time, the Company may become involved in litigation relating to claims arising out of our operations in the normal course of business. The Company is not currently involved in any pending legal proceeding or litigation, and to the best of our knowledge, no governmental authority is contemplating any proceeding to which the Company is a party or to which any of the Company’s properties is subject, which would reasonably be likely to have a material adverse effect on the Company’s business, financial condition and operating results.
Item 1A. Risk Factors.
This Quarterly Report on Form 10-Q should be read in conjunction with our 2021 Form 10-K, which describes various material risks and uncertainties to which we are or may become subject. These risks and uncertainties could, directly or indirectly, adversely affect our business, results of operations, financial condition, liquidity, or cash flows and could cause our actual results to differ materially from our past results or the results contemplated by any forward-looking statements we make.
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Material changes from the risk factors set forth in our 2021 Form 10-K are set forth below:
Whether a particular non-fungible token (NFT) or other digital or “crypto” asset is a “security” is subject to a high degree of uncertainty, and if we are unable to properly characterize an NFT or other digital asset, we may be subject to regulatory scrutiny, inquiries, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.
The SEC and its staff have taken the position that certain digital or “crypto” assets (which includes NFTs) fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given digital asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular digital asset as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict the direction or timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially impact the views of the SEC and its staff.
Several foreign jurisdictions have taken a broad-based approach to classifying digital assets as “securities,” while certain other foreign jurisdictions have adopted a narrower approach. As a result, certain digital assets may be deemed to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations, or directives that affect the characterization of digital assets as “securities.”
The classification of a digital asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer and sale of such assets. For example, a digital asset that is a security in the United States may generally only be offered or sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that effect transactions in digital assets that are securities in the United States may be subject to registration with the SEC as a “broker” or “dealer.” Platforms that bring together purchasers and sellers to trade digital assets that are securities in the United States are generally subject to registration as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as an alternative trading system (ATS) in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities may be subject to registration with the SEC as a clearing agency. Foreign jurisdictions may have similar licensing, registration, and qualification requirements.
With respect to the securities status of an NFT that we propose to post to our platform, we will follow an internally developed model that will permit us to make a risk-based assessment regarding the likelihood that a particular NFT could be deemed a “security” within the meaning of the U.S. federal and/or state securities laws in determining if and how an NFT can be posted on our platform. This process will involve employees trained to identify the indicia of a “security” who will also work with outside legal counsel experienced in crypto asset regulatory matters to make a determination with respect to each NFT, or category of NFT, proposed to be posted on our platform. These processes and procedures are risk-based assessments and are not a legal standard or binding on regulators or courts. In the event an NFT or other digital asset is deemed by us, pursuant to the above analysis, to possess a reasonable likelihood of being deemed a security, we will (a) comply with applicable laws and regulations by forming, acquiring or engaging a licensed broker-dealer authorized to act as an trading system for those digital assets, or (b) transact in such digital assets offshore in a way that complies with applicable laws and regulations; or (c) not transact in the subject NFT. Regardless of our conclusions, we could be subject to legal or regulatory action in the event the SEC, a state or foreign regulatory authority, or a court were to determine that an NFT posted and sold on our platform is a “security” under applicable laws. Because our platform is not registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to facilitate the offer and sale of NFTs on our platform, we will only permit posting on our platform of those NFTs for which we determine there are reasonably strong arguments to conclude that the NFT is not a security. We believe that our process reflects a comprehensive and thoughtful analysis and is reasonably designed to facilitate consistent application of available legal guidance to digital assets to facilitate informed risk-based business judgment. However, we recognize that the application of securities laws to the specific facts and circumstances of digital assets may be complex and subject to change, and that a posting determination does not guarantee any conclusion under the U.S. federal securities laws. We expect our risk assessment policies will continuously evolve to take into account developments in case law, applicable facts, developments in technology, and changes in applicable regulatory schemes.
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There can be no assurances that we will properly characterize any given NFT as a security or non-security for purposes of determining whether our platform will allow the posting of such NFT, or that the SEC, foreign regulatory authority, or a court, if the question was presented to it, would agree with our assessment. If the SEC, state or foreign regulatory authority, or a court were to determine that NFTs offered or sold on our platform are securities, we would not be able to offer such NFTs until we are able to do so in a compliant manner. A determination by the SEC, a state or foreign regulatory authority, or a court that an NFT posted and sold on our platform was a security may also result in us determining that it is advisable to remove NFTs from our platform that have similar characteristics to the NFT that was determined to be a security. In addition, we could be subject to judicial or administrative sanctions for failing to offer or sell the NFT in compliance with the registration requirements, or for acting as a broker, dealer, or national securities exchange without appropriate registration. Such an action could result in injunctions, cease and desist orders, as well as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm. Customers that purchased such NFTs on our platform and suffered losses could also seek to rescind a transaction that we facilitated as the basis that it was conducted in violation of applicable law, which could subject us to significant liability. We may also be required to cease facilitating transactions in other similar NFTs, which could negatively impact our business, operating results, and financial condition.
None.We are subject to payments-related regulations and risks.
We may provide regulated services in certain jurisdictions because we enable customers to keep account balances with us and transfer money to third parties, and because we may provide services to third parties to facilitate payments on their behalf. In these jurisdictions, we may be subject to requirements for licensing, regulatory inspection, bonding and capital maintenance, the use, handling, and segregation of transferred funds, consumer disclosures, and authentication. We are also subject to, or voluntarily comply with, a number of other laws and regulations relating to payments, money laundering, international money transfers, know-your-customer requirements (KYC), privacy and information security, and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to additional requirements and civil and criminal penalties or forced to cease providing certain services.
The uncertain application of a myriad of state and federal laws to our NextPlat Digital business may expose us to regulatory enforcement and civil or criminal sanction should a legal authority determine that our approach to compliance is inadequate or inappropriate.
The legal status of NFTs under a myriad of state and federal laws and regulatory regimes (including without limitation, securities, banking, and commodities laws) is highly uncertain and unresolved, and the applicability of various of those regimes to any NFTs that we may propose to post on our platform is also unresolved. Our creation and operation of NextPlat Digital will present a number of new regulatory and legal compliance obligations for the Company, including the potential need to comply with “Know Your Customer” (“KYC”) rules and custom and practice, as well as with the applicable Anti-Money Laundering laws and regulations (“AML”) and Combating the Financing of Terrorism (“CFT”), among others. As a result of the uncertain legal status of digital assets we may have legal exposure for our failure to adequately comply with legal regimes that are known to us. In addition governmental agencies may seek to apply laws to our NextPlat Digital business that we believe are inapplicable, and may seek sanctions relating to our alleged failure to comply with those laws.
Our transaction of digital asset business involving the use of crypto wallets and cryptocurrencies may expose us to allegations of violation of applicable KYC, AML and CFT and other compliance requirements.
When onboarding new users, we intend to utilize third-party tools to proactively screen for high-risk crypto wallets, including explicitly sanctioned addresses and addresses associated with sanctioned entities. The applicable legal requirements and our compliance obligations will vary depending on the nature of the client, the service or product provided and jurisdiction. For example, if we engage, form or acquire a broker dealer in order to post, trade or sell NFTs or other digital assets that are securities, we will attempt to fully comply with all applicable KYC, AML and CFT compliance requirements. Given the substantial legal uncertainties that may presented by those laws and given the informational constraints presented by crypto wallets we may be exposed to regulatory enforcement and civil or criminal sanction, as well as to claims asserting civil liability.
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Ownership of digital assets is pseudonymous, and the supply is often unknown. Individuals or entities with substantial holdings may engage in large-scale sales or distributions, either on non- market terms or in the ordinary course, which could disproportionately and negatively affect the market, result in a reduction in the price of the digital asset and materially and adversely affect the price of our common stock.
Generally, there is no registry showing which individuals or entities own a digital asset or the quantity that is owned by any particular person or entity. There are no regulations in place that would prevent a large holder of a digital asset from selling it. To the extent such large holders engage in large-scale sales or distributions, either on non-market terms or in the ordinary course, it could negatively affect the market for the digital asset and result in a reduction in the price. This, in turn, could materially and adversely affect the price of our stock, our business, prospects, financial condition, and operating results.
Because there has been limited precedent set for financial accounting for digital assets, the determinations that we have made for how to account for digital assets transactions may be subject to change.
Because there has been limited precedent set for the financial accounting for digital assets and related revenue recognition and no official guidance has yet been provided by the Financial Accounting Standards Board or the SEC, it is unclear how companies may in the future be required to account for cryptocurrency transactions and assets and related revenue recognition. A change in regulatory or financial accounting standards could result in the necessity to change the accounting methods we currently intend to employ in respect of our anticipated revenues and assets and restate any financial statements produced based on those methods. Such a restatement could adversely affect our business, prospects, financial condition and results of operation.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ThereOn January 5, 2022, the Company issued 2,229,950 shares of common stock pursuant to a private placement offering at a per share price of $3.24, resulting in gross proceeds of $7,225,038. Legal and registration fees amounted to $220,000, resulting in net proceeds of $7,005,038. Prior to the private placement close, proceeds of $1,400,000, were received and recorded as a stock subscription payable, for the year ended December 31, 2021.
On January 21, 2022, the Company issued 10,000 shares of common stock, pursuant to a restricted stock award, “RSA” granted on January 7, 2022 and effective on January 20, 2022. The award is for 20,000 restricted shares of common, which vest in two equal installments, the first on effective date and the remaining on the one year anniversary of the effective date, with a fair market value of $3.48 per share, on the date of issuance. All shares were fully vested and upon issuance resulted in stock-based compensation of $34,800. Shares were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no unregistered securities sold by us duringgeneral solicitation, and the quarter ended September 30, 2017, that weretransaction did not otherwise disclosed by us ininvolve a Current Report onpublic offering.
On February 15, 2022, the Company filed Form 8-K.S-3, to register 2,269,950 shares of common stock. On March 22, 2022, April 22, 2022, May 25, 2022 and June 14, 2022, the Company filed a Form S-3/A Amendment No. 1, 2, 3 and 4, respectively.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSUREDISCLOSURES
Not applicable.
None.
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None.
ITEM 6. EXHIBITS
| + | Management contract or compensatory plan. |
* Filed herein
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: | ||
| By: | /s/ | |
Chairman and Chief Executive Officer
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| (principal executive officer) | ||
| /s/ | ||
Chief Financial Officer | ||
| ( | ||
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