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 September 30, 20222023
OR
☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ______________to _______________.
Commission File Number 001-40447
NEXTPLAT CORP
(Exact name of registrant as specified in its charter)
Nevada | 65-0783722 | |
(State or other jurisdiction incorporation or organization) | (I.R.S. Employer Identification No.) | |
3250 Mary St. , Suite 410, | 33133 | |
(Address of principal executive | (Zip Code) |
(305)-560-5355-560-5355
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of 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 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 ☐
Indicate by check whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “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 by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
Class | Outstanding at November | |
Common Stock, $0.0001 par value | 18,724,596 |
FORM 10-Q
INDEX
Item 1. Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements of NextPlat Corp, F/K/A/ Orbsat Corp, (“NextPlat,” the “Company,” “we,” or “our”), for the three and nine months ended September 30, 20222023 and for comparable periods in the prior year are included below. The financial statements should be read in conjunction with the notes to financial statements that follow.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
CONDENSED CONSOLIDATED BALANCE SHEETS AS
September 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 26,345,704 | $ | 18,891,232 | ||||
Accounts receivable, net | 7,802,121 | 383,786 | ||||||
Receivables - other, net | 2,945,327 | - | ||||||
Inventory, net | 4,986,734 | 1,286,612 | ||||||
Unbilled revenue | 168,678 | 141,702 | ||||||
VAT receivable | 369,422 | 432,769 | ||||||
Prepaid expenses | 865,766 | 45,679 | ||||||
Notes receivable | 251,485 | - | ||||||
Total Current Assets | 43,735,237 | 21,181,780 | ||||||
Property and equipment, net | 4,046,854 | 1,245,802 | ||||||
Goodwill | 3,144,000 | - | ||||||
Intangible assets, net | 14,116,748 | 50,001 | ||||||
Operating right of use assets, net | 1,035,269 | 854,862 | ||||||
Finance right-of-use assets, net | 28,807 | - | ||||||
Equity method investment | - | 5,260,525 | ||||||
Deposits | 39,137 | - | ||||||
Prepaid expenses, net of current portion | 49,135 | 49,078 | ||||||
Total Other Assets | 18,413,096 | 6,214,466 | ||||||
Total Assets | $ | 66,195,187 | $ | 28,642,048 | ||||
LIABILITIES AND EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 13,680,665 | $ | 1,518,095 | ||||
Contract liabilities | 29,223 | 36,415 | ||||||
Notes payable | 385,303 | 60,490 | ||||||
Due to related party | 25,001 | 28,467 | ||||||
Operating lease liabilities | 366,494 | 208,660 | ||||||
Finance lease liabilities | 20,691 | - | ||||||
Income taxes payable | 178,310 | 94,244 | ||||||
Liabilities from discontinued operations | - | 112,397 | ||||||
Total Current Liabilities | 14,685,687 | 2,058,768 | ||||||
Long Term Liabilities: | ||||||||
Notes payable, net of current portion | 1,251,159 | 156,266 | ||||||
Operating lease liabilities, net of current portion | 712,521 | 649,895 | ||||||
Finance lease liabilities, net of current portion | 9,897 | - | ||||||
Total Liabilities | 16,659,264 | 2,864,929 | ||||||
Commitments and Contingencies | - | - | ||||||
Equity | ||||||||
Preferred stock ($0.0001 par value; 3,333,333 shares authorized) | - | - | ||||||
Common stock ($0.0001 par value; 50,000,000 shares authorized, 18,724,596 and 14,402,025 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively) | 1,872 | 1,440 | ||||||
Additional paid-in capital | 66,469,956 | 56,963,200 | ||||||
Accumulated deficit | (33,227,122 | ) | (31,146,804 | ) | ||||
Accumulated other comprehensive loss | (56,869 | ) | (40,717 | ) | ||||
Equity attributable to NextPlat Corp stockholders | 33,187,837 | 25,777,119 | ||||||
Equity attributable to noncontrolling interests | 16,348,086 | - | ||||||
Total Equity | 49,535,923 | 25,777,119 | ||||||
Total Liabilities and Equity | $ | 66,195,187 | $ | 28,642,048 | ||||
See accompanying notes to condensed consolidated financial statements.
NEXTPLAT CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 12,469,607 | $ | 17,267,978 | ||||
| Accounts receivable, net | 689,094 | 349,836 | ||||||
| Inventory | 1,138,290 | 1,019,696 | ||||||
| Unbilled revenue | 120,359 | 100,422 | ||||||
| VAT receivable | 355,118 | 491,417 | ||||||
| Prepaid expenses – current portion | 67,341 | 97,068 | ||||||
| Equity method investment | 5,056 | - | ||||||
| Other current assets | - | 48,539 | ||||||
| Total current assets | 14,844,865 | 19,374,956 | ||||||
| Property and equipment, net | 1,186,099 | 1,042,859 | ||||||
| Right of use asset | 865,115 | 22,643 | ||||||
| Intangible assets, net | 56,250 | 75,000 | ||||||
| Prepaid expenses – long term portion | 42,424 | 49,867 | ||||||
| Equity method investment | 3,540,508 | - | ||||||
| Total assets | $ | 20,535,261 | $ | 20,565,325 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 1,087,044 | $ | 1,063,344 | ||||
| Contract liabilities | 35,009 | 36,765 | ||||||
| Note payable coronavirus loans– current portion | 55,750 | 56,391 | ||||||
| Due to related party | 15,692 | 35,308 | ||||||
| Lease liabilities - current | 145,284 | 19,763 | ||||||
| Provision for income taxes | 15,468 | 56,781 | ||||||
| Stock subscription payable | - | 1,400,000 | ||||||
| Liabilities from discontinued operations | 112,397 | 112,397 | ||||||
| Total current liabilities | 1,466,644 | 2,780,749 | ||||||
| Long term liabilities: | ||||||||
| Note payable coronavirus loans– long term | 157,958 | 253,757 | ||||||
| Lease liabilities - long term | 718,010 | - | ||||||
| Total Liabilities | 2,342,612 | 3,034,506 | ||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $ par value; shares authorized | - | - | ||||||
| Common stock, $ par value; shares authorized, shares issued and outstanding as of September 30, 2022 and outstanding at December 31, 2021 | 965 | 705 | ||||||
| Additional paid-in capital | 48,481,636 | 39,513,093 | ||||||
| Accumulated (deficit) | (30,205,435 | ) | (21,986,215 | ) | ||||
| Accumulated other comprehensive income (loss) | (84,517 | ) | 3,236 | |||||
| Total stockholders’ equity | 18,192,649 | 17,530,819 | ||||||
| Total liabilities and stockholders’ equity | $ | 20,535,261 | $ | 20,565,325 | ||||
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Sales of products, net | $ | 12,788,758 | $ | 2,630,826 | $ | 18,622,274 | $ | 9,080,083 | ||||||||
Revenues from services | 2,501,413 | - | 2,501,413 | - | ||||||||||||
Revenue, net | 15,290,171 | 2,630,826 | 21,123,687 | 9,080,083 | ||||||||||||
Cost of products | 10,633,953 | 1,952,072 | 15,002,783 | 7,032,847 | ||||||||||||
Cost of services | 71,536 | - | 71,536 | - | ||||||||||||
Cost of revenue | 10,705,489 | 1,952,072 | 15,074,319 | 7,032,847 | ||||||||||||
Gross profit | 4,584,682 | 678,754 | 6,049,368 | 2,047,236 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 4,187,429 | 1,699,711 | 7,495,601 | 3,434,916 | ||||||||||||
Salaries, wages and payroll taxes | 2,483,432 | 651,219 | 4,039,307 | 1,957,592 | ||||||||||||
Professional fees | 520,726 | 356,306 | 1,385,474 | 839,509 | ||||||||||||
Depreciation and amortization | 871,066 | 136,457 | 1,200,825 | 348,022 | ||||||||||||
Total operating expenses | 8,062,653 | 2,843,693 | 14,121,207 | 6,580,039 | ||||||||||||
Loss before other (income) expense | (3,477,971 | ) | (2,164,939 | ) | (8,071,839 | ) | (4,532,803 | ) | ||||||||
Other (income) expense: | ||||||||||||||||
Interest expense | 45,949 | 8,725 | 55,657 | 15,649 | ||||||||||||
Interest earned | (209,798 | ) | (3,849 | ) | (392,545 | ) | (13,421 | ) | ||||||||
Other income | - | - | (315,845 | ) | - | |||||||||||
Foreign currency exchange rate variance | 164,504 | 89,025 | 95,831 | 229,753 | ||||||||||||
Total other (income) expense | 655 | 93,901 | (556,902 | ) | 231,981 | |||||||||||
Loss before income taxes and equity in net loss of affiliate | (3,478,626 | ) | (2,258,840 | ) | (7,514,937 | ) | (4,764,784 | ) | ||||||||
Income taxes | (23,011 | ) | - | (75,034 | ) | - | ||||||||||
Loss before equity in net loss of affiliate | (3,501,637 | ) | (2,258,840 | ) | (7,589,971 | ) | (4,764,784 | ) | ||||||||
Gain on remeasurement of fair value of equity interest in affiliate prior to acquisition | 6,138,051 | - | 6,138,051 | - | ||||||||||||
Equity in net loss of affiliate | - | (3,454,436 | ) | (1,439,637 | ) | (3,454,436 | ) | |||||||||
Net income (loss) | 2,636,414 | (5,713,276 | ) | (2,891,557 | ) | (8,219,220 | ) | |||||||||
Net loss attributable to noncontrolling interest | 811,239 | - | 811,239 | - | ||||||||||||
Net income (loss) attributable to NextPlat Corp | $ | 3,447,653 | $ | (5,713,276 | ) | $ | (2,080,318 | ) | $ | (8,219,220 | ) | |||||
Comprehensive income (loss): | ||||||||||||||||
Net income (loss) | $ | 2,636,414 | $ | (5,713,276 | ) | $ | (2,891,557 | ) | $ | (8,219,220 | ) | |||||
Foreign currency gain (loss) | 18,801 | (67,635 | ) | (16,152 | ) | (87,753 | ) | |||||||||
Comprehensive income (loss) | $ | 2,655,215 | $ | (5,780,911 | ) | $ | (2,907,709 | ) | $ | (8,306,973 | ) | |||||
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | 3,447,653 | $ | (5,713,276 | ) | $ | (2,080,318 | ) | $ | (8,219,220 | ) | |||||
Weighted number of common shares outstanding – basic | 18,702,857 | 9,469,509 | 17,079,077 | 9,310,936 | ||||||||||||
Weighted number of common shares outstanding – diluted | 20,295,549 | 9,469,509 | 17,079,077 | 9,310,936 | ||||||||||||
Basic earnings (loss) per share | $ | 0.18 | $ | (0.60 | ) | $ | (0.12 | ) | $ | (0.88 | ) | |||||
Diluted earnings (loss) per share | $ | 0.17 | $ | (0.60 | ) | $ | (0.12 | ) | $ | (0.88 | ) | |||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCHANGES IN EQUITY
AND COMPREHENSIVE LOSS
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine months Ended September 30, 2022 | Nine months Ended September 30, 2021 | |||||||||||||
| Net sales | $ | 2,630,826 | $ | 2,250,278 | $ | 9,080,083 | $ | 5,667,966 | ||||||||
| Cost of sales | 1,952,072 | 1,757,142 | 7,032,847 | 4,195,823 | ||||||||||||
| Gross profit | 678,754 | 493,136 | 2,047,236 | 1,472,143 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 1,699,711 | 1,840,760 | 3,434,916 | 2,284,456 | ||||||||||||
| Salaries, wages and payroll taxes | 651,219 | 490,555 | 1,957,592 | 1,178,267 | ||||||||||||
| Professional fees | 356,306 | 320,211 | 839,509 | 869,127 | ||||||||||||
| Depreciation and amortization | 136,457 | 78,456 | 348,022 | 225,404 | ||||||||||||
| Total operating expenses | 2,843,693 | 2,729,982 | 6,580,039 | 4,557,254 | ||||||||||||
| Loss before other expenses and income taxes | (2,164,939 | ) | (2,236,846 | ) | (4,532,803 | ) | (3,085,111 | ) | ||||||||
| Other (income) expense | ||||||||||||||||
| Gain on debt extinguishment | - | - | - | (20,832 | ) | |||||||||||
| Interest earned | (3,849 | ) | (3,146 | ) | (13,421 | ) | (3,146 | ) | ||||||||
| Interest expense | 8,725 | 2,385 | 15,649 | 1,463,986 | ||||||||||||
| Foreign currency exchange rate variance | 89,025 | 69,464 | 229,753 | 41,966 | ||||||||||||
| Total other (income) expense | 93,901 | 68,703 | 231,981 | 1,481,974 | ||||||||||||
| Net loss before income tax expense | $ | (2,258,840 | ) | $ | (2,305,549 | ) | $ | (4,764,784 | ) | $ | (4,567,085 | ) | ||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss before equity net loss of affiliate | (2,258,840 | ) | (2,305,549 | ) | (4,764,784 | ) | (4,567,085 | ) | ||||||||
| Equity in net losses of affiliate | (3,454,436 | ) | - | (3,454,436 | ) | - | ||||||||||
| Net loss | (5,713,276 | ) | (2,305,549 | ) | (8,219,220 | ) | (4,567,085 | ) | ||||||||
| Comprehensive (Loss) Income: | ||||||||||||||||
| Net loss | (5,713,276 | ) | (2,305,549 | ) | (8,219,220 | ) | (4,567,085 | ) | ||||||||
| Foreign currency translation adjustments | (67,635 | ) | 55,584 | (87,753 | ) | 42,850 | ||||||||||
| Comprehensive loss | $ | (5,780,911 | ) | $ | (2,249,965 | ) | $ | (8,306,973 | ) | $ | (4,524,235 | ) | ||||
| NET LOSS INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||||||||||||||||
| Weighted number of common shares outstanding – basic & diluted | 9,469,509 | 6,290,306 | 9,310,936 | 3,271,405 | ||||||||||||
| Basic and diluted net loss per share | $ | (0.60 | ) | $ | (0.37 | ) | $ | (0.88 | ) | $ | (1.40 | ) | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.(Unaudited)
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Nine months Ended September 30, 2022
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
Common Stock $0.0001 Par Value | Additional 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 | 366,000 | 37 | 1,343,529 | - | - | 1,343,566 | ||||||||||||||||||
| Stock based compensation in relation to options granted | - | - | 620,199 | - | - | 620,199 | ||||||||||||||||||
| Comprehensive loss | - | - | - | - | (87,753 | ) | (87,753 | ) | ||||||||||||||||
| Net loss | - | - | - | (8,219,220 | ) | - | (8,219,220 | ) | ||||||||||||||||
| Balance, September 30, 2022 | 9,649,096 | $ | 965 | $ | 48,481,636 | $ | (30,205,435 | ) | $ | (84,517 | ) | $ | 18,192,649 | |||||||||||
For the Nine months Ended September 30, 2021
| Common Stock $0.0001 Par Value | Additional 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 | 925,908 | 92 | 4,629,448 | - | - | 4,629,540 | ||||||||||||||||||
| Issuance of common stock for exercise of options | 17,437 | 2 | 4,998 | - | - | 5,000 | ||||||||||||||||||
| Stock based compensation in connection with options granted | - | - | 1,053,064 | - | - | 1,053,064 | ||||||||||||||||||
| Stock based compensation in connection with restricted stock awards | 50,000 | 5 | 268,495 | - | - | 268,500 | ||||||||||||||||||
| Issuance of common stock for services | 1,000 | - | 14,200 | - | - | 14,200 | ||||||||||||||||||
| Beneficial conversion feature of convertible debt | - | - | 340,420 | - | - | 340,420 | ||||||||||||||||||
| Comprehensive income | - | - | - | - | 42,850 | 42,850 | ||||||||||||||||||
| Net loss | - | - | - | (4,567,085 | ) | - | (4,567,085 | ) | ||||||||||||||||
| Balance, September 30, 2021 | 6,469,263 | $ | 647 | $ | 37,090,491 | $ | (18,445,638 | ) | $ | 18 | $ | 18,645,518 | ||||||||||||
For the Three and Nine Months Ended September 30, 2023
Common Stock | Additional | |||||||||||||||||||||||||||
$0.0001 Par Value | Paid in | Accumulated | Comprehensive | Stockholders’ | Noncontrolling | |||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income (Loss) | Equity NextPlat Corp | Interests | ||||||||||||||||||||||
Balance, December 31, 2022 | 14,402,025 | $ | 1,440 | $ | 56,963,200 | $ | (31,146,804 | ) | $ | (40,717 | ) | $ | 25,777,119 | $ | - | |||||||||||||
Issuance of common stock related to restricted stock award | 39,000 | 4 | 60,536 | - | - | 60,540 | - | |||||||||||||||||||||
Comprehensive loss | - | - | - | - | (22,985 | ) | (22,985 | ) | - | |||||||||||||||||||
Net Loss | - | - | - | (1,187,230 | ) | - | (1,187,230 | ) | - | |||||||||||||||||||
Balance, March 31, 2023 | 14,441,025 | $ | 1,444 | $ | 57,023,736 | $ | (32,334,034 | ) | $ | (63,702 | ) | $ | 24,627,444 | $ | - | |||||||||||||
Issuance of common stock related to April offering | 3,428,571 | 343 | 5,999,657 | - | - | 6,000,000 | - | |||||||||||||||||||||
Issuance of common stock related to exercise of warrants | 105,000 | 10 | 183,740 | - | - | 183,750 | - | |||||||||||||||||||||
Issuance of common stock related to restricted stock award | 725,000 | 73 | 1,183,061 | - | - | 1,183,134 | - | |||||||||||||||||||||
Stock-based compensation in connection with options granted | - | - | 780,867 | - | - | 780,867 | - | |||||||||||||||||||||
Comprehensive loss | - | - | - | - | (11,968 | ) | (11,968 | ) | - | |||||||||||||||||||
Net loss | - | - | - | (4,340,741 | ) | - | (4,340,741 | ) | - | |||||||||||||||||||
Balance, June 30, 2023 | 18,699,596 | $ | 1,870 | $ | 65,171,061 | $ | (36,674,775 | ) | $ | (75,670 | ) | $ | 28,422,486 | $ | - | |||||||||||||
Acquisition of subsidiary and noncontrolling interests | - | - | (34,737 | ) | - | - | (34,737 | ) | 15,957,487 | |||||||||||||||||||
Issuance of common stock related to restricted stock award | 25,000 | 2 | 836,716 | - | - | 836,718 | 150,003 | |||||||||||||||||||||
Stock-based compensation in connection with options granted | - | - | 496,916 | - | - | 496,916 | 1,051,835 | |||||||||||||||||||||
Comprehensive income | - | - | - | - | 18,801 | 18,801 | - | |||||||||||||||||||||
Net income (loss) | - | - | - | 3,447,653 | - | 3,447,653 | (811,239 | ) | ||||||||||||||||||||
Balance, September 30, 2023 | 18,724,596 | $ | 1,872 | $ | 66,469,956 | $ | (33,227,122 | ) | $ | (56,869 | ) | $ | 33,187,837 | $ | 16,348,086 | |||||||||||||
For the Three and Nine Months Ended September 30, 2022
| Common Stock $0.0001 Par Value | Additional Paid in | Accumulated | Comprehensive | Stockholders’ | Common Stock | Additional | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | $0.0001 Par Value | Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income (Loss) | Equity NextPlat Corp | |||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 7,053,146 | $ | 705 | $ | 39,513,093 | $ | (21,986,215 | ) | $ | 3,236 | $ | 17,530,819 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock related to offering | 2,229,950 | 223 | 7,004,815 | - | - | 7,005,038 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock related to restricted stock award | 10,000 | 1 | 34,799 | - | - | 34,800 | ||||||||||||||||||||||||||||||||||||||||||
Comprehensive loss | - | - | - | - | (15,330 | ) | (15,330 | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | (850,083 | ) | - | (850,083 | ) | ||||||||||||||||||||||||||||||||||||||||
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 | 9,293,096 | $ | 929 | $ | 47,206,953 | $ | (24,492,159 | ) | $ | (16,882 | ) | $ | 22,698,841 | ||||||||||||||||||||||
| Stock based compensation in relation to restricted stock award | 356,000 | 36 | 654,484 | - | - | 654,520 | 356,000 | 36 | 654,484 | - | - | 654,520 | ||||||||||||||||||||||||||||||||||||
| Stock based compensation in relation to options granted | - | - | 620,199 | - | - | 620,199 | - | - | 620,199 | - | - | 620,199 | ||||||||||||||||||||||||||||||||||||
| Comprehensive loss | - | - | - | - | (67,635 | ) | (67,635 | ) | - | - | - | - | (67,635 | ) | (67,635 | ) | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | (5,713,276 | ) | - | (5,713,276 | ) | - | - | - | (5,713,276 | ) | - | (5,713,276 | ) | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | 9,649,096 | $ | 965 | $ | 48,481,636 | $ | (30,205,435 | ) | $ | (84,517 | ) | $ | 18,192,649 | 9,649,096 | $ | 965 | $ | 48,481,636 | $ | (30,205,435 | ) | $ | (84,517 | ) | $ | 18,192,649 | ||||||||||||||||||||||
For the Three Months Ended September 30, 2021
| Common Stock $0.0001 Par Value | Additional Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, June 30, 2021 | 5,476,918 | $ | 548 | $ | 31,139,486 | $ | (16,140,089 | ) | $ | (55,566 | ) | $ | 14,944,379 | |||||||||||
| Issuance of common stock related to exercise of options | 17,437 | 2 | 4,998 | - | - | 5,000 | ||||||||||||||||||
| Stock based compensation for restricted stock awards | 50,000 | 5 | 268,495 | - | - | 268,500 | ||||||||||||||||||
| Stock based compensation for options granted | - | - | 1,053,064 | - | - | 1,053,064 | ||||||||||||||||||
| Issuance of common stock from exercise warrant | 924,908 | 92 | 4,624,448 | - | - | 4,624,540 | ||||||||||||||||||
| Comprehensive income | - | - | - | - | 55,584 | 55,584 | ||||||||||||||||||
| Comprehensive income (loss) | - | - | - | - | 55,584 | 55,584 | ||||||||||||||||||
| Net loss | - | - | - | (2,305,549 | ) | - | (2,305,549 | ) | ||||||||||||||||
| Balance, September 30, 2021 | 6,469,263 | $ | 647 | $ | 37,090,491 | $ | (18,445,638 | ) | $ | 18 | $ | 18,645,518 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
| September 30, 2022 | September 30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (8,219,220 | ) | $ | (4,567,085 | ) | ||
| Adjustments to reconcile net loss to net cash (used in) operating activities: | ||||||||
| Depreciation expense | 329,272 | 206,654 | ||||||
| Amortization of intangible asset | 18,750 | 18,750 | ||||||
| Amortization of convertible debt, net | - | 1,425,365 | ||||||
| Amortization of right to use | 58,284 | 24,948 | ||||||
| Stock based compensation in relation to restricted stock awards | 1,343,566 | 268,500 | ||||||
| Fair value of options granted | 620,199 | 1,053,064 | ||||||
| Stock issued for services | - | 14,200 | ||||||
| Share of loss from equity method | 3,454,436 | - | ||||||
| Gain on debt extinguishment | - | (20,832 | ) | |||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (339,258 | ) | (132,808 | ) | ||||
| Inventory | (118,594 | ) | (621,487 | ) | ||||
| Unbilled revenue | (19,937 | ) | (22,353 | ) | ||||
| VAT receivable | 136,299 | (446,657 | ) | |||||
| Prepaid expense | 37,170 | (45,575 | ) | |||||
| Other current assets | 48,539 | (728 | ) | |||||
| Accounts payable and accrued liabilities | 23,700 | (168,557 | ) | |||||
| Lease liabilities | (61,213 | ) | (24,898 | ) | ||||
| Provision for income taxes | (41,313 | ) | 37,603 | |||||
| Contract liabilities | (1,756 | ) | 4,252 | |||||
| Net cash used in operating activities | (2,731,076 | ) | (2,997,644 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (471,118 | ) | (95,598 | ) | ||||
| Purchase of equity method investment | (7,000,000 | ) | - | |||||
| Net cash used in investing activities | (7,471,118 | ) | (95,598 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible note payable | - | 350,000 | ||||||
| Proceeds from (repayments) to note payable, related party, net | (19,616 | ) | (34,787 | ) | ||||
| Proceeds from exercise of options | - | 5,000 | ||||||
| Proceeds from common stock offering | 5,605,038 | 12,661,984 | ||||||
| Proceeds from warrant offering | - | 1,987,589 | ||||||
| Repayments to note payable Coronavirus loans | (51,104 | ) | (11,189 | ) | ||||
| Proceeds from exercise of warrant | - | 4,629,540 | ||||||
| Repayment of note payable | - | (121,848 | ) | |||||
| Net cash provided by financing activities | 5,534,318 | 19,466,289 | ||||||
| Effect of exchange rate on cash | (130,494 | ) | 36,835 | |||||
| Net increase (decrease) in cash | (4,798,371 | ) | 16,409,882 | |||||
| Cash beginning of period | 17,267,978 | 728,762 | ||||||
| Cash end of period | $ | 12,469,607 | $ | 17,138,644 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for | ||||||||
| Interest | $ | 10,137 | $ | 144,187 | ||||
| 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 | $ | - | $ | 1,644,267 | ||||
September 30, 2023 | September 30, 2022 | |||||||
(Unaudited) | (Unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (2,891,557 | ) | $ | (8,219,220 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation expense | 539,235 | 329,272 | ||||||
Change in provision for doubtful accounts | 12,000 | |||||||
Amortization of intangible assets | 653,254 | 18,750 | ||||||
Amortization of right-of-use assets - operating leases | 187,863 | 58,284 | ||||||
Amortization of right-of-use assets - finance leases | 8,336 | - | ||||||
Gain on remeasurement of fair value of equity interest in affiliate prior to acquisition | (6,138,051 | ) | - | |||||
Equity in net loss of affiliate | 1,439,637 | 3,454,436 | ||||||
Stock-based compensation | 4,560,013 | 1,343,566 | ||||||
Fair value of option granted | - | 620,199 | ||||||
Change in operating assets and liabilities: | - | - | ||||||
Accounts receivable | (3,897,500 | ) | (339,258 | ) | ||||
Inventory | (2,069,241 | ) | (118,594 | ) | ||||
Unbilled revenue | (26,976 | ) | (19,937 | ) | ||||
Prepaid expense | (342,831 | ) | 37,170 | |||||
Notes receivable | (251,485 | ) | - | |||||
Other assets | - | 48,539 | ||||||
VAT receivable | 63,347 | 136,299 | ||||||
Accounts payable and accrued expenses | 4,120,297 | 23,700 | ||||||
Operating lease liabilities | (179,122 | ) | (61,213 | ) | ||||
Income taxes payable | 84,066 | (41,313 | ) | |||||
Contract liabilities | (7,192 | ) | (1,756 | ) | ||||
Liabilities from discontinued operations | (112,397 | ) | - | |||||
Net cash used in operating activities | (4,248,304 | ) | (2,731,076 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (457,914 | ) | (471,118 | ) | ||||
Cash acquired in acquisition of subsidiary | 7,352,183 | - | ||||||
Capital contributions to equity method investee | (1,506,000 | ) | (7,000,000 | ) | ||||
Net cash provided by (used in) investing activities | 5,388,269 | (7,471,118 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Repayments of note payable, related party, net | (3,467 | ) | (19,616 | ) | ||||
Issuance of common stock for PIPE transaction | 6,000,000 | 5,605,038 | ||||||
Proceeds from exercise of warrants | 689,750 | - | ||||||
Payments on finance lease liabilities | (7,962 | ) | - | |||||
Repayments of notes payable | (347,830 | ) | (51,104 | ) | ||||
Net cash provided by financing activities | 6,330,491 | 5,534,318 | ||||||
Effect of exchange rate on cash | (15,984 | ) | (130,494 | ) | ||||
Net increase (decrease) in cash | 7,454,472 | (4,798,370 | ) | |||||
Cash beginning of period | 18,891,232 | 17,267,978 | ||||||
Cash end of period | $ | 26,345,704 | $ | 12,469,608 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
Cash paid during the period for | ||||||||
Interest | $ | 353,566 | $ | 10,137 | ||||
Income tax | $ | - | $ | 38,555 | ||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||
Recognition of operating lease liability | $ | - | $ | 904,744 | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
FKA: ORBSAT CORP
Unless the context requires otherwise, references to the “Company”, “we”, “us”, “our”, “our Company”, or “our business” refer to Nextplat Corp and its subsidiaries.
Note 1. Organization and Nature of Operations.
The term “Company” refers to NextPlat Corp and its wholly, majority owned and controlled subsidiaries, except where the context requires otherwise or where otherwise indicated.
NextPlat Corp:
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated interim financial statements have been preparedNextPlat Corp, a Nevada corporation (the “Company”, “NextPlat”, “we”), formerly Orbsat Corp was incorporated 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.1997. 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 nine months ending September 30, 2022, are not necessarily indicative of the results for the remainder of the fiscal year. The consolidated financial statements as of December 31, 2021, 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” for the year ended December 31, 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 March 31, 2022. The consolidated balance sheet as of December 31, 2021 was derived from those financial statements.
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”). 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.
.
Description of Business
Overview
Leveraging the e-commerce experience of the Company’s management team and the Company’s existing e-commerce platforms, 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, 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-partythird-party e-commerce storefronts on platforms 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 a comprehensive systemssystem 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.
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 52.3% and 64.0% of the Company’s revenues during the nine months ended September 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.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 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.
We 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 these 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 provisiona comprehensive array of Satellite Industry communication 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.related equipment sales.
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 Satcom Corp (“Orbital Satcom”) and U.K. basedOur wholly-owned subsidiary, Global Telesat Communications Limited (“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.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 subsidiarywe acquired all of ours.the outstanding equity in GTC.
On March 28, 2014, we merged with a newly-formedOur 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”), a Nevada corporation, was formed on November 14, 2014.
On JanuaryJune 22, 2015, we changed our name to “Orbital Tracking Corp” from “Great West Resources, Inc.” pursuant to2022, NextPlat B.V. (“NXPLBV”) was formed in Amsterdam, Netherlands, as a merger with a newly formed wholly owned subsidiary.subsidiary of NextPlat Corp. Presently, NXPLBV does not have any active operations
Progressive Care Inc.:
Effective March 8, 2018, following Progressive Care Inc. (“Progressive Care”) was incorporated under the approval of a 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 resultlaws of the reverse split, our common stock now hasstate of Delaware on October 31, 2006.
Progressive, through its wholly-owned subsidiaries, Pharmco, LLC (“Pharmco 901”), Touchpoint RX, LLC doing business as Pharmco Rx 1002, LLC (“Pharmco 1002”), Family Physicians RX, Inc. doing business as PharmcoRx 1103 and PharmcoRx 1204 (“FPRX” or “Pharmco 1103” and “Pharmco 1204”) (pharmacy subsidiaries collectively referred to as “Pharmco”), and ClearMetrX Inc. (“ClearMetrX”) is a personalized healthcare services and technology company that provides prescription pharmaceuticals and risk and data management services to healthcare organizations and providers.
Pharmco 901 was formed on November 29, 2005 as a Florida Limited Liability Company and is a 100% owned subsidiary of Progressive Care. Pharmco 901 was acquired by Progressive on October 21, 2010. Progressive currently delivers prescriptions to Florida’s diverse population and ships medications to patients in states where they hold non-resident pharmacy licenses as well. Progressive currently holds Florida Community Pharmacy Permits at all Florida pharmacy locations and the CUSIP number: 68557F100. All share and per share, informationPharmco 901 location is licensed as a non-resident pharmacy in the following states: Arizona, Colorado, Connecticut, Georgia, Illinois, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Texas, and Utah. Progressive is able to dispense to patients in the state of Massachusetts without a non-resident pharmacy license because Massachusetts does not require such a license for these activities.
Pharmco 1103 is a pharmacy with locations in North Miami Beach and Orlando, Florida that provides Pharmco’s pharmacy services to Miami-Dade County, Broward County, the Orlando/Tampa corridor, and the Treasure Coast of Florida. Progressive acquired all the ownership interests in Pharmco 1103 in a purchase agreement entered into on June 1, 2019.
Pharmco 1002 is a pharmacy located in Palm Springs, Florida that provides Pharmco’s pharmacy services to Palm Beach, St. Lucie and Martin Counties, Florida. Progressive acquired all the ownership interests in Pharmco 1002 in a purchase agreement entered into on July 1, 2018.
ClearMetrX was formed on June 10, 2020 and provides third-party administration (“TPA”) services to 340B covered entities. ClearMetrX also provides data analytics and reporting services to support and improve care management for health care organizations.
RXMD Therapeutics was formed on October 1, 2019. RXMD Therapeutics has had no operating activity to date.
Note 2. Basis of Presentation and Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), consistent in all material respects with those applied in the 2022 Form 10-K, for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes normally included in annual consolidated financial statements and 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.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 filedshould be read in conjunction with the SEC on March 13, 2021. The Company’s Boardconsolidated financial statements and notes thereto included in the 2022 Form 10-K. In the opinion of Directors subsequently approvedmanagement, the Condensed Consolidated Financial Statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a 1-for-5 reverse stock split. The Company 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 timefair presentation of the reverse stock split was 12:01 a.m. ET on May 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 sharescondensed consolidated balance sheets, statements of common stock were issued as a resultcomprehensive loss, statements of stockholders’ equity and statements of cash flows for such interim periods presented. Additionally, operating results for interim periods are not necessarily indicative of the reverse stock split. Stockholders of record who would otherwiseresults that can be entitled to receiveexpected for a fractional share 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 corporate 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 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.full year.
On September 2, 2022, the Company closed a transaction with Progressive Care Inc. (OTCQB: RXMD) (“Progressive Care”), pursuant to which we purchased newly issued units of securities from Progressive Care (the “Units”) at a price per Unit of $2,000 for an aggregate purchase price of $6 million (the “Unit Purchase”). Each Unit consists of one share of Series B Convertible Preferred StockBusiness acquisition of Progressive Care, (“Series B Preferred Stock”) and one warrant to purchase a share of Series B Preferred Stock (“RXMD Warrants”).Inc.
Each share of Series B Preferred Stock votes as a class with On July 1, 2023, the common stock of Progressive Care, and has votes per share. Likewise, each share of Series B Preferred Stock is convertible into shares of Progressive common stock. In addition, the Series B Preferred Stock has a liquidation and dividend preference. The RXMD Warrants have a five-year term, and are immediately exercisable, in whole or in part, and contain cashless exercise provisions. Each Warrant is exercisable at $2,000 per share of Series B Preferred Stock.
Following the consummation of the Unit Purchase, ourCompany, Charles M. Fernandez, Executive Chairman and Chief Executive Officer Charles M. Fernandez,of the Company, and our board member, Rodney Barreto, Director of the Company, exercised common stock purchase warrants and were appointed to Progressive Care’s Board of Directors, with Mr. Fernandez appointed to serve as Chairman of Progressive Care’s Board of Directors and Mr. Barreto appointed to serve as a Vice Chairman of Progressive Care’s Board of Directors. On November 11, 2022, the Progressive Care board of directors elected Mr. Fernandez to serve as the Chief Executive Officer ofissued common stock shares by Progressive Care.
In addition, on September 2, 2022, NextPlat, Charles Fernandez, Rodney Barreto and certain other purchasers purchased from Iliad Research and Trading, L.P. (“Iliad”) a Secured Convertible Promissory Note, dated March 6, 2019, made by Progressive Care to Iliad (the “Note”). The accrued and unpaid principal and interest under After the note at the timeexercise of the common stock purchase was approximately $2.79 million. The aggregate purchase price paid to Iliad forwarrants, the Note was $2.3 Million of which NextPlat contributed $1 millionCompany and Messrs. Fernandez and Barreto contributed $400,000 each (the “Note Purchase”).
In connection withcollectively owned 53% of Progressive Care’s voting common stock. At the Note Purchase, NextPlat,time of exercise, all of the above common stock purchase warrants were in-the-money. Also on July 1, 2023, the Company and Messrs. Fernandez and Barreto and the other purchasers of the Note entered into a Debt Modification Agreement with Progressive Care. Pursuant to the Debt Modification Agreement, the interest rate under the Note was reduced from 10% to 5% per annum and the maturity date was extended to May 31, 2027. In addition, the conversion price under the note was changed to $0.02 per share of Common Stock. Pursuant to the Debt Modification Agreement, NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note have the right, exercisablevoting agreement whereby at any time, to redeem allannual or any portionspecial shareholders meeting of Progressive Care’s stockholders, and whenever the Note. The Debt Modification Agreement also provides that the Note will automatically convert upon the later to occur of: (a) the completion by Progressive Care of a reverse stock split, and (b) the listingholders of Progressive Care’s common stock on a national exchange. In considerationact by written consent, Messrs. Fernandez and Barreto agreed to vote all of the concessionscommon stock shares (including any new shares acquired after the date of the voting agreement or acquired through the conversion of securities convertible into Common Stock) that they own, directly or indirectly, in the Debt Modification Agreement, Progressive Care issued shares ofsame manner that NextPlat votes its common stock and equivalents. The voting agreement is irrevocable and perpetual in term.
The exercise of the stock options, along with the entry into the voting agreement, resulted in a change in control of Progressive Care under the voting interest model in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805,Business Combination, and was accounted for as a business acquisition. Therefore, Progressive Care became a consolidated subsidiary of the Company on July 1, 2023. The Company previously accounted for its equity interest in Progressive Care as an equity method investment.
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Certain 2022 financial information has been reclassified to conform to the purchasers of2023 presentation. Such reclassifications do not impact the Note, of which NextPlat, Charles Fernandez and Rodney Barreto, received 9,130,435, 3,652,174, and 3,652,174 shares, respectively.
All information presented in this Quarterly Report on Form 10-Q other than in Company’s consolidatedpreviously reported financial statements and the notes thereto assumes a 1-for-5 reverse stock split of Company’s outstanding shares of common stock effective May 28, 2021 and unless otherwise indicated, all such amounts and corresponding conversion priceposition 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.net income (loss).
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,Condensed 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 andfair value of net assets acquired in the business combination with Progressive Care Inc. common stock and options issued for services.services, net realizable value of accounts receivables the useful lives of property and equipment and intangible assets, the estimate of the fair value of the lease liability and related right of use assets, and the estimates of the valuation allowance on deferred tax assets and corporate income taxes.
Note 3. Summary of Significant Accounting Policies
The significant accounting policies of the Company were described in Note 1 to the Audited Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2022. Progressive Care became a consolidated subsidiary of the Company on July 1, 2023 and as a result the Company has incorporated certain significant accounting policies of Progressive Care for the three months ended September 30, 2023.
ReclassificationCash
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.institutions. 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, ($11,884,437 at September 30, 2022),$250,000, approximately $2.1 million, are unsecured. To reduce its risk associated with the failure of such financial institution, In April 2023, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.
Accounts receivableentered into a deposit placement agreement for Insured Cash Sweep Service (“ICS”). This service is a secure, and allowance for doubtful accounts
convenient way to access FDIC protection on large deposits, earn a return, and enjoy flexibility. 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 indicatebelieves that the realization of an account may be in doubt. Account balances deemedICS agreement will mitigate its credit risk as it relates 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 September 30, 2022, and December 31, 2021, there were no allowances for doubtful accounts.
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 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 oruninsured FDIC amounts 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.$250,000.
Prepaid expenses
Prepaid expenses amounted to $109,765 and $146,935, at September 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.
Investments
The Company applies the equity method of accounting to investments when it has significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The carrying value of our equity method investment is reported as “equity method investment” on the condensed consolidated balance sheets. The Company’s equity method investment is reported at cost and adjusted each period for the Company’s share of the investee’s income or loss and dividend paid, if any. The Company’s proportionate share of the net loss resulting from these investments is reported under the line item captioned “equity in net loss of affiliate” in the condensed consolidated statements of operations and comprehensive loss. Note 7 contains additional information on the equity method investment.
The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. Management reviewed the underlying net assets of the investees as of September 30, 2022 and determined that the Company’s proportionate economic interest in the investees indicate that the investments were not impaired.
Foreign Currency Translation
The Company’s reporting currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries, GTCL,GTC, 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 condensed consolidated statements of operations.comprehensive loss.
The relevant translation rates are as follows: for the three and nine months ended September 30, 2022,2023, closing rate at 1.1150$1.22 US$: GBP, quarterly average rate at 1.176596 US$: GBP and yearly average rate at 1.258384444$1.26 US$: GBP, for the three and nine months ended September 30, 20212022, closing rate at 1.342642$1.12 US$: GBP, quarterly average rate at 1.3784972 US$: GBP and yearly average rate at 1.3853499$1.18 US$: GBP, for the year ended 2021December 31, 2022 closing rate at 1.3533721.21 US$: GBP, yearly average rate at 1.3750831.24 US$: GBP.
Unearned Revenue
Contract liabilities are shown separately in the condensed consolidated balance sheets as current liabilities. At September 30, 2023 and December 31, 2022, we had contract liabilities of approximately $29,000 and $36,000, respectively.
Accounts Receivable and Allowance for Doubtful Accounts
Progressive Care trade accounts receivable are stated at the invoiced amount. Trade accounts receivable primarily include amounts from third-party pharmacy benefit managers (“PBMs”) and insurance providers and are based on contracted prices. Trade accounts receivable are unsecured and require no collateral. Progressive Care records an allowance for doubtful accounts for estimated differences between the expected and actual payment of accounts receivable. These reductions were made based upon reasonable and reliable estimates that were determined by reference to historical experience, contractual terms, and current conditions. Each quarter, the Progressive Care reevaluates its estimates to assess the adequacy of its allowance and adjusts the amounts as necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Goodwill
Goodwill represents the excess of the purchase price of over the value assigned to net tangible and identifiable intangible assets. Progressive Care is considered to be the reporting unit for goodwill. Acquired intangible assets other than goodwill are amortized over their useful lives unless the lives are determined to be indefinite. For intangible assets purchased in a business combination, the estimated fair values of the assets received are used to establish their recorded values. Valuation techniques consistent with the market approach, income approach, and/or cost approach are used to measure fair value. Goodwill and other indefinite-lived intangible assets are assessed annually for impairment in the fourth fiscal quarter and in interim periods if events or changes in circumstances indicate that the assets may be impaired.
Direct and Indirect Remuneration ("DIR") Fees
Progressive Care reports DIR fees as a reduction of revenue on the accompanying Consolidated Statements of Operations. DIR fees are fees charged by PBMs to pharmacies for network participation as well as periodic reimbursement reconciliations. For some pharmacy benefit managers ("PBMs"), DIR fees are charged at the time of the settlement of a pharmacy claim. Other PBMs do not determine DIR fees at the claim settlement date, and therefore DIR fees are collected from pharmacies after claim settlement, often as clawbacks of reimbursements based on factors that vary from plan to plan. For example, two PBMs calculate DIR fees on a trimester basis and charge Progressive Care for these fees as reductions of reimbursements paid to Progressive Care two to three months after the end of the trimester (e.g., DIR fees for January – April 20xx claims were charged by these PBMs in July – August 20xx). For DIR fees that are not collected at the time of claim settlement, Progressive Care records an accrued liability at each reporting date for estimated DIR fees that are expected to be collected by the PBMs in a future period. The estimated liability for these fees is highly subjective and the actual amount collected may differ from the accrued liability. The uncertainty of management’s estimates is due to inadequate disclosure to Progressive Care by the PBMs as to exactly how these fees are calculated either at the time the DIR fees are actually assessed and reported to Progressive Care. The detail level of the disclosure of assessed DIR fees varies based on the information provided by the PBM.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which introduces an impairment model based on expected, rather than incurred, losses. Additionally, it requires expanded disclosures regarding (a) credit risk inherent in a portfolio and how management monitors the portfolio’s credit quality; (b) management’s estimate of expected credit losses; and (c) changes in estimates of expected credit losses that have taken place during the period. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” This ASU clarifies receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” This ASU clarifies various scoping and other issues arising from ASU 2016-13. In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This ASU improves the Codification and amends the interaction of Topic 842 and Topic 326. ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted this guidance effective January 1, 2023 and the adoption had no material impact on our condensed consolidated financial statements and related disclosures. On an ongoing basis, the Company will contemplate forward-looking economic conditions in recording lifetime expected credit losses for the Company’s financial assets measured at cost, such as the Company’s trade receivables.
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 condensed 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 condition, results of operations, cash flows or disclosures.
Subsequent Events
The Company has evaluated subsequent events through November [ ], 2023, the date the condensed consolidated financial statements were available to be issued. See Note [] for subsequent events that require disclosure in the condensed consolidated financial statements.
Note 4. Acquisition - Provisional
On July 1, 2023, the Company, along with Messrs. Fernandez and Barreto, exercised common stock purchase warrants and were issued common stock shares by Progressive Care. The Company exercised common stock purchase warrants on a cashless basis and was issued 402,269 common stock shares. The Company also exercised common stock purchase warrants on a cash basis and paid consideration in the amount of $506,000 and was issued 230,000 common stock shares. Mr. Fernandez exercised common stock purchase warrants on a cashless basis and was issued 211,470 common stock shares. Mr. Barreto exercised common stock purchase warrants on a cashless basis and was issued 130,571 common stock shares. At the time of exercise, all of the above common stock purchase warrants were in-the-money. After the exercise of the common stock purchase warrants, the Company and Messrs. Fernandez and Barreto collectively owned approximately 53% of Progressive Care’s voting common stock.
Also, on July 1, 2023, the Company, along with Messrs. Fernandez and Barreto, entered into a voting agreement whereby at any annual or special shareholders meeting of Progressive Care’s stockholders, and whenever the holders of Progressive Care’s common stock act by written consent, Messrs. Fernandez and Barreto agreed to vote all of the common stock shares (including any new shares acquired after the date of the voting agreement or acquired through the conversion of securities convertible into Common Stock) that they own, directly or indirectly, in the same manner that the Company votes its common stock and equivalents. The voting agreement is irrevocable and perpetual in term.
As a result of the common stock purchase warrant exercises and the entry into the voting agreement, the Company concluded that there was a change in control in Progressive Care. As of July 1, 2023, NextPlat has the right to control more than 50 percent of the voting interests in Progressive Care through the concurrent common stock purchase warrant exercises and voting agreement noted above. Beginning on July 1, 2023, the Company changed the accounting method for its investment in Progressive Care, which prior to July 1, 2023 had been accounted for as an equity method investment to consolidation under the voting interest model in FASB ASC Topic 805. Therefore, Progressive Care became a consolidated subsidiary of the Company on July 1, 2023.
Final purchase accounting adjustments may be materially different from the pro forma adjustments presented in this document. Increases or decreases in the fair value of the net assets may change the amount of the purchase price allocated to goodwill and other assets and liabilities. Measurement period adjustments will be recognized prospectively. The measurement period is not to exceed 12 months from the respective dates of acquisition.
Progressive Care contributed revenues of approximately $12.4 million and a net loss of approximately $1.4 million to the Company for the period from July 1, 2023 to September 30, 2023. The following unaudited pro forma summary presents consolidated information of NextPlat Corp as if the business combination had occurred on January 1, 2022.
For the Three Months Ended September 30, 2023 | For the Three Months Ended September 30, 2022 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue | $ | 15,290,000 | $ | 12,775,000 | ||||
Earnings | $ | 4,076,000 | $ | (13,777,000 | ) | |||
For the Nine Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2022 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue | $ | 44,071,000 | $ | 39,248,000 | ||||
Earnings | $ | (6,219,000 | ) | $ | (16,511,000 | ) | ||
The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.
The following table summarizes the consideration transferred to acquire a controlling interest in Progressive Care and the amounts of identified assets acquired and liabilities assumed at the acquisition date, as well as the fair value of the noncontrolling interest in Progressive Care at the acquisition date:
Purchase Price Allocation | ||||
Total purchase consideration | $ | 11,465,000 | ||
Fair value of non-controlling interest | 15,957,000 | |||
Total consideration | $ | 27,422,000 | ||
Identifiable net assets acquired - Provisional: | ||||
Cash | $ | 7,352,000 | ||
Accounts receivable, net | 6,478,000 | |||
Accounts receivable, other | 506,000 | |||
Inventory | 1,631,000 | |||
Prepaid expenses | 220,000 | |||
Property and equipment, net | 2,883,000 | |||
Right of use assets, net | 405,000 | |||
Intangible assets, net: | ||||
Trade name | 4,060,000 | |||
Development technology | 2,560,000 | |||
Pharmacy records | 8,100,000 | |||
Other | - | |||
Deposits | 39,000 | |||
Accounts payable and accrued expenses | (8,196,000 | ) | ||
Notes payable and accrued interest - current portion | (149,000 | ) | ||
Lease liabilities - current portion | (208,000 | ) | ||
Notes payable - long term | (1,173,000 | ) | ||
Lease liabilities - long term | (230,000 | ) | ||
Net assets acquired | $ | 24,278,000 | ||
Goodwill | $ | 3,144,000 | ||
The total consideration is based on the fair value of Progressive Care’s common stock outstanding at July 1, 2023, which was 6,162,343 common shares outstanding and a fair market value of $4.45 per share.
As a result of NextPlat obtaining control over Progressive Care, NextPlat’s previously held equity interest in Progressive Care was remeasured to fair value, resulting in a gain of approximately $6.1 million, which has been recognized in the line item “Gain on remeasurement of fair value of equity interest in affiliate prior to acquisition” on the condensed consolidated statements of comprehensive income (loss).
The fair value of the noncontrolling interest of approximately $16.0 million and the fair value of the previously held equity interest of approximately $11.5 million in Progressive Care were estimated by applying a market approach and an income approach, respectively. These fair value measurements of the noncontrolling interest and the previously held equity interest are based on significant inputs not observable in the market, and thus represent Level 3 measurements. The fair value estimates for the noncontrolling interest and the previously held equity interest are based on (1) an assumed discount rate range of 10% to 11%, (2) an assumed terminal value based on long-term sustainable growth rates ranging from 3.0% to 4.8%,(3) assumed financial multiples of reporting entities deemed to be similar to Progressive Care, and (4) assumed adjustments because of the lack of control or lack of marketability, as relevant, that market participants would consider when estimating the fair value of the noncontrolling interest and the previously held equity interest in Progressive Care.
The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after NextPlat’s acquisition of a controlling interest in Progressive Care. The goodwill is not deductible for tax purposes.
Note 5. Fair Value
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Revenue Recognition and Unearned RevenueLevel 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
● | Cash, accounts receivable, and accounts payable and accrued liabilities: The amounts reported in the accompanying Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature. |
● | Notes payable and lease liabilities: The carrying amount of notes payable approximated fair value due to variable interest rates at customary terms and rates the Company could obtain in current financing. The carrying value of lease liabilities approximated fair value due to the implicit rate in the lease in relation to the Company’s borrowing rate and the duration of the leases (Level 2 inputs). |
Identifiable Intangible Assets
The initial recognition of the Progressive Care's identifiable intangible assets, resulting from the acquisition on July 1, 2023 and the application of push-down accounting, were measured using Level 3 inputs. The fair value at the date of acquisition was approximately $14.7 million.
Note 6. Revenue
e-Commerce 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 and accepted by the customer 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.
Healthcare revenue:
The Company’s customers generally purchaseCompany recognizes pharmacy revenue and 340B contract revenue from dispensing prescription drugs at the time the drugs are physically delivered to a combinationcustomer or when a customer picks up their prescription or purchases merchandise at the store, which is the point in time when control transfers to the customer. Each prescription claim is considered an arrangement with the customer and is a separate performance obligation. Payments are received directly from the customer at the point of our productssale, or the customers’ insurance provider is billed electronically. For third-party medical insurance and services as partother claims, authorization is obtained to ensure payment from the customer’s insurance provider before the medication is dispensed to the customer. Authorization is obtained for these sales electronically and a corresponding authorization number is issued by the customers’ insurance provider.
The Company accrues an estimate of pharmacy benefit manager (“PBM”) fees, including direct and indirect remuneration (“DIR”) fees, which are assessed or expected to be assessed by payers at some point after adjudication of a multiple element arrangement. claim, as a reduction of revenue at the time revenue is recognized. Changes in the estimate of such fees are recorded as an adjustment to revenue when the change becomes known.
The Company’s assessment of whichCompany recognizes COVID-19 testing revenue recognition guidancewhen the tests are performed and results are delivered to the customer. Each test is appropriate to account for each element inconsidered an arrangement can involve significant judgment. This assessment haswith the customer and is a significant impact onseparate performance obligation. Payment is generally received in advance from the amount and timingcustomer.
The following table disaggregates net revenues by categories:
Three Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Sales of products, net: | ||||||||
Pharmacy prescription and other revenue, net of PBM fees | $ | 9,887,890 | $ | - | ||||
e-Commerce revenue | 2,930,721 | 2,630,826 | ||||||
Sub total | 12,818,611 | 2,630,826 | ||||||
Revenues from services: | ||||||||
Pharmacy 340B contract revenue | 2,471,560 | - | ||||||
Revenues, net | $ | 15,290,171 | $ | 2,630,826 | ||||
Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Sales of products, net: | ||||||||
Pharmacy prescription and other revenue, net of PBM fees | $ | 9,887,890 | $ | - | ||||
e-Commerce revenue | 8,764,237 | 9,080,083 | ||||||
Sub total | 18,652,127 | 9,080,083 | ||||||
Revenues from services: | ||||||||
Pharmacy 340B contract revenue | 2,471,560 | - | ||||||
Revenues, net | $ | 21,123,687 | $ | 9,080,083 | ||||
Note 7. Earnings (Loss) per Share
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 applied to contracts when it 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 transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
In accordance with ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient, 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 September 30, 2022 and December 31, 2021, we had contract liabilities of approximately $35,009 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.
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)
Property and equipment
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
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 September 30, 2022 and September 30, 2021, respectively.
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.
The Company did not identify any 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.
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.
The Company records stock-based payments made to non-employees in accordance with Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns accounting for share-based payments issued to non-employees to that of employees under the existing guidance of Topic 718, with certain exceptions.
Income Taxes
The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“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 assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for 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 is 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,” 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 September 30, 2022 and December 31, 2021, the Company had aggregated current and long-term operating lease liabilities of $863,294 and $19,763, respectively, and right of use assets of $865,115and $22,643, respectively.
The Company continues to account for leases in the prior period financial statements under ASC Topic 840.
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 nine months ended September 30, 2022 and the September 30, 2021, there were no expenditures on research and development.
Net income (loss) per common share is calculated in accordance with ASCAccounting Standards Codification (“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. In periods where the Company has a net loss, all dilutive securities are excluded.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income (loss) attributable to NextPlat Corp common shareholders | $ | 3,447,653 | $ | (5,713,276 | ) | $ | (2,080,318 | ) | $ | (8,219,220 | ) | |||||
Basic weighted average common shares outstanding | 18,702,857 | 9,469,509 | 17,079,077 | 9,310,936 | ||||||||||||
Potentially dilutive common shares | 1,592,692 | - | - | - | ||||||||||||
Diluted weighted average common shares outstanding | 20,295,549 | 9,469,509 | 17,079,077 | 9,310,936 | ||||||||||||
Basic weighted average earnings (loss) per common share | $ | 0.18 | $ | (0.60 | ) | $ | (0.12 | ) | $ | (0.88 | ) | |||||
Diluted weighted average earnings (loss) per common share | $ | 0.17 | $ | (0.60 | ) | $ | (0.12 | ) | $ | (0.88 | ) | |||||
Potentially dilutive common shares excluded from the calculation of diluted weighted average loss per common share: | ||||||||||||||||
Stock options | - | 273,607 | 156,327 | 292,959 | ||||||||||||
Common stock purchase warrants | - | - | 876,042 | - | ||||||||||||
| - | 273,607 | 1,032,369 | 292,959 | |||||||||||||
Note 8. Accounts Receivable
At September 30, 2023 and December 31, 2022, accounts receivable consisted of the following:
September 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | (Audited) | |||||||
Gross accounts receivable – trade | $ | 8,039,121 | $ | 383,786 | ||||
Less: allowance for doubtful accounts | (237,000 | ) | - | |||||
Accounts receivable – trade, net | $ | 7,802,121 | $ | 383,786 | ||||
Bad debt expense was approximately $12,000 and $- for the three and nine months ended September 30, 2023 and 2022, respectively.
Accounts receivable – trade, net for the Company as of January 1, 2022 and September 30, 2022 were approximately $0.3 million and $0.7 million, respectively.
Note 9. Inventory
At September 30, 2023 and December 31, 2022, inventory consisted of the following:
September 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | (Audited) | |||||||
Finished goods | $ | 5,026,734 | $ | 1,286,612 | ||||
Less reserve for obsolete inventory | (40,000 | ) | - | |||||
Total | $ | 4,986,734 | $ | 1,286,612 | ||||
The following are dilutive common stock equivalents during the year ended:
SCHEDULE OF DILUTIVE COMMON STOCK EQUIVALENTS
| September 30, 2022 | September 30, 2021 | |||||||
| Stock Options | 1,149,701 | 854,892 | ||||||
| Stock Warrants | 2,530,092 | 2,530,092 | ||||||
| Total | 3,679,793 | 3,384,984 | ||||||
Related Party Transactions
A party is considered to be relatedincrease in inventory was attributable 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 ownersconsolidation of the Company, its management, membersProgressive Care as of the immediate familiesJuly 1, 2023.
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 is currently evaluating the impact and timing of adoption 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 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 condition, results of operations, cash flows or disclosures.
Note 10. VAT Receivable
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVENTORY
At September 30, 2022 and December 31, 2021, inventories consisted of the following:
SCHEDULE OF INVENTORIES
| September 30, 2022 | December 31, 2021 | |||||||
| Finished goods | $ | 1,138,290 | $ | 1,019,696 | ||||
| Less reserve for obsolete inventory | - | - | ||||||
| Total | $ | 1,138,290 | $ | 1,019,696 | ||||
For the nine months ended September 30, 2022 and the year ended December 31, 2021, the Company 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 result of the UK’s departure from the EU, (“BREXIT”). For the nine months ended EU. As of September 30, 20222023 and the year ended December 31, 2021,2022, the Company recorded a receivable in the amount of approximately $355,118369,000 and $491,417433,000, respectively, for amounts available to reclaim against the tax liability from UK and EU countries.
Note 11. Prepaid Expenses
NOTE 4 – PREPAID EXPENSES
Prepaid expenses current and long term amounted to approximately $109,765866,000 and $146,93549,000, respectively at September 30, 20222023, as compared to $46,000 and $49,000, respectively at December 31, 2021, respectively.2022. Prepaid expenses include prepayments in cash for rent,accounting fees, public company expenses, insurance, and software license fees which are being amortized over the terms of thetheir respective agreement.agreements, as well as cost associated with certain contract liabilities. The current portion consists of costs paid for future services which will occur within a year.
The increase in prepaid expenses was attributable to the consolidation of Progressive Care as of July 1, 2023.
NOTE 5 – PROPERTY AND EQUIPMENTNote 12. Property and Equipment, net
Property and equipment, net consisted of the following:
September 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | (Audited) | |||||||
Building | $ | 2,116,000 | $ | - | ||||
Vehicles | 491,466 | - | ||||||
Office furniture and fixtures | 502,099 | 128,252 | ||||||
Land | 184,000 | - | ||||||
Leasehold improvements | 123,630 | 47,792 | ||||||
Computer equipment | 77,590 | 72,345 | ||||||
Rental equipment | 57,759 | 37,531 | ||||||
Appliques | 2,160,096 | 2,160,096 | ||||||
Website development | 738,784 | 665,030 | ||||||
Property and equipment gross | 6,451,424 | 3,111,046 | ||||||
Less: accumulated depreciation | (2,404,570 | ) | (1,865,244 | ) | ||||
Property and equipment, net | $ | 4,046,854 | $ | 1,245,802 | ||||
Depreciation expense was approximately At $540,000 and $329,000 for the nine months ended September 30, 2022 2023 and December 31, 2021,2022, respectively.
The increase in property and equipment was attributable to the consolidation of Progressive Care as of July 1, 2023.
Note 13. Intangible Assets, net of fully depreciated- Provisional
Intangible assets, net consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| September 30, 2022 | December 31, 2021 | |||||||
| Office furniture and fixtures | $ | 94,644 | $ | 16,969 | ||||
| Computer equipment | 72,374 | 67,458 | ||||||
| Rental equipment | 43,909 | 53,296 | ||||||
| Leasehold improvements | 39,693 | - | ||||||
| Appliques | 2,160,096 | 2,160,096 | ||||||
| Website development | 578,343 | 247,541 | ||||||
| Less accumulated depreciation | (1,802,960 | ) | (1,502,501 | ) | ||||
| Total | $ | 1,186,099 | $ | 1,042,859 | ||||
Depreciation expense was $329,272 and $206,654 for the nine months ended September 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.
September 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | (Audited) | |||||||
Pharmacy records | $ | 8,100,000 | $ | - | ||||
Trade names | 4,060,000 | - | ||||||
Developed technology | 2,560,000 | - | ||||||
Customer Contracts | 250,000 | 250,000 | ||||||
Subtotal | $ | 14,970,000 | $ | 250,000 | ||||
Less: accumulated amortization | (853,252 | ) | (199,999 | ) | ||||
Net intangible assets | $ | 14,116,748 | $ | 50,001 | ||||
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – INTANGIBLE ASSETS (continued)
Included in the purchased assets are: (i) the rights and benefits granted to GTC under each of 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 areis included in depreciation and amortization.amortization in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss). For the nine months ended September 30, 2022 2023 and 2021,2022, the Company amortized $18,750recognized amortization expense of approximately $0.7 million and $18,750,$18,750, respectively. Future amortization of intangible assets is as follows:
SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS
| 2022 | $ | 6,250 | ||||||
| 2023 | 25,000 | |||||||
Year | Amount | |||||||
2023 (remaining three months) | $ | 640,748 | ||||||
| 2024 | 25,000 | 2,563,000 | ||||||
2025 | 2,538,000 | |||||||
2026 | 2,538,000 | |||||||
2027 | 2,538,000 | |||||||
Thereafter | 3,299,000 | |||||||
| Total | $ | 56,250 | $ | 14,116,748 | ||||
ForThe increase in intangible assets was attributable to the nine months ended September 30, 2022 and 2021, there were no additional expenditures on research and development.
NOTE 7 – EQUITY METHOD INVESTMENT IN PROGRESSIVE CARE, INC. AND SUBSIDIARIES
consolidation of Progressive Care Inc. (a publicly traded company) is a personalized healthcare services and technology company that provides prescription pharmaceuticals and risk and data management services to healthcare organization and providers. as of July 1, 2023.
Note 14. Equity Method Investment
On August 30, 2022, NextPlat entered into a Securities Purchase Agreement (the “SPA”) between NextPlat and Progressive Care, under which NextPlat, its Executive Chairman and Chief Executive Officer, Charles M. Fernandez, board member, Rodney Barreto, and certain other investors invested an aggregate of $8.3 million into Progressive Care. In connection with the CompanySPA, NextPlat purchased 3,000 newly issued Units of Progressive Care valued at $6 million, with each Unit comprised of one share of Progressive Care’s Series B Convertible Preferred Stock, $0.001 par value, and one Investor Warrant to purchase a share of Series B Convertible Preferred Stock at an exercise price of $2,000 The Investor Warrants may also be exercised, in whole or in part, by means of a cashless exercise. The Convertible Preferred Stock has a stated value of $2,000 per share and each Preferred Stock share has the equivalent voting rights of 500 common stock shares (after giving effect to the Reverse Stock Split described below). Each share of Series B Convertible Preferred Stock is convertible at any time at the option of the holder into shares of Progressive Care Common Stock shares determined by dividing the stated value by the conversion price which is $4.00 (after giving effect to the Reverse Stock Split described below).
In addition, on August 30, 2022, NextPlat Corp, Messrs. Fernandez and Barreto, and certain other investors (collectively, the “NextPlat Investors”) entered into a Modification Agreement wherein the terms were modified for an existing Secured Convertible Promissory Note (the “Note”) originally held by a third party note holder and sold to the NextPlat Investors. The NextPlat Investors purchased the Note as part of a Confidential Note Purchase and Release Agreement between the former note holder and the NextPlat Investors. As of the date of the SPA, the aggregate amount of principal and interest outstanding on the Note was approximately $2.8 million. As part of the Modification Agreement, various terms of the Note were modified, among them, the Conversion Price for the Note was modified to a fixed price of $4.00 per share of common stock (after giving effect to the Reverse Stock Split described below). In addition, the Note was modified to provide for mandatory conversion upon the later to occur of (a) the completion of the Company’s reverse stock split, and (b) the listing of the Company’s common stock on a national exchange, including the Nasdaq Capital Market, the Nasdaq Global Market, or the New York Stock Exchange. Also, pursuant to the SPA, Messrs. Fernandez and Barreto were nominated for election to Progressive Care’s Board of Directors.
On September 13, 2022, the Progressive Care Board of Directors appointed Charles M. Fernandez as Chairman of the Board of Directors and Rodney Barreto as the Vice Chairman of the Board of Directors. In connection with these appointments, Alan Jay Weisberg, Progressive Care’s current Chairman and Chief Executive Officer, was appointed to serve as a Vice Chairman. On September 12, 2022, two of Progressive Care’s Directors, Birute Norkute and Oleg Firer, resigned as Directors. On October 7, 2022, the Progressive Care Board of Directors unanimously voted to approve the appointment of Pedro Rodriguez, MD to the Board. Dr. Rodriguez was nominated to the Progressive Care Board by NextPlat.
On November 11, 2022, Mr. Weisberg resigned from his positions as Progressive Care’s Chief Executive Officer and co-Vice-Chairman of the Board of Directors. On the same date, the Board appointed Mr. Fernandez to serve as the new Chief Executive Officer immediately.
On December 29, 2022, Progressive Care filed a Certificate of Amendment to Articles of Incorporation (the “Amendment to Articles”) with the Secretary of State of the State of Delaware. Pursuant to the Amendment to Articles, each 200 shares of Progressive Care’s common stock outstanding was converted into one share of common stock (the “Reverse Stock Split”) and the number of shares of common stock that Progressive Care is authorized to issue was reduced to 100 million (the “Reduction in Authorized Stock”). The Reverse Stock Split and the Reduction in Authorized Stock were approved by the Progressive Care Board of Directors and the shareholders.
On May 5, 2023, NextPlat entered into a Securities Purchase Agreement (the “SPA”) with Progressive Care, Inc. (“Progressive”), which subsequently closed on September 2, 2022, pursuant to which the Company purchased 455,000 newly issued units of securities from Progressive Care (the “Units”) at a price per unitUnit of $,$2.20 for an aggregate purchase price of $6,000,000$1 million (the “Unit Purchase”). Each unit consistsUnit consisted of one share of common stock, par value $0.0001 per share, of Progressive Series B Convertible Preferred StockCare (“Series B PreferredCommon Stock”) and one warrant to purchase a share of Progressive Series B PreferredCommon Stock (“(the “PIPE Warrants”). Each share of Series B Preferred Stock will vote as a class with the common stock of Progressive, and will have 100,000 Progressive votes per share, and each share of Series B Preferred Stock will be convertible into shares of Progressive’s common stock. The PIPE Warrants are exercisable at a price of $2,000 per share of Series B Preferred Stock have a five-yearthree-year term and are immediately exercisable at $2.20 per share of Common Stock. On May 9, 2023, NextPlat and Progressive Care closed the transactions contemplated in whole orthe SPA.
Simultaneous with the closing, Progressive Care entered into a Debt Conversion Agreement (the “DCA”) with NextPlat and the other holders (the “Holders”) of that certain Amended and Restated Secured Convertible Promissory Note, dated as of September 2, 2022, made by Progressive Care in part, and contain cashless exercise provisions. The Company determined the Series B Preferred Stock is in-substance common stock because the Series B Preferred Stock has similar risk and reward characteristics to common stock.
original face amount of approximately $2.8 million (the “Note”). Pursuant to the SPA, NextPlat’s ChairmanDCA, NextPlat and Chief Executive Officer, Charles M. Fernandezthe other Holders agreed to convert the total approximately $2.9 million of outstanding principal and board member, Rodney Barreto, were appointedaccrued and unpaid interest to Progressive’s BoardCommon Stock at a conversion price of Directors as Chairman$2.20 per share. NextPlat received 570,599 shares issued upon conversion of the Company’s BoardNote. In addition, NextPlat received a warrant to purchase one share of DirectorsCommon Stock for each share of Common Stock they received upon conversion of the Note (the “Conversion Warrants”). The Conversion Warrants have a three-year term and Vice Chairman, respectively. On November 11, 2022,are immediately exercisable at $2.20 per share of Common Stock.
At the same time, Progressive Care board of directors elected Mr. Fernandez to serve as the Chief Executive Officer of Progressive Care.
In addition, on September 2, 2022,and NextPlat entered into a ConfidentialFirst Amendment (the “Amendment”) to that certain Securities Purchase Agreement dated November 16, 2022 (the “Debenture Purchase Agreement”). Under the Debenture Purchase Agreement, Progressive Care agreed to issue, and Release Agreement (the “NPA”) with a third-party lender to Progressive pursuant to which NextPlat Corp agreed to purchase, $from time to time during the 1,000,000three-year term of Progressive’s principal convertible debt from the third-party (the “Note Purchase”) and was issued of Progressive common stock. NextPlat paidDebenture Purchase Agreement, up to an aggregate of $1,000,000 for$10 million of secured convertible debentures from Progressive Care (the “Debentures”). Pursuant to the NoteAmendment, NextPlat and Progressive Care agreed to amend the Debenture Purchase Agreement and common stock. The convertible note receivable hasthe form of Debenture to have a principal balanceconversion price of $1,213,429, carries a simple interest rate of 5%, is convertible at $$2.20 per share of common stock, and matures on August 31, 2027.share. At present, no Debentures have been purchased by NextPlat under the Debenture Purchase Agreement.
As a result of the SPAcommon stock purchase warrant exercises and related transactions, the entry into the voting agreement as described in Note 4, NextPlat concluded that there was a change in control in Progressive Care. As of July 1, 2023, NextPlat has the right to control more than 50 percent of the voting interests in Progressive Care through the concurrent common stock purchase warrant exercises and voting agreement. Beginning on July 1, 2023, the Company paid an aggregate of $7,000,000changed the accounting method for an economic and voting interest in Progressive of 33.28%. The board seats, combined with the Company’s ownership interest of 33.28% provide the Company with significant influence over Progressive, but not a controlling interest. Since Progressive does not depend on the Company for continuing financial support to maintain operations as of September 30, 2022, the Company has determined that Progressive is not a variable interest entity, and therefore, the Company is not required to determine the primary beneficiary of Progressive for potential consolidation. Based on quoted market prices, the market value of the Company’s ownership interest in Progressive was approximately $11.7 million at September 30, 2022.
The Company combined its investment in Progressive Care, which prior to July 1, 2023 had been accounted for as an equity method investment, to consolidation under the Series B Preferred Stock, common stock, warrants, and convertible note receivable into one line itemvoting interest model in FASB ASC Topic 805. Therefore, Progressive Care became a consolidated subsidiary of the Company on the condensed consolidated balance sheets as “Equity method investment”. The Company reported its aggregate earnings from its investment as one line item on the condensed consolidated statement of operations as “Equity in net loss of affiliate”.July 1, 2023.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – EQUITY METHOD INVESTMENT IN PROGRESSIVE CARE, INC. AND SUBSIDIARIES (continued)
The following summarizes the Company’s condensed consolidated balance sheet description equity method investment as follows:follows as of September 30, 2023:
SCHEDULE OF DESCRIPTION EQUITY METHOD INVESTMENT
Carrying Amount | ||||
December 31, 2022, beginning balance | $ | 5,260,525 | ||
Investment in Progressive Care Inc. and Subsidiaries | 1,506,000 | |||
Gain on equity method investment | 6,138,051 | |||
Portion of loss from Progressive Care, Inc. and Subsidiaries | (1,603,649 | ) | ||
Depreciation expense due to cost basis difference (1) | (49,548 | ) | ||
Interest earned from convertible note receivable | 21,443 | |||
Interest earned from amortization of premium on convertible note receivable | 199,061 | |||
Elimination of intercompany interest earned | (6,944 | ) | ||
Change in accounting method as of July 1, 2023 | (11,464,939 | ) | ||
September 30, 2023, carrying amount | $ | - | ||
| Carrying Amount | ||||
| August 30, 2022, beginning balance | $ | 7,000,000 | ||
| Portion of income from Progressive Care, Inc. and Subsidiaries | (3,453,172 | ) | ||
| Depreciation expense due to cost basis difference (1) | (8,258 | ) | ||
| Interest earned from convertible note receivable | 5,056 | |||
| Interest earned from amortization of premium on convertible note receivable | 3,621 | |||
| Elimination of intercompany interest earned | (1,683 | ) | ||
| September 30, 2022, carrying amount | 3,545,564 | |||
| Equity method investment – short term | (5,056 | ) | ||
| Equity method investment – long term | $ | 3,540,508 | ||
The following summarizes the Company’s condensed consolidated statements of operations and comprehensive loss description equity in net loss of affiliate for the three and ninesix months ended SeptemberJune 30, 2022 2023 as follows:
For the six months ended June 30, 2023 | ||||
Portion of loss from Progressive Care, Inc. and Subsidiaries | $ | (1,603,649 | ) | |
Depreciation expense due to cost basis difference (1) | (49,548 | ) | ||
Interest earned from convertible note receivable | 21,443 | |||
Interest earned from amortization of premium on convertible note receivable | 199,061 | |||
Elimination of intercompany interest earned | (6,944 | ) | ||
Equity in net loss of affiliate | $ | (1,439,637 | ) | |
Note 15. Accounts Payable and Accrued Expenses
For the Three and Nine Months Ended September 30, 2022 | ||||
| Equity in net loss of affiliate | $ | (3,453,172 | ) | |
| Depreciation expense due to cost basis difference (1) | (8,258 | ) | ||
| Interest earned from convertible note receivable | 5,056 | |||
| Interest earned from amortization of premium on convertible note receivable | 3,621 | |||
| Elimination of intercompany interest earned | (1,683 | ) | ||
| Equity in net loss of affiliate | $ | (3,454,436 | ) | |
The Company did not have any equity in net loss of affiliate for the three and nine months ended September 30, 2021.
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
Accounts payable and accrued other liabilitiesexpenses consisted of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
| September 30, 2022 | December 31, 2021 | |||||||
| Accounts payable | $ | 867,458 | $ | 846,380 | ||||
| Rental deposits | 4,181 | 2,030 | ||||||
| Customer deposits payable | 58,182 | 59,733 | ||||||
| Accrued wages & payroll liabilities | 22,930 | 20,107 | ||||||
| VAT liability & sales tax payable | 30,644 | 6,203 | ||||||
| Pre-merger accrued other liabilities | 88,448 | 88,448 | ||||||
| Accrued interest | 314 | 138 | ||||||
| Accrued other liabilities | 14,887 | 40,305 | ||||||
| Total | $ | 1,087,044 | $ | 1,063,344 | ||||
September 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | (Audited) | |||||||
Accounts payable | $ | 12,362,513 | $ | 1,194,067 | ||||
Accrued wages and payroll liabilities | 366,569 | 23,040 | ||||||
Accrued PBM fees | 650,000 | - | ||||||
Rental deposits | - | 4,325 | ||||||
Customer deposits payable | 55,748 | 86,462 | ||||||
VAT liability & sales tax payable | 6,480 | 5,685 | ||||||
U.K. income tax payable | - | 23,771 | ||||||
Accrued legal fees | - | 84,685 | ||||||
Pre-merger accrued other liabilities | - | 88,448 | ||||||
Accrued interest | 265 | 356 | ||||||
Accrued other liabilities | 239,090 | 7,256 | ||||||
Total | $ | 13,680,665 | $ | 1,518,095 | ||||
The increase in accounts payable and accrued expenses was attributable to the consolidation of Progressive Care at July 1, 2023.
Note 16. Notes Payable
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORPNotes payable consisted of the following:
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | (Audited) | |||||||
A. Mortgage note payable - commercial bank - collateralized | $ | 1,162,004 | $ | - | ||||
B. Note payable - uncollateralized | 25,000 | - | ||||||
C. Notes payable - collateralized | 270,906 | 216,756 | ||||||
Insurance premiums financing | 178,552 | - | ||||||
Subtotal | 1,636,462 | 216,756 | ||||||
Less: current portion of notes payable | (385,303 | ) | (60,490 | ) | ||||
Long-term portion of notes payable | $ | 1,251,159 | $ | 156,266 | ||||
(A) Mortgage Note Payable – collateralized
NOTE 9 - CORONAVIRUS LOANS
On April 20, 2020,In 2018, Progressive Care closed on the Boardpurchase of Directorsland and building located at 400 Ansin Boulevard, Hallandale Beach, Florida. The purchase price was financed in part through a mortgage note and security agreement entered into with a commercial lender in the Company (the “Board”), approved for its wholly owned UK subsidiary, Global Telesat Communications LTD (“GTC”), to apply for a Coronavirus Interruption Loan, offeredamount of $1,530,000. The promissory note is collateralized by the UK government, forland and building, bears interest at a fixed rate of 4.75% per annum, matures on December 14, 2028 and is subject to a prepayment penalty. Principal and interest will be repaid through 119 regular payments of $11,901 that began in January 2019, with the final payment of all principal and accrued interest not yet paid on December 14, 2028. Note repayment is guaranteed by Progressive Care Inc.
(B) Note Payable – Uncollateralized
As of September 30, 2023 the uncollateralized note payable represents a non-interest-bearing loan that is due on demand from an amount up to £. investor.
(C) Notes Payable – Collateralized
On July 16, 2020 (the(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 $$338,343 at an exchange rate of GBP:USD of .1.3533720. The Debenture bears interest beginning July 16, 2021, at a rate of %4.0% per annum over the Bank of England Base Rate (%(0.1% 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. Voluntary prepayments are allowed with 5 business days’ written notice and the amount of the prepayment is equal to 10% or more of the limit or, if less, the balance of the debenture.debenture. The Debenture is secured by all GTC’s assets as well as a guarantee by the UK government, with thegovernment. The proceeds offrom the Debenture are to bewere 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 September 30, 2022, and December 31,
In April 2021, Progressive Care entered into a note obligation with a commercial lender, the Company has recorded $ and $ as current portion of notes payable and $157,958 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, ofproceeds from 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 loanwere used to purchase pharmacy equipment in the amount of $, had been forgiven.approximately $30,000. During September 2021, pharmacy equipment was returned since the installation was cancelled and the note was amended. The amended promissory note payable requires 46 monthly payments of $331, including interest at 6.9%. The balance outstanding as of September 30, 2023 on the note payable was approximately $6,500.
In July 2022, Progressive Care entered into a note obligation with a commercial lender, the proceeds from which were used to purchase pharmacy equipment in the amount of approximately $90,000. The terms of the promissory note payable require 60 monthly payments of $1,859, including interest at 8.78% starting January 2023. The balance outstanding on the note payable was approximately $78,000 as of September 30, 2023.
In September 2022, Progressive Care entered into a note obligation with a commercial lender, the proceeds from which were used to purchase a vehicle in the amount of approximately $25,000. The terms of the promissory note payable require 24 monthly payments of $1,143, including interest at 8.29% starting October 2022. The balance outstanding on the note payable was approximately $13,000 as of September 30, 2023.
Principal outstanding as of September 30, 2023, is expected to be repayable as follows:
Year | Amount | |||
2023 (remaining three months) | $ | 144,420 | ||
2024 | 285,356 | |||
2025 | 175,435 | |||
2026 | 154,222 | |||
2027 | 123,597 | |||
Thereafter | 753,432 | |||
Total | $ | 1,636,462 | ||
The increase in notes payables was attributable to the consolidation of Progressive Care at July 1, 2023.
Note 17.Equity
Preferred Stock
We have authorized 3,333,333 shares of $0.0001 par value of preferred stock. No preferred stock was outstanding for any year presented. As of December 31, 2021, the Company has recorded $20,832 as forgiveness of debt.
NOTE 10 - STOCKHOLDERS’ EQUITY
Capital Structure
On March 28, 2014, in connection with the Reincorporation (see Note 1)September 30, 2023, 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) there were no shares of preferred stock from 220,000,000 shares consisting of (i) issued and outstanding.
Common Stock
We have authorized 50,000,000 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, $$0.0001 par value per share, and the Company’s preferred stock, $ par value per share, (ii) a reduction in the numbercommon stock. As of authorized shares of common stock in direct proportion to the Reverse Split (i.e. from shares to shares)September 30, 2023, 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 in 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.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - 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 fractional18,724,596 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.outstanding.
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 $ per share and shares of preferred stock, par value $ per share. As of September 30, 2022, and December 31, 2021, there were and shares of common stock and shares of preferred stock issued and outstanding, respectively.
Preferred Stock
As of September 30, 2022, there were shares of Preferred Stock authorized.
As of September 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.
Warrants
As of September 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 status of the Company’s total outstanding warrants and changes during the year ended December 31, 2021 and the nine months ended September 30, 2022 is as follows:
SCHEDULE OF OUTSTANDING STOCK WARRANTS ACTIVITIES
Number of Warrants | Weighted Average 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 September 30, 2022 | 2,530,092 | $ | 5.00 | |||||||||
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS’ EQUITY (continued)
Common Stock
As of September 30, 2022, there were shares of common stock authorized and shares issued and outstanding.
January 2022 April 2023 Private Placement of Common Stock
On December 31, 2021, after markets closed,April 5, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) was circulated to, and signatures were received from, certain institutional andwith an accredited investorsinvestor (the “December Investors”“Investor”) in connection withfor the sale by the Company in a private placement by the Company of 3,428,571 shares of the Company’s common stock, $0.0001 par value per share (the “December Offering”“Common Stock”). On January 2, 2022,The offering price of the Company delivered to December Investors a fully executed Purchase Agreement, whichCommon Stock was dated December 31, 2021. The purchase price for the common stock sold in the December Offering was $$1.75 per share, the closing transaction price reported by Nasdaqof the Common Stock on December 31, 2021.
TheApril 4, 2023. On April 11, 2023, the Private Placement closed. Upon the closing of the December Offering occurred on January 5, 2022. ThePrivate Placement, the Company received gross proceeds from the sale of the common stock in the December Offering of approximately $7.2$6.0 million. The Company intendssold the Common Stock 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 soldInvestor in reliance on the exemption from registration providedafforded by Section 4(a)(2)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 ofInvestor represented that it is acquiring the transaction disclosed above, including the provisions of the Purchase AgreementCommon Stock for investment only 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 Awards
On January 21, 2022, the Company issued shares of common stock to Mr. Rodney Barreto, 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 the effective date and the remaining on the one year anniversary of the effective date,not with a fair market value of $ per share, onview towards, or for resale in connection with, the date of issuance. All shares were fully vestedpublic sale or distribution thereof. Accordingly, the Common Stock has not been registered under the Securities Act and upon issuance resultedmay not be offered or sold in stock-based compensation of $34,800. Shares were issued in reliance on the United States absent registration or an exemption from registration provided by Section 4(a)(2) ofunder the Securities Act of 1933, as amended, as thereand any applicable state securities laws.
For the nine months ended September 30, 2023 and 2022, stock-based compensation expense recognized in selling, general and administrative expenses was approximately $4.6 million and $2.0 million, respectively. There were no general solicitation, income tax benefits recognized from stock-based compensation during the nine months ended September 30, 2023 and the transaction did not involve a public offering.2022 due to cumulative losses and valuation allowances.
Note 18. Related Party Transactions
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, February 1, 2023, the Company entered into a new employment agreement (the “June Agreement”Management Services Agreement with Progressive Care Inc. (“Progressive Care”) with Mr. Fernandez, which supersededto provide certain management and replaced “the administrative services to Progressive Care for a $25,000 per month fee. During May Agreement.” The June Agreement has an initial term of 5 years effective on May 28, 2021. Mr. Fernandez received 2023 the award of restricted stock with a grant date fair value equalmanagement fee was reduced to $ determined at$20,000 per month. During 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.
On July 22, 2022, pursuant to Mr. Fernandez employment agreement, the “June Agreement”, see Note 13, the Company issued restricted shares and recorded stock-based compensation in the amount of $ to eAperion Partners LLC, of which Mr. Fernandez is managing director. This amount is valued from the date of the award May 28, 2021 to nine months ended September 30, 2022. The value of the award for the year ended December 31, 2021 was $356,712 and for the nine months ended September 30, 2022, $448,534. The award is valued over the service period of the June Agreement, from the date of grant, May 28, 2021. On June 2, 2022, of the RSA or one third of the award, became vested and issuable.
On August 4, 2022, the Company issued restricted shares to Andrew Cohen, pursuant to a restricted stock award which became fully vested upon his resignation, see Note 13. The award resulted in stock based compensation of $76,950 and was valued as of the date of the award on October 8, 2021.
On September 20, 2022, the Company issued restricted shares of common stock to eAperion Partners LLC, of which Charles M. Fernandez is managing partner, pursuant to a restricted stock award, “RSA,” under the Company’s 2020 Equity Incentive Plan. The shares were fully vested upon issuance. The shares were valued at the market close of issuance date of $ per share, resulting in stock-based compensation of $292,320.
On September 28, 2022, the Company issued restricted shares to Douglas Ellenoff, pursuant to such award as granted on August 24, 2021, using the fair market value as of date of the award of $ per share, resulting in stock-based compensation of $107,400.
Also on September 28, 2022, the Company issued restricted shares to Paul Thomson, pursuant to such award as granted on August 24, 2021, using the fair market value as of date of the award of $ per share, resulting in stock-based compensation of $26,850.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS’ EQUITY (continued)
Stock Options
SCHEDULE OF OUTSTANDING STOCK OPTIONS ACTIVITIES
| Number of Options | Weighted 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 | 220,000 | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | (191 | ) | - | - | ||||||||
| Cancelled | - | - | - | |||||||||
| Balance outstanding and exercisable at September 30, 2022 | 1,149,701 | $ | 3.59 | |||||||||
NOTE 11 - 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 nine months ended September 30, 2022 and for the year ended December 31, 2021, the Company had a stock subscription payable of $0 and $1,400,0002023, 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$175,000 from Progressive Care as well as, the closing of the offering.management fees.
NOTE 12 - RELATED PARTY TRANSACTIONS
As of September 30, 2022, total related party payments due as of September 30, 2022, and December 31, 2021, were $15,692 and $35,308, respectively. The payments due were accrued salary. 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 $99,965 and $107,042 for the nine months ended September 30, 2022 and 2021, respectively.
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.$95,000. On September 22, 2022, Mrs. Fernandez’s title was changed to Chief of Staff and Special Assistant to the Chairman of the Board, with no change to her salary. Previously Mrs. Fernandez was a consultant and earned compensation for her services of $10,995 for the year ended December 31, 2022. In April 2023, Mrs. Fernandez’s annual salary remainsincreased to $125,000, which was approved by the same.Board of Directors.
Following the consummation of the Company’s investment in Progressive Care Inc. on September 2,On August 30, 2022, our Chairman and Chief Executive Officer,NextPlat, Charles M. Fernandez, and our board member, Rodney Barreto, were appointed to Progressive Care’s Board of Directors, with Mr. Fernandez appointed to serve as Chairman of Progressive Care’s Board of Directors and Mr. Barreto appointed to serve as a Vice Chairman of Progressive Care’s Board of Directors. On November 11, 2022, the Progressive Care board of directors elected Mr. Fernandez as the Chief Executive Officer of Progressive Care. In addition, on September 2, 2022, NextPlat, Messrs. Fernandez and Barreto, and certain other purchasers purchased from Iliad Research and Trading, L.P. (“Iliad”) a Secured Convertible Promissory Note, dated March 6, 2019, made by Progressive Care to Iliad (the “Note”). The accrued and unpaid principal and interest under the note at the time of the purchase was approximately $2.79$2.8 million. The aggregate purchase price paid to Iliad for the Note was $2.3 Million of which NextPlat contributed $1 million and Messrs. Fernandez and Barreto contributed $400,000 each (the “Note Purchase”). In connection with the Note Purchase, NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note entered into a Debt Modification Agreement with Progressive Care. In consideration of the concessions in the Debt Modification Agreement, Progressive Care issued 105,000 shares of its common stock to the purchasers of the Note, of which NextPlat, CharlesMessrs. Fernandez and Rodney Barreto, received , ,45,653, 18,261, and 18,261 shares, respectively.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES
COVID-19
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. 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.
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 nine months ended September 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 impact 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 September 13, 2022, the Board appointed Maria Cristina Fernandez as a new director to the Board. In addition, the Board approved a rotation in the membership of the Company’s audit committee, compensation committee and nominating committee. The membership of each such committee is now as follows:
In connection with Ms. Fernandez’s appointment to the Company’s Board of Directors, the Company entered into a Director Services Agreement with Ms. Fernandez on September 28, 2022. The agreement has a two-year term (subject to the director’s nomination and election) and provides for a cash retainer of $30,000 per year plus meeting fees of $3,000 for every Board meeting attended and $500 for each committee meeting attended (to the extent such committee meetings do not occur on the same day as a board meeting). The agreement also contains customary confidentiality and indemnification provisions and require the Company to maintain a specified amount of director and officer insurance. The Company also entered into a Stock Option Agreement with Ms. Fernandez on October 1, 2022, granting Ms. Fernandez options to purchase shares of the Company’s common stock, subject to the vesting and other conditions set forth in the Stock Option Agreement. Under the vesting provisions in the Stock Option Agreement, the first half of the options were fully vested on day one, with the remaining half vesting on the first anniversary of the grant date. The options granted under the Stock Option Agreement were made outside of the Company’s existing equity incentive plans and were approved by the Company’s independent directors.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)
Employment Agreements
2021 Phipps Employment Agreement
On JuneMay 5, 2021, the Company entered into a three year employment agreement with Mr. Phipps that was effective as of June 2, 2021, (the “2021 Phipps Employment Agreement”). Under the terms of the 2021 Phipps Employment Agreement, Mr. Phipps serves as the President of the Company and Chief Executive Officer of Global Operations. The term will be automatically extended for additional one-year terms thereafter unless terminated by the Company or Mr. Phipps by written notice. Mr. Phipps’ annual base compensation under the 2021 Phipps Employment Agreement is an aggregate of $. The Company may increase (but not decrease) his compensation during its term. In addition, Mr. 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 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 “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 change of control of the Company. The 2021 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 2021 Phipps Employment Agreement was amended in 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 Chief Executive Officer of Global Operations.
Fernandez Employment Agreements
On May 23, 2021, the Company entered into 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. Under the June Agreement, Mr. Fernandez 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.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - 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 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)).
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - 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 2023, the Company entered into an employment agreement (the “Carlise Agreement”)SPA with an initial term of one year The term of the Carlise Agreement will be automatically extended for additional one-year terms unless terminated byProgressive Care Inc., pursuant to which the Company or Ms. Carlise by written notice. Ms. Carlise’s annual base compensation is $agreed to purchase 455,000 newly issued Units of securities from Progressive Care at a price per Unit of $2.20 for an aggregate purchase price of $1.0 million (the “Unit Purchase”). The Carlise Agreement provides for medical plan coverageEach Unit consists of one share of common stock, par value $0.0001 per share, Common Stock and an auto allowance. The Company may increase (but not decrease) her compensation during its term. In addition, Ms. Carlise will be entitledone common stock purchase warrant to receive an annual cash bonus ifpurchase a share of Common Stock (the “PIPE Warrants”).
On May 9, 2023, pursuant to the DCA, the Company meets or exceeds criteria adopted byreceived 570,599 shares, Charles M. Fernandez received 228,240 shares, and Rodney Barreto received 228,240 shares. To induce 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, as the Company provides to its senior Employees. The Carlise Agreement may be terminated based on death or disability of the executive, 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, the 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 the approval and recommendation of the Compensation Committee, and following the subsequent approval of the Board, the Company entered into an amendment to Carlise, the Company’s 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 appointeddebt conversion pursuant to the position of Executive Vice President of the Company. Mr. Thomson’s appointment as Executive Vice President was effective on August 24, 2021, the date of that certain Employment Agreement between Mr. ThomsonDCA, Messrs. Fernandez 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. ThomsonBarreto received (i) immediately vested optionsInducement Warrants to purchase 25,000190,000 and 30,000 shares of Common Stock, atrespectively. In addition, the Company and Messrs. Fernandez and Barreto also received a percommon stock purchase warrant to purchase one 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 10,000for each share of which vest immediately, and the remaining 15,000 of which will vest at the rate of 5,000 shares at the end of eachCommon Stock they received upon conversion of the next three annual anniversaries of his employment. These equity awards to Mr. ThomsonNote.
On July 1, 2023, the Company, Charles M. Fernandez, and Rodney Barreto exercised common stock purchase warrants and were issued outsidecommon stock shares by Progressive Care. The Company exercised common stock purchase warrants on a cashless basis and was issued 402,269 common stock shares. The Company also exercised common stock purchase warrants on a cash basis and paid consideration in the amount of $506,000 and was issued 230,000 common stock shares. Mr. Fernandez exercised common stock purchase warrants on a shareholder approvedcashless basis and was issued 211,470 common 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,shares. Mr. Thomson became the Company’s principal financial officer, effective October 9, 2021. On October 8, 2021,Barreto exercised common stock purchase warrants on the approvala cashless basis 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”).was issued 130,571 common stock shares.
FKA: ORBSAT CORP
NOTE 13 - 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, dated October 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 the 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 follows: Section 4(a) of the 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 basis 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 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.”
On July 12, 2022, the Company entered into a mutual release and separation agreement with Mr. Cohen in regard to his employment with the Company and accepted his resignation as of July 29, 2022. Per the terms of the agreement Mr. Cohen was entitled to $75,000 severance and the remaining restricted stock award became fully vested and was issued on August 4, 2022, resulting in stock-based compensation of $76,950.
Lease Agreements
On December 2, 2021, the Company entered a 62-month lease for its corporate headquarters for 4,141 square feet of office space for $186,345 annually, in Coconut Grove, FL. The rent 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 1.299279. The Poole lease expired July 23, 2022 and the Company is continuing to lease the facility on a month-to-month basis. On October 6, 2022, the UK lease was renewed effective November 1, 2022 to October 31, 2023 for £2,500, or USD $3,146 per month at the yearly average conversion rate of 1.25838. This renewal is not representative in the table future minimum lease payments, for the nine months ended September 30, 2022.
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
| Years Ending December 31, | Minimum Lease Payment | |||
| 2022 | $ | 42,424 | ||
| 2023 | 180,815 | |||
| 2024 | 194,814 | |||
| 2025 | 200,659 | |||
| 2026 | 206,679 | |||
| 2027 | 122,869 | |||
| Total undiscounted future non-cancelable minimum lease payments | 948,260 | |||
| Less: Imputed interest | (84,965 | ) | ||
| Present value of lease liabilities | $ | 863,294 | ||
| Weighted average remaining term | 4.92 | |||
Amortization expenses for the nine months ended September 30, 2022, and 2021 were $58,284 and $24,948, respectively.
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 19. Commitments and Contingencies
NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)
At September 30, 2022, the Company had current and long-term operating lease liabilities of $863,294 and right of use assets of $865,115.
Net rent expense for the nine months ended September 30, 2022 and 2021 were $70,717 and $36,055, 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 all compensation payable under his employment agreement executed in June 2, 2021 employment agreement. 2021. The Company’s position is that Mr. Seifert is not owed any additional consideration or 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 andany such claims. The Company has asserted affirmative claims for reliefdetermined to initiate litigation against Mr. Seifert asserting a number of claims including, but not limited to, breachrescission of the employment agreement, breach of the fiduciary, fraud in the inducement in connection with the execution of the employment agreement, fraudulent misrepresentation, and constructive fraud.breach of the fiduciary duties of good faith and loyalty. 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. On September 8, 2022, we received notice from the U.S. Department of Labor that Thomas Seifert had withdrawn his Complaint. Pursuant to applicable Federal Regulations, the matter was closed and the Secretary’s Findings were rescinded.
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.
On June 8, 2022, a complaint was filed by Progressive Care against KeyCentrix, LLC (“KCL”), in the U.S. District Court for the Southern District of Florida, alleging fraudulent inducement, breach of express warranty and breach of implied warranty. The complaint stems from an agreement by KCL to license to Progressive Care certain pharmacy management software known as “Newleaf” for use in the operations of pharmacies operated by the Company.
Note 20. Leases
The Company has entered into a number of lease arrangements under which the Company is the lessee. These leases are classified as operating leases. In addition, the Company has elected the short-term lease practical expedient in ASC Topic 842 related to real estate leases with terms of one year. The following is a summary of the Company’s lease arrangements.
Finance Lease Agreements
In May 2018, Progressive Care entered into a finance lease obligation to purchase pharmacy equipment with a cost of approximately $115,000. The terms of the lease agreement require monthly payments of $1,678 plus applicable tax over 84 months ending March 2025 including interest at the rate of 6%.
In December 2020, Progressive Care entered into an interest-free finance lease obligation to purchase computer servers with a cost of approximately $51,000. The terms of the lease agreement require monthly payments of $1,411 plus applicable tax over 36 months ending November 2023.
Operating Lease Agreements
On December 2, 2021, Nextplat entered into a 62-month lease for 4,141 square feet of office space in Florida ("Florida lease"), for $186,345 annually. The rent increases 3% annually. The lease commenced upon occupancy on June 13, 2022, and will expire on August 31, 2027.
For our facilities in Poole, England, we rent office and warehouse space of approximately 2,660 square feet for £30,000 annually or approximately USD $37,107, based on a yearly average exchange rate of 1.24 GBP: USD. The Poole lease was renewed on October 6, 2022, and expired October 31, 2023 and renewed for an additional twelve months.
The Florida lease does 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.
The rate implicit to the Florida lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of right of use (ROU) assets and lease liabilities for the six months ended September 30, 2023 and for the year ended December 31, 2022 was 3.75%. Right of use assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of September 30, 2023 and December 31, 2022, we have not recognized any impairment losses for our ROU assets.
We monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the re-measurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.
Progressive Care entered into a lease agreement for its Orlando pharmacy in August 2020. The term of the lease is 66 months with a termination date of February 2026. The lease agreement calls for monthly payments that began in February 2021, of $4,310, with an escalating payment schedule each year thereafter.
Progressive Care leases its North Miami Beach pharmacy location under an operating lease agreement with a lease commencement date in September 2021. The term of the lease is 60 months with a termination date in August 2026. The lease calls for monthly payments of $5,237, with an escalating payment schedule each year thereafter.
Progressive Care also leases its Palm Beach County pharmacy locations under operating lease agreements expiring in February 2024.
The increase in leases was attributable to the consolidation of Progressive Care at July 1, 2023.
NOTE 14 - CONCENTRATIONSNote 21. Reportable Segments
The Company has two reportable segments: (i) e-Commerce Operations, which involves acquiring and leasing, primarily an 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, and other related businesses and (ii) Healthcare Operations, which provides TPA, data management, COVID-19 related diagnostics and vaccinations, prescription pharmaceuticals, compounded medications, telepharmacy services, anti-retroviral medications, medication therapy management, the supply of prescription medications to long-term care facilities, medication adherence packaging, contracted pharmacy services for 340B covered entities under the 340B Drug Discount Pricing Program, and health practice risk management.
The Company evaluates the performance of each of the segments based on profit or loss after general and administrative expenses. While the Company believes there are synergies between the two business segments, the segments are managed separately because each requires different business strategies.
The following tables present a summary of the reportable segments:
Three Months Ended September 30, 2023 | e-Commerce Operations | Healthcare Operations | Eliminations | Total | ||||||||||||
Pharmacy prescription and other revenue, net of PBM fees | $ | - | $ | 9,887,890 | $ | - | $ | 9,887,890 | ||||||||
e-Commerce revenue | 2,930,721 | - | - | 2,930,721 | ||||||||||||
Pharmacy 340B contract revenue | - | 2,471,560 | - | 2,471,560 | ||||||||||||
Revenues, net | $ | 2,930,721 | $ | 12,359,450 | $ | - | $ | 15,290,171 | ||||||||
Expenses: | ||||||||||||||||
Cost of revenue | 2,126,602 | 8,578,887 | - | 10,705,489 | ||||||||||||
Selling, general and administrative | 1,978,743 | 2,268,708 | (60,022 | ) | 4,187,429 | |||||||||||
Salaries, wages and payroll taxes | 563,915 | 1,919,517 | - | 2,483,432 | ||||||||||||
Professional fees | 277,872 | 242,854 | - | 520,726 | ||||||||||||
Depreciation and amortization | 163,512 | 707,554 | - | 871,066 | ||||||||||||
| 5,110,644 | 13,717,520 | (60,022 | ) | 18,768,142 | ||||||||||||
Loss before other (income) expense | $ | (2,179,923 | ) | $ | (1,358,070 | ) | $ | 60,022 | $ | (3,477,971 | ) |
For the Nine Months Ended September 30, 2023 | e-Commerce Operations | Healthcare Operations | Eliminations | Total | ||||||||||||
Pharmacy prescription and other revenue, net of PBM fees | $ | - | $ | 9,887,890 | $ | - | $ | 9,887,890 | ||||||||
e-Commerce revenue | 8,764,237 | - | - | 8,764,237 | ||||||||||||
Pharmacy 340B contract revenue | - | 2,471,560 | - | 2,471,560 | ||||||||||||
Revenues, net | $ | 8,764,237 | $ | 12,359,450 | $ | - | $ | 21,123,687 | ||||||||
Expenses: | ||||||||||||||||
Cost of revenue | 6,495,432 | 8,578,887 | - | 15,074,319 | ||||||||||||
Selling, general and administrative | 5,286,915 | 2,268,708 | (60,022 | ) | 7,495,601 | |||||||||||
Salaries, wages and payroll taxes | 2,119,790 | 1,919,517 | - | 4,039,307 | ||||||||||||
Professional fees | 1,142,620 | 242,854 | - | 1,385,474 | ||||||||||||
Depreciation and amortization | 493,271 | 707,554 | - | 1,200,825 | ||||||||||||
| 15,538,028 | 13,717,520 | (60,022 | ) | 29,195,526 | ||||||||||||
Loss before other (income) expense | $ | (6,773,791 | ) | $ | (1,358,070 | ) | $ | 60,022 | $ | (8,071,839 | ) |
e-Commerce Operations | Healthcare Operations | Eliminations | Total | |||||||||||||
Total assets as of September 30, 2023 | $ | 36,395,131 | $ | 41,264,995 | $ | (11,464,939 | ) | $ | 66,195,187 | |||||||
Note 22. Concentrations
Customers:e-Commerce operations concentrations:
Customers:
Sales to customers through Amazon accounted for 52.3%53.0% and 64.0%59.2% of the Company’s revenues during the nine months ended September 30, 2022 2023 and 2021, respectively. For the three months ended September 30, 2022 and 2021, Amazon accounted for 59.2% and 64.8%, respectively. No other customer accounted for 10%10% or more of the Company’s revenues for either period.
Suppliers:
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – CONCENTRATIONS (continued)
Suppliers:
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the ninethree months ended September 30, 2022 2023 and 2021.2022 (unaudited).
SCHEDULE OF CONCENTRATION RISK
For the Three Months Ended September 30, 2023 | For the Three Months Ended September 30, 2022 | |||||||||||||||
Globalstar Europe | $ | 186,000 | 9.7 | % | $ | 109,000 | 6.7 | % | ||||||||
Garmin | $ | 444,000 | 23.2 | % | $ | 281,000 | 17.1 | % | ||||||||
Network Innovations | $ | 188,000 | 9.9 | % | $ | 252,000 | 15.4 | % | ||||||||
Satcom Global | $ | 226,000 | 11.8 | % | $ | 131,000 | 8.0 | % | ||||||||
Cygnus Telecom | $ | 113,000 | 5.9 | % | $ | 181,000 | 11.0 | % | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||
| Satcom Global | $ | 523,688 | 8.6 | % | $ | 824,339 | 18.0 | % | ||||||||
| Globalstar Europe | $ | 396,222 | 6.5 | % | $ | 508,359 | 11.1 | % | ||||||||
| Garmin | $ | 1,168,532 | 19.2 | % | $ | 728,797 | 16.0 | % | ||||||||
| Network Innovations | $ | 718,597 | 11.8 | % | $ | 465,417 | 10.2 | % | ||||||||
| Cygnus Telecom | $ | 1,213,163 | 19.9 | % | $ | 554,998 | 12.2 | % | ||||||||
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the threenine months ended September 30, 2022 2023 and 2021.2022 (unaudited).
For the Nine Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2022 | |||||||||||||||
Iridium Satellite | $ | 798,000 | 12.0 | % | $ | - | - | % | ||||||||
Globalstar Europe | $ | 706,000 | 10.6 | % | $ | 396,000 | 6.5 | % | ||||||||
Garmin | $ | 1,494,000 | 22.5 | % | $ | 1,169,000 | 19.2 | % | ||||||||
Network Innovations | $ | 809,000 | 12.2 | % | $ | 719,000 | 11.8 | % | ||||||||
Cygnus Telecom | $ | 476,000 | 7.2 | % | $ | 1,213,000 | 19.9 | % | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||
| Satcom Global | $ | 131,239 | 8.0 | % | $ | 303,944 | 19.9 | % | ||||||||
| Globalstar Europe | $ | 109,409 | 6.7 | % | $ | 215,289 | 14.1 | % | ||||||||
| Garmin | $ | 281,028 | 17.1 | % | $ | 241,230 | 15.8 | % | ||||||||
| Network Innovations | $ | 252,238 | 15.4 | % | $ | 191,658 | 12.5 | % | ||||||||
| Cygnus Telecom | $ | 181,192 | 11.0 | % | $ | 165,889 | 10.8 | % | ||||||||
Geographic:
The following table sets forth revenue as to each geographic location, for the ninethree months ended September 30, 2022 2023 and 2021:2022 (unaudited):
SCHEDULE OF REVENUE FROM EACH GEOGRAPHIC LOCATION
| September 30, 2022 | September 30, 2021 | For the Three Months Ended September 30, 2023 | For the Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
| Europe | $ | 7,019,811 | 77.3 | % | 3,867,862 | 68.2 | % | $ | 1,714,983 | 58.5 | % | $ | 1,954,967 | 74.3 | % | |||||||||||||||||
| North America | 1,342,636 | 14.8 | % | 1,243,754 | 21.9 | % | 737,189 | 25.2 | % | 442,678 | 16.8 | % | ||||||||||||||||||||
| South America | 32,578 | 0.4 | % | 28,909 | 0.5 | % | 431,612 | 14.7 | % | 10,273 | 0.4 | % | ||||||||||||||||||||
| Asia & Pacific | 592,847 | 6.5 | % | 472,841 | 8.3 | % | ||||||||||||||||||||||||||
Asia and Pacific | 23,943 | 0.8 | % | 195,307 | 7.4 | % | ||||||||||||||||||||||||||
| Africa | 92,211 | 1.0 | % | 54,600 | 1.0 | % | 22,994 | 0.8 | % | 27,601 | 1.1 | % | ||||||||||||||||||||
| Revenue | $ | 9,080,083 | 5,667,966 | |||||||||||||||||||||||||||||
| $ | 2,930,721 | 100.0 | % | $ | 2,630,826 | 100.0 | % | |||||||||||||||||||||||||
The following table sets forth revenue as to each geographic location, for the threenine months ended September 30, 2022 2023 and 2021:2022 (unaudited):
| September 30, 2022 | September 30, 2021 | For the Nine Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
| Europe | $ | 1,954,967 | 74.3 | % | $ | 1,469,172 | 65.3 | % | $ | 5,381,938 | 61.4 | % | $ | 7,019,811 | 77.3 | % | ||||||||||||||||
| North America | 442,678 | 16.8 | % | 571,603 | 25.4 | % | 2,194,309 | 25.0 | % | 1,342,636 | 14.8 | % | ||||||||||||||||||||
| South America | 10,273 | 0.4 | % | 13,035 | 0.6 | % | 1,025,566 | 11.7 | % | 32,578 | 0.4 | % | ||||||||||||||||||||
| Asia & Pacific | 195,307 | 7.4 | % | 182,001 | 8.1 | % | ||||||||||||||||||||||||||
Asia and Pacific | 120,836 | 1.4 | % | 592,847 | 6.5 | % | ||||||||||||||||||||||||||
| Africa | 27,601 | 1.0 | % | 14,467 | 0.6 | % | 41,588 | 0.5 | % | 92,211 | 1.0 | % | ||||||||||||||||||||
| Revenue | $ | 2,630,826 | $ | 2,250,278 | ||||||||||||||||||||||||||||
| $ | 8,764,237 | 100.0 | % | $ | 9,080,083 | 100.0 | % | |||||||||||||||||||||||||
NOTE 15 - SUBSEQUENT EVENTSHealthcare operations concentrations:
On Suppliers:
Progressive Care had significant concentrations with one vendor. The purchases from this significant vendor were 99% of total vendor purchases for the three months ended September 30, 2023.
Customers:
Progressive Care s trade receivables are primarily from prescription medications billed to various insurance providers. Ultimately, the insured is responsible for payment should the insurance company not reimburse Progressive Care.
Progressive Care generated reimbursements from three significant PBMs:
Three Months Ended September 30, | ||||
2023 | ||||
A | 35 | % | ||
B | 31 | % | ||
C | 16 | % | ||
Note 23. Subsequent Events
October 1, 2022, the Company12, 2023, NextPlat Corp entered into a Stock OptionDistribution Agreement with Ms. Maria Cristina Fernandez granting Ms. Fernandez optionsOPKO HEALTH Spain, S.L.U. (“OPKO”) to purchase shares ofmarket and resell certain OPKO health and veterinary products (the "Products") through the Company’s common stock, subjectAlibaba platform in China (the "Distribution Agreement"). Under the Distribution Agreement, the Company was appointed as OPKO's exclusive distributor in China with respect to the vesting and other conditions set forth in the Stock Option Agreement. Under the vesting provisions in the Stock OptionProducts. The Distribution Agreement the first half of the options were fully vested on day one, with the remaining half vesting on the first anniversary of the grant date. The options granted under the Stock Option Agreement were made outside of the Company’s existing equity incentive plans and were approved by the Company’s independent directors.
On October 6, 2022, the UK lease was renewed for our facility in Poole, United Kingdom, effective November 1, 2022 to October 31, 2023, for £2,500, or USD $3,146 per month at the yearly average conversion rate of 1.25838.
On November 7, 2022, in connection with election of Mr. Robert Bedwell as the Chief Compliance Officer of the Company, the Company entered into an employment agreement with Mr. Bedwell. Pursuant to this agreement, Mr. Bedwell will receive an annual base salary of $125,000 and will be eligible for grants of awards under the Company’s Incentive Award Plan as determined by the Compensation Committee and our CEO from time to time with an initial reward under his employment agreement of stock options for shares of the Company’s common stock withhas a vesting schedule as follows: (1) options for shares will become fully vested on the first anniversary of the commencement of Mr. Bedwell’s employment with the Company; (2) options for additional shares will become fully vested on the second anniversary of the commencement of Mr. Bedwell’s employment with the Company; and (3) options for an additional shares will become fully vested on the third anniversary of the commencement of Mr. Bedwell’s employment with the Company. As part of Mr. Bedwell duties for NextPlat, he will continue monitoring the compliance of RXMD and PharmCoRx, accordingly Progressive Care will pay for 20% of Mr. Bedwell’s annual base salary.
On November 14, 2022, in connection with the transition of Mr. Paul Thomson from Executive Vice President and Chief Financial Officer of the Company to his new role as Senior Vice President of Mergers, Acquisitions and Special Projects, the Company entered into a new employment agreement with Mr. Thomson. This new agreement has an initial term of one year and may be extended by our CEOautomatically renews for additional one-year terms unless either party provides ninety days prior written notice of one year each. Under this agreement, Mr. Thomson will be paid an annual base salary of $150,000 and will keep all his rights and interests in and to the options set forth in his prior employment agreement with the Company, subject to the terms and conditions set forth in such prior employment agreement.non-renewal.
On November 14, 2022, in connection with the election of Ms. Cecile Munnik as Chief Financial Officer of the Company, the Company entered into an employment agreement with Ms. Munnik. Pursuant to the agreement, until June 30, 2023, Ms. Munnik will devote 30% of her business time to the Company and will devote the remaining 70% to Progressive Care. Starting on July 1, 2023, Ms. Munnik will devote all of her full business time and effort to the performance of her duties as the Chief Financial Officer of the Company. Ms. Munnik will receive an annual base salary of $67,500 from the commencement of her employment with the Company until June 30, 2023. Thereafter, commencing on July 1, 2023, Ms. Munnik will receive an annual base salary of $225,000. In addition, Ms. Munnik will be eligible for grants of awards under the Company’s Incentive Award Plan as determined by the Compensation Committee and our CEO from time to time with an initial reward under her employment agreement of stock options for shares of the Company’s common stock with a vesting schedule as follows: (1) options for shares will become fully vested on the first anniversary of the commencement of Ms. Munnik’s employment with the Company; (2) options for additional shares will become fully vested on the second anniversary of the commencement of Ms. Munnik’s employment with the Company; and (3) options for an additional shares will become fully vested on the third anniversary of the commencement of Ms. Munnik’s employment with the Company.
MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the condensed consolidated financial statementsCondensed Consolidated Financial Statements and the notes thereto contained elsewhere in this report. Statements made in this Item 2, “Management’s Discussion and Analysis and Plan of 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 EDGAR database, including theour Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on September 30, 2022,March 31, 2023, and the Company’sour subsequent public filings with the SEC.
Corporate Information
NextPlat Corp, formerly Orbsat Corp (“NextPlat”), is a Nevada corporation. Our headquarters We encourage you to review Progressive Care Inc. periodic reports filed with the SEC 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.
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 disruptionincluded 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.
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,SEC’s EDGAR database, 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 operationsAnnual Report on Form 10-K for the year ended December 31, 2020 reflected this impact. Recently, some governmental agencies2022, filed with the SEC on March 31, 2023, and their subsequent public filings with the SEC.
Overview
Business acquisition of Progressive Care, Inc.
On August 30, 2022, NextPlat entered into a Securities Purchase Agreement (the “SPA”) between NextPlat and Progressive Care, under which NextPlat, its Executive Chairman and Chief Executive Officer, Charles M. Fernandez, board member, Rodney Barreto, and certain other investors invested an aggregate of $8.3 million into Progressive Care. In connection with the SPA, NextPlat purchased 3,000 newly issued Units of Progressive Care valued at $6 million, with each Unit comprised of one share of Progressive Care’s Series B Convertible Preferred Stock, $0.001 par value, and one Investor Warrant to purchase a share of Series B Convertible Preferred Stock at an exercise price of $2,000 The Investor Warrants may also be exercised, in whole or in part, by means of a cashless exercise. The Convertible Preferred Stock has a stated value of $2,000 per share and each Preferred Stock share has the equivalent voting rights of 500 common stock shares (after giving effect to the Reverse Stock Split described below). Each share of Series B Convertible Preferred Stock is convertible at any time at the option of the holder into shares of Progressive Care Common Stock shares determined by dividing the stated value by the conversion price which is $4.00 (after giving effect to the Reverse Stock Split described below).
In addition, on August 30, 2022, NextPlat Corp, Messrs. Fernandez and Barreto, and certain other investors (collectively, the “NextPlat Investors”) entered into a Modification Agreement wherein the terms were modified for an existing Secured Convertible Promissory Note (the “Note”) originally held by a third party note holder and sold to the NextPlat Investors. The NextPlat Investors purchased the Note as part of a Confidential Note Purchase and Release Agreement between the former note holder and the NextPlat Investors. As of the date of the SPA, the aggregate amount of principal and interest outstanding on the Note was approximately $2.8 million. As part of the Modification Agreement, various terms of the Note were modified, among them, the Conversion Price for the Note was modified to a fixed price of $4.00 per share of common stock (after giving effect to the Reverse Stock Split described below). In addition, the Note was modified to provide for mandatory conversion upon the later to occur of (a) the completion of the Company’s reverse stock split, and (b) the listing of the Company’s common stock on a national exchange, including the Nasdaq Capital Market, the Nasdaq Global Market, or the New York Stock Exchange. Also, pursuant to the SPA, Messrs. Fernandez and Barreto were nominated for election to Progressive Care’s Board of Directors.
On September 13, 2022, the Progressive Care Board of Directors appointed Charles M. Fernandez as Chairman of the Board of Directors and Rodney Barreto as the Vice Chairman of the Board of Directors. In connection with these appointments, Alan Jay Weisberg, Progressive Care’s current Chairman and Chief Executive Officer, was appointed to serve as a Vice Chairman. On September 12, 2022, two of Progressive Care’s Directors, Birute Norkute and Oleg Firer, resigned as Directors. On October 7, 2022, the Progressive Care Board of Directors unanimously voted to approve the appointment of Pedro Rodriguez, MD to the Board. Dr. Rodriguez was nominated to the Progressive Care Board by NextPlat.
On November 11, 2022, Mr. Weisberg resigned from his positions as Progressive Care’s Chief Executive Officer and co-Vice-Chairman of the Board of Directors. On the same date, the Board appointed Mr. Fernandez to serve as the new Chief Executive Officer immediately.
On December 29, 2022, Progressive Care filed a Certificate of Amendment to Articles of Incorporation (the “Amendment to Articles”) with the Secretary of State of the State of Delaware. Pursuant to the Amendment to Articles, each 200 shares of Progressive Care’s common stock outstanding was converted into one share of common stock (the “Reverse Stock Split”) and the number of shares of common stock that Progressive Care is authorized to issue was reduced to 100 million (the “Reduction in Authorized Stock”). The Reverse Stock Split and the Reduction in Authorized Stock were approved by the Progressive Care Board of Directors and the shareholders.
On May 5, 2023, NextPlat entered into a Securities Purchase Agreement (the “SPA”) with Progressive Care, pursuant to which NextPlat purchased 455,000 newly issued units of securities from Progressive Care (the “Units”) at a price per Unit of $2.20 for an aggregate purchase price of $1 million (the “Unit Purchase”). Each Unit consisted of one share of common stock, par value $0.0001 per share, of Progressive Care and one warrant to purchase a share of common stock (the “PIPE Warrants”). The PIPE Warrants have a three-year term and are immediately exercisable. Each PIPE Warrant is exercisable at $2.20 per share of common stock. On May 9, 2023, the Companies closed the transactions contemplated in the USSPA. Progressive Care received cash proceeds of $880,000, net of placement agent commission of $70,000 and Europe, where we producelegal fees of $50,000.
Simultaneous with the largest percentageclosing, Progressive Care entered into a Debt Conversion Agreement (the “DCA”) with NextPlat and the other holders (the “Holders”) of our sales, have liftedthat certain restrictions. We have incurred strong increasesAmended and Restated Secured Convertible Promissory Note, dated as of September 2, 2022, made by the Company in sales outsidethe original face amount of our Amazon marketplaces for the nine months ended September 30, 2022. However due to uncertainties related to variants of COVID-19, we are uncertain asapproximately $2.8 million (the “Note”). Pursuant to the continuationDCA, NextPlat and the other Holders agreed to convert the total approximately $2.9 million of outstanding principal and accrued and unpaid interest to Common Stock at a conversion price of $2.20 per share (the “Debt Conversion”). Of the total 1,312,379 shares of Common Stock issued upon conversion of the increasesNote pursuant to revenue.the DCA, NextPlat received 570,599 shares, Charles M. Fernandez, the Company’s Chairman and Chief Executive Officer, received 228,240 shares, and Rodney Barreto, the Company’s Vice-Chairman of the Board of Directors, received 228,240 shares. In addition, each of the Holders also received a warrant to purchase one share of Common Stock for each share of Common Stock they received upon conversion of the Note (the “Conversion Warrants”). The Conversion Warrants have a three-year term and are immediately exercisable. Each Conversion Warrant is exercisable at $2.20 per share of Common Stock. In addition, the Company issued 330,000 warrants to certain existing Progressive Care investors to induce them to approve the transaction contemplated by the SPA (the “Inducement Warrants”). Charles M. Fernandez and Rodney Barreto received Inducement Warrants to purchase 190,000 and 30,000 shares of Common Stock, respectively. The Inducement Warrants have a three-year term and are immediately exercisable. Each Inducement Warrant is exercisable at $2.20 per share of Common Stock.
On July 1, 2023, NextPlat, along with Messrs. Fernandez and Barreto, exercised common stock purchase warrants and were issued common stock shares by Progressive Care. NextPlat exercised common stock purchase warrants on a cashless basis and was issued 402,269 common stock shares. NextPlat also exercised common stock purchase warrants on a cash basis and paid consideration in the amount of $506,000 and was issued 230,000 common stock shares. Mr. Fernandez exercised common stock purchase warrants on a cashless basis and was issued 211,470 common stock shares. Mr. Barreto exercised common stock purchase warrants on a cashless basis and was issued 130,571 common stock shares. At the time of exercise, all of the above common stock purchase warrants were in-the-money. After the exercise of the common stock purchase warrants, NextPlat, Messrs. Fernandez and Barreto collectively owned approximately 53% of Progressive Care’s voting common stock.
Also, on July 1, 2023, NextPlat, along with Messrs. Fernandez and Barreto, entered into a voting agreement whereby at any annual or special shareholders meeting of Progressive Care’s stockholders, and whenever the holders of Progressive Care’s common stock act by written consent, Messrs. Fernandez and Barreto agreed to vote all of the common stock shares (including any new shares acquired after the date of the voting agreement or acquired through the conversion of securities convertible into Common Stock) that they own, directly or indirectly, in the same manner that NextPlat votes its common stock and equivalents. The voting agreement is irrevocable and perpetual in term.
As a result of the common stock purchase warrant exercises and the entry into the voting agreement, NextPlat concluded that there was a change in control in Progressive Care. As of July 1, 2023, NextPlat has the right to control more than 50 percent of the voting interests in Progressive Care through the concurrent common stock purchase warrant exercises and voting agreement noted above. Beginning on July 1, 2023, the Company changed the accounting method for its investment in Progressive Care, which prior to July 1, 2023 had been accounted for as an equity method investment to consolidation under the voting interest model in FASB ASC Topic 805. Therefore, Progressive Care became a consolidated subsidiary of the Company on July 1, 2023.
Recent Eventse-Commerce Operations:
Expanding beyond our current global networkLeveraging the e-commerce experience of online storefronts serving thousands of consumers, enterprises,the Company’s management team and governments,the Company’s existing e-commerce platforms, 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 intendrevenue, 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. 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 develop a next generationbroaden its e-commerce platform for digital assets built for Web3, an internet service built using decentralized blockchains. Our new platform (“NextPlat Digital”),and is implementing comprehensive systems upgrades to support this initiative.
e-Commerce transaction volumes at the Company’s owned and operated websites in the UK and Unites States continued to grow throughout the third quarter setting monthly performance records.
Healthcare Operations:
Progressive Care, through its wholly owned subsidiaries, currently owns and operates five pharmacies, which generate most of its pharmacy revenues, which is currently inderived from dispensing medications to their patients. Progressive Care also provides patient health risk reviews and free same-day delivery.
Progressive Care provides TPA, data management, COVID-19 related diagnostics and vaccinations, prescription pharmaceuticals, compounded medications, telepharmacy services, anti-retroviral medications, medication therapy management, the designsupply of prescription medications to long-term care facilities, medication adherence packaging, contracted pharmacy services for 340B covered entities under the 340B Drug Discount Pricing Program, and development phase in collaborationhealth practice risk management. Progressive Care are focused on improving the lives of patients with consultantscomplex chronic diseases through a patient and contracted developers, will initially enable the use of non-fungible tokens (“NFTs”), in e-commerceprovider engagement and in community-building activities. NextPlat Digital may in the future also enable the postingtheir partnerships with payors, pharmaceutical manufacturers, and use of other digital or “crypto” assets once applicable legal and regulatory requirements are addressed. As currently contemplated, NextPlat Digital may facilitate the creation/minting, purchase and sale ofdistributors. Progressive Care offer a broad range of non-yield-generatingsolutions to address the dispensing, delivery, dosing, and non-fractionalized NFT products, including, but not limited to, art, music, collectables, digital real estate, video games, game items and certificatesreimbursement of authenticity. Weclinically intensive, high-cost drugs.
Progressive Care’s pharmacies also anticipated developing and deploying NFTsprovides contracted pharmacy services 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 for340B covered entities under the promotion340B Drug Discount Pricing Program. Under the terms of a particular brand or product). We do not currently intend to undertake or participate in “initial coin offerings”, the minting of “coins” or the mining of cryptocurrencies.
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 tothese agreements, Progressive Care’s pharmacies act as a trading systempass-through for those digitalreimbursements on prescription claims adjudicated on behalf of the 340B covered entities in exchange for a dispensing fee per prescription. These fees vary by the covered entity and the level of services provided by Progressive Care.
Progressive Care’s focus is on complex chronic diseases that generally require multiyear or lifelong therapy, which drives recurring revenue and sustainable growth. Progressive Care’s pharmacy services revenue growth is from expanding their services, new drugs coming to market, new indications for existing drugs, volume growth with current clients, and additions of new customers due to their focus on higher patient engagement, benefit of free delivery to the patient, and clinical expertise. The pharmacies also expanded revenue growth through the signing of new contract pharmacy service and data management contracts with 340B covered entities.
Progressive Care provides data management and TPA services for 340B covered entities, pharmacy analytics, and programs to manage HEDIS Quality Measures including Medication Adherence. These offerings cater to the need for frontline providers to understand best practices, patient behaviors, care management processes, and the financial mechanisms behind these decisions. ClearMetrX provides data access, and actionable insights that providers and support organizations can use to improve their practice and patient care. ClearMetrX's TPA services include management of wholesale accounts, patient eligibility with regard to the 340B drug program, development and review of 340B policies and procedures, and management of receivables.
Critical Accounting Policies and Estimates
The significant accounting policies of the Company were described in Note 1. to the Audited Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2022. Beginning on July 1, 2023, the Company changed the accounting method for its investment in Progressive Care from the equity method to the consolidation method. This change is the result of certain common stock warrant exercises by the Company and Messrs. Fernandez and Barreto and the Company's entry into the voting agreement with Messrs. Fernandez and Barreto, which cumulatively resulted in the Company having control over approximately 53% of the issued and outstanding voting stock of Progressive Care. Progressive Care became a consolidated subsidiary of the Company on July 1, 2023 and as a result the Company has incorporated certain significant accounting policies of Progressive Care for the three months ended September 30, 2023.
Goodwill
Goodwill represents the excess of the purchase price of over the value assigned to net tangible and identifiable intangible assets. Progressive Care is considered to be the reporting unit for goodwill. Acquired intangible assets that such broker-dealer will complyother than goodwill are amortized over their useful lives unless the lives are determined to be indefinite. For intangible assets purchased in a business combination, the estimated fair values of the assets received are used to establish their recorded values. Valuation techniques consistent with the applicable “Know Your Customer” (“KYC”) rulesmarket approach, income approach, and/or cost approach are used to measure fair value. Goodwill 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 exposureother indefinite-lived intangible assets are assessed annually for any alleged failures on the part of such licensed broker-dealer to fulfill 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 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 transactimpairment in the subject NFT. We expect our risk assessment policies will continuously evolve to take into account developmentsfourth fiscal quarter and in case law, applicable facts, developments in technology, andinterim periods if events or changes in applicable regulatory schemes.circumstances indicate that the assets may be impaired.
IrrespectiveThe three month results 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 transmissionoperations ended September 30, 2023 include results of value that substitutesoperations 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.
Investment in Progressive Care Inc.
On September 2, 2022, we closed a transaction with Progressive Care Inc. (OTCQB: RXMD) (“Progressive Care”), pursuant to which we purchased 3,000 newly issued units of securities from Progressive Care (the “Units”) at a price per Unit of $2,000 for an aggregate purchase price of $6 million (the “Unit Purchase”). Each Unit consists of one share of Series B Convertible Preferred Stock of Progressive Care (“Series B Preferred Stock”) and one warrant to purchase a share of Series B Preferred Stock (“RXMD Warrants”).
Each share of Series B Preferred Stock votes as a class with the common stock of Progressive Care, and has 100,000 votes per share. Likewise, each share of Series B Preferred Stock is convertible into 100,000 shares of Progressive common stock. In addition, the Series B Preferred Stock has a liquidation and dividend preference. The RXMD Warrants have a five-year term, and are immediately exercisable, in whole or in part, and contain cashless exercise provisions. Each Warrant is exercisable at $2,000 per share of Series B Preferred Stock.
Following the consummation of the Unit Purchase, our Chairman and Chief Executive Officer, Charles M. Fernandez, and our board member, Rodney Barreto, were appointed to Progressive Care’s Board of Directors, with Mr. Fernandez appointed to serve as Chairman of Progressive Care’s Board of Directors and Mr. Barreto appointed to serve as a Vice Chairman of Progressive Care’s Board of Directors. On November 11, 2022, the Progressive Care Board of Directors elected Mr. Fernandez to serve as the Chief Executive Officer of Progressive Care.
In addition, on September 2, 2022, NextPlat, Charles Fernandez, Rodney Barreto and certain other purchasers purchased from Iliad Research and Trading, L.P. (“Iliad”) a Secured Convertible Promissory Note, dated March 6, 2019, made by Progressive Care to Iliad (the “Note”). The accrued and unpaid principal and interest under the note at the time of the purchase was approximately $2.79 million. The aggregate purchase price paid to Iliadsubsidiary for the Note was $2.3 Million of which NextPlat contributed $1 million and Messrs. Fernandez and Barreto contributed $400,000 each (the “Note Purchase”).
In connection with the Note Purchase, NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note entered into a Debt Modification Agreement with Progressive Care. Pursuant to the Debt Modification Agreement, the interest rate under the Note was reducedperiod from 10% to 5% per annum and the maturity date was extended to May 31, 2027. In addition, the conversion price under the note was changed to $0.02 per share of Common Stock. Pursuant to the Debt Modification Agreement, NextPlat, Messrs. Fernandez and Barreto and the other purchasers of the Note have the right, exercisable at any time, to redeem all or any portion of the Note. The Debt Modification Agreement also provides that the Note will automatically convert upon the later to occur of: (a) the completion by Progressive Care of a reverse stock split, and (b) the listing of Progressive Care’s common stock on a national exchange. In consideration of the concessions in the Debt Modification Agreement, Progressive Care issued 21,000,000 shares of its common stock to the purchasers of the Note, of which NextPlat, Charles Fernandez and Rodney Barreto, received 9,130,435, 3,652,174, and 3,652,174 shares, respectively.
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 2,229,950 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 $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 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.
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 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 corporate 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 stockholders at the 2021 annual meeting of stockholders held on December 16, 2021.
Restricted Stock Award
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 sharesacquisition, July 1, 2023, to September 30, 2023. The three month results of operations ended September 30, 2022 include only NextPlat Corp and its wholly owned subsidiaries and do not include Progressive Care.
Results of Operations for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 :
Three Months Ended September 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
(Unaudited) | (Unaudited) | $ Change | % Change | |||||||||||||
Revenue, net | $ | 15,290,171 | $ | 2,630,826 | $ | 12,659,345 | 481 | % | ||||||||
Cost of revenue | 10,705,489 | 1,952,072 | 8,753,417 | 448 | % | |||||||||||
Gross profit | 4,584,682 | 678,754 | 3,905,928 | 575 | % | |||||||||||
Operating expenses | 8,062,653 | 2,843,693 | 5,218,960 | 184 | % | |||||||||||
Loss before other (income) expense | (3,477,971 | ) | (2,164,939 | ) | (1,313,032 | ) | 61 | % | ||||||||
Other (income) expense | 655 | 93,901 | (93,246 | ) | (99 | )% | ||||||||||
Loss before income taxes | (3,478,626 | ) | (2,258,840 | ) | (1,219,786 | ) | 54 | % | ||||||||
Income taxes | (23,011 | ) | - | (23,011 | ) | - | % | |||||||||
Loss before equity method investment | (3,501,637 | ) | (2,258,840 | ) | (1,242,797 | ) | 55 | % | ||||||||
Gain on equity method investment | 6,138,051 | - | 6,138,051 | - | % | |||||||||||
Equity in net loss of affiliate | - | (3,454,436 | ) | 3,454,436 | (100 | )% | ||||||||||
Net income (loss) | 2,636,414 | (5,713,276 | ) | 8,349,690 | (146 | )% | ||||||||||
Net loss attributable to noncontrolling interest | 811,239 | - | 811,239 | - | % | |||||||||||
Net loss attributable to NextPlat Corp. | $ | 3,447,653 | $ | (5,713,276 | ) | $ | 9,160,929 | (160 | )% | |||||||
For the three months ended September 30, 2023 and 2022, we recognized overall revenue from operations of approximately $15.3 million and $2.6 million, respectively, an overall increase of approximately $12.7 million for the three months ended September 30, 2023, when compared to the three months ended September 30, 2022. The increase in revenue was primarily attributable to an increase in e-Commerce revenue of approximately $0.3 million and approximately $12.4 million from the healthcare operations as a result of the Progressive Care acquisition on July 1, 2023.
Gross profit margins increased from approximately 25.8% for the three months ended September 30, 2022, to 30.0% for the three months ended September 30, 2023. The increase in gross profit margins during the third quarter of 2023 compared to the same period in 2022, was primarily attributable to the healthcare operations as a result of the Progressive Care acquisition on July 1, 2023.
Loss before other (income) expense increased by approximately $1.3 million for the three months ended September 30, 2023, when compared to the three months ended September 30, 2022 , as a result of the increase in gross profit of approximately $3.9 million, partially offset by the increase in operating expenses of approximately $5.2 million. See detailed discussion below.
Revenue
Our revenues were fully vestedas follows:
Three Months Ended September 30, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
Dollars | % of Revenue | Dollars | % of Revenue | $ Change | % Change | |||||||||||||||||||
Sales of products, net: | ||||||||||||||||||||||||
Pharmacy prescription and other revenue, net of PBM fees | $ | 9,887,890 | 65 | % | $ | - | - | % | $ | 9,887,890 | 100 | % | ||||||||||||
e-Commerce revenue | 2,930,721 | 19 | % | 2,630,826 | 100 | % | 299,895 | 11 | % | |||||||||||||||
Sub total | 12,818,611 | 84 | % | 2,630,826 | 100 | % | 10,187,785 | 387 | % | |||||||||||||||
Revenues from services: | ||||||||||||||||||||||||
Pharmacy 340B contract revenue | 2,471,560 | 16 | % | - | - | % | 2,471,560 | 100 | % | |||||||||||||||
Revenues, net | $ | 15,290,171 | 100 | % | $ | 2,630,826 | 100 | % | $ | 12,659,345 | 481 | % | ||||||||||||
Sales for the three months ended September 30, 2023, consisted primarily of e-Commerce sales of satellite phones, tracking devices, accessories, airtime plans, and upon issuance resultedpharmacy prescription, and 340B contract revenues. For the three months ended September 30, 2023, overall revenues were approximately $15.3 million compared to $2.6 million of revenues for the three months ended September 30, 2022, an increase in of approximately $12.7 million or 481.2%.
Total e-Commerce revenues were approximately $2.9 million for the three months ended September 30, 2023, as compared to $2.6 million for the three months ended September 30, 2022, an increase of approximately $0.3 million or 11.4%. The increase was mainly attributable to an increase in sales of satellite communication devices and associated recurring airtime revenues of approximately $0.3 million.
Total pharmacy prescription and 304B contract revenues were approximately $12.4 million for the three months ended September 30, 2023 as a result of the Progressive Care acquisition on July 1, 2023. The pharmacy filled approximately 122,000 prescriptions for the three months ended September 30, 2023
Operating Expenses.
Three Months Ended September 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
(Unaudited) | (Unaudited) | $ Change | % Change | |||||||||||||
Selling, general and administrative | $ | 4,187,429 | $ | 1,699,711 | $ | 2,487,718 | 146 | % | ||||||||
Salaries, wages and payroll taxes | 2,483,432 | 651,219 | 1,832,213 | 281 | % | |||||||||||
Professional fees | 520,726 | 356,306 | 164,420 | 46 | % | |||||||||||
Depreciation and amortization | 871,066 | 136,457 | 734,609 | 538 | % | |||||||||||
Operating expenses | $ | 8,062,653 | $ | 2,843,693 | $ | 5,218,960 | 184 | % | ||||||||
Total operating expenses for the three months ended September 30, 2023, were approximately $8.1 million, an increase of approximately $5.2 million on or 183.5%, from total operating expenses for the three months ended September 30, 2022, of approximately $2.8 million. Factors contributing to the increase are described below.
Selling, general and administrative (“SG&A”) expenses were approximately $4.2 million and $1.7 million for the three months ended September 30, 2023 and 2022, respectively, an increase of approximately $2.5 million or 146.4%. The increase for the three months ended September 30, 2023, was mainly attributable to the increase in stock-based compensation of $34,800. Shares were issued in reliance onapproximately $1.2 million, other operating expenses as it relates to the exemption from registration provided by Section 4(a)(2)e-Commerce operations of approximately $0.3 million, and approximately $1.2 million as it relates to operating expenses of the Securities Acthealthcare operations as a result of 1933,the Progressive Care acquisition on July 1, 2023.
Salaries, wages and payroll taxes were approximately $2.5 million and $0.7 million for the three months ended September 30, 2023 and 2022, respectively, an increase of approximately $1.8 million or 281.4%. The increase was mainly attributable to the healthcare operations as amended,a result of the Progressive Care acquisition as thereof July 1, 2023, of approximately $1.9 million, offset by a decrease in e-Commerce salaries and wages of approximately $0.1 million.
Professional fees were approximately $0.5 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively, an increase of approximately $164.4 thousand or 46.1%. The increase was no general solicitation,mainly attributable to legal and consulting fees as it relates to the transaction did not involvehealthcare operations as a public offering.result of the Progressive Care acquisition as of July 1, 2023, of approximately $0.3 million, offset by non-recurring legal and consulting fees associated with the e-Commerce business of approximately $0.1 million.
OnDepreciation and amortization expenses were approximately $0.8 million and $0.1 million for the three months ended September 30, 2023 and 2022, respectively, an increase of approximately $0.7 million or 538.3%. The increase was mainly attributable to depreciation and amortization as it relates to the healthcare operations from the Progressive Care acquisition on July 22,1, 2023, of approximately $0.7 million.
Total Other (Income) Expense.
Our total other (income) expense decreased by approximately $0.1 million for the three months ended September 30, 2023 when compared to same period in 2022, pursuantand was mainly due to Mr. Fernandez employment agreement,interest received, which was offset by unfavorable impact of fluctuations in foreign exchange rates.
Equity Method Investment.
We recorded a net gain in equity of our affiliate, Progressive Care, of approximately $6.1 million for the “June Agreement”, see Note 13, the Company issued 200,000 restricted shares and recorded stock-based compensationthree months ended September 30, 2023, as a result of a change in the amountaccounting treatment from equity method to consolidation as of $805,246 to eAperion Partners LLC,July 1, 2023. See Note 14 – Equity Method Investment. For the three months ended September 30, 2022, we recorded a net loss in the equity of our affiliate, Progressive Care, of approximately $3.5 million which Mr. Fernandez is managing director. This amount is valued fromwas accounted for as an equity method investment.
Net Income (Loss).
We recorded net income of approximately $2.6 million for the datethree months ended September 30, 2023 and a net loss of approximately ($5.7 million) for the award May 28, 2021 tothree months ended September 30, 2022. The valueincrease was a result of the awardfactors described above.
Comprehensive Income.
We recorded comprehensive (gains) losses for foreign currency translation adjustments of approximately ($0.2 million) and $0.1 million for the yearthree months ended December 31, 2021September 30, 2023 and 2022, respectively. The change was $356,712primarily attributed to exchange rate variances.
Results of Operations for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
Nine Months Ended September 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
(Unaudited) | (Unaudited) | $ Change | % Change | |||||||||||||
Revenue, net | $ | 21,123,687 | $ | 9,080,083 | $ | 12,043,604 | 133 | % | ||||||||
Cost of revenue | 15,074,319 | 7,032,847 | 8,041,472 | 114 | % | |||||||||||
Gross profit | 6,049,368 | 2,047,236 | 4,002,132 | 195 | % | |||||||||||
Operating expenses | 14,121,207 | 6,580,039 | 7,541,168 | 115 | % | |||||||||||
Loss before other (income) expense | (8,071,839 | ) | (4,532,803 | ) | (3,539,036 | ) | 78 | % | ||||||||
Other (income) expense | (556,902 | ) | 231,981 | (788,883 | ) | (340 | )% | |||||||||
Loss before income taxes | (7,514,937 | ) | (4,764,784 | ) | (2,750,153 | ) | 58 | % | ||||||||
Income taxes | (75,034 | ) | - | (75,034 | ) | 100 | % | |||||||||
Loss before equity method investment | (7,589,971 | ) | (4,764,784 | ) | (2,825,187 | ) | 59 | % | ||||||||
Gain on equity method investment | 6,138,051 | - | 6,138,051 | 100 | % | |||||||||||
Equity in net loss of affiliate | (1,439,637 | ) | (3,454,436 | ) | 2,014,799 | (58 | )% | |||||||||
Net loss | (2,891,557 | ) | (8,219,220 | ) | 5,327,663 | (65 | )% | |||||||||
Net loss attributable to noncontrolling interest | 811,239 | - | 811,239 | 100 | % | |||||||||||
Net loss attributable to NextPlat Corp. | $ | (2,080,318 | ) | $ | (8,219,220 | ) | $ | 6,138,902 | (75 | )% | ||||||
For the nine months ended September 30, 2023 and 2022, we recognized overall revenue from operations of approximately $21.1 million and $9.1 million, respectively, an overall increase of approximately $12.0 million for the nine months ended September 30, 2023, when compared to the nine months ended September 30, 2022.The increase in revenue was primarily attributable to an increase of approximately $12.4 million in the healthcare operations as a result of the Progressive Care acquisition as of July 1, 2023. e-Commerce revenues decreased by approximately $0.3 million and was mainly due to non-recurring revenue from the Ukraine war during the first half of 2022, partially offset by an increase in sales of satellite communication devices and associated recurring airtime revenues for the nine months ended September 30, 2023, when compared to the same period in 2022.
Gross profit margins increased from approximately 22.5% for the nine months ended September 30, 2022, $448,534.to 28.6% for the nine months ended September 30, 2023. The award is valued overincrease in gross profit margins during the servicefirst three quarters of 2023 compared to the same period in 2022, was primarily attributable to the healthcare operations as a results 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 August 4, 2022, the Company issued 15,000 restricted shares to Andrew Cohen, pursuant to a restricted stock award which became fully vested upon his resignation, see Note 13. The award resulted in stock based compensation of $76,950 and was valuedProgressive Care acquisition as of July 1, 2023.
Loss before other (income) expense increased by approximately $3.5 million for the date of the award on October 8, 2021.
Onnine months ended September 20, 2022, the Company issued 116,000 restricted shares of common stock30, 2023, when compared to eAperion Partners LLC, of which Charles M. Fernandez is managing partner, pursuant to a restricted stock award, “RSA,” under the Company’s 2020 Equity Incentive Plan. The shares were fully vested upon issuance. The shares were valued at the market close of issuance date of $2.52 per share, resulting in stock-based compensation of $292,320.
On September 28, 2022, the Company issued 20,000 restricted shares to Douglas Ellenoff, pursuant to such award as granted on August 24, 2021, using the fair market value as of date of the award of $5.37 per share, resulting in stock-based compensation of $107,400.
Also, on September 28, 2022, the Company issued 5,000 restricted shares to Paul Thomson, pursuant to such award as granted on August 24, 2021, using the fair market value as of date of the award of $5.37 per share, resulting in stock-based compensation of $26,850.
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 nine months ended September 30, 2022, approximately 27%as a result of the cost was expensedincrease in gross profit of approximately $4.0 million, partially offset by the period incurred to SGA and 73% was capitalized and depreciated over its useful life. The Company intends to maintain dual accounting systems, until such time it is deemed acceptable, which we estimate to beincrease in the first quarteroperating expenses of 2023.approximately $7.5 million. See detailed discussion below.
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 September 30, 2022, there were 50,000,000 shares of common stock authorized and 9,649,096 shares issued and outstanding.
As of September 30, 2022, there were 3,312,000 registered warrants to purchase common stock authorized and 2,836,092 registered warrants issued and outstanding, at an exercise price of $5.00, and 144,000 unregistered underwriter warrants issued and outstanding, at an exercise price of $5.50. The warrants expire in June of 2026.
As of September 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 $2,731,076 during the nine months ended September 30, 2022. At September 30, 2022, we had working capital of $13,378,221. Additionally, at September 30, 2022, we had an accumulated deficit of $30,205,435 and stockholder’s equity of $18,192,649.
Results of Operations for the Three and Nine months Ended September 30, 2022, compared to the Three and Nine months Ended September 30, 2021
Revenue.Net
Our revenues were as follows:
Nine Months Ended September 30, | ||||||||||||||||||
2023 | 2022 | |||||||||||||||||
Dollars | % of Revenue | Dollars | % of Revenue | $ Change | % Change | |||||||||||||
| Sales of products, net: | ||||||||||||||||||
Pharmacy prescription and other revenue, net of PBM fees | $ | 9,887,890 | 47 | % | $ | - | - | % | $ | 9,887,890 | 100 | % | ||||||
e-Commerce revenue | 8,764,237 | 41 | % | 9,080,083 | 100 | % | (315,846) | (3) | % | |||||||||
Sub total | 18,652,127 | 88 | % | 9,080,083 | 43 | % | 9,572,044 | 105 | % | |||||||||
Revenues from services: | ||||||||||||||||||
Pharmacy 340B contract revenue | 2,471,560 | 12 | % | - | - | % | 2,471,560 | 100 | % | |||||||||
Revenues, net | $ | 21,123,687 | 100 | % | $ | 9,080,083 | 100 | % | 12,043,604 | 133 | % | |||||||
Sales for the nine months ended September 30, 2022,2023, consisted primarily of e-Commerce sales of satellite phones, tracking devices, accessories, airtime plans, and airtime plans.pharmacy prescription, and 340B contract revenues. For the nine months ended September 30, 2022,2023, overall revenues generated were $9,080,083approximately $21.1 million compared to $5,667,966$9.1 million of revenues for the nine months ended September 30, 2021,2022, an increase in totalof approximately $12.0 million or 132.6%.
Total e-Commerce revenues of $3,412,117 or 60.2%. Total net sales for Global Telesat Communications Ltd. were $6,449,399approximately $8.8 million and approximately $9.1 million for the nine months ended September 30, 2023 and 2022, as comparedrespectively. The decrease was approximately $0.3 million and mainly attributable to $3,897,254the non-recurring revenue from the Ukraine war during the first half of 2022 of approximately $1.2 million, partially offset by an increase in sales of satellite communication devices and associated recurring airtime revenues of approximately $0.9 million for the nine months ended September 30, 2021, an increase of $2,552,145 or 65.5%. Total net sales for Global Telesat Communications Ltd as valued in its home currency of GBP was £5,125,142, for the nine months ended September 30, 2022, as2023, when compared to £2,813,191, for the nine months ended September 30, 2021, an increase of £2,311,951 or 82.2%. The net effect of the exchange rate GBP:USD on revenue for the nine months ended September 30, 2022, was reduced by $650,716, using GBP:USD exchange rate yearly average of 1.25838 for the nine months ended September 30, 2022 as compared to GBP:USD 1.38534 for the nine months ended September 30, 2021. same period in 2022.
Total net sales for Orbital Satcom Corp.pharmacy prescription and 304B contract revenues were $2,630,684 for the nine months ended September 30, 2022, as compared to $1,770,712, for the nine months ended September 30, 2021, an increase of $859,972 or 48.6%.
Net salesapproximately $12.4 million for the three months ended September 30, 2022, consisted primarily2023 as a result of salesthe Progressive Care acquisition as of satellite phones, tracking devices, accessories, and airtime plans. For the three months ended September 30, 2022, revenues generated were $2,630,826 compared to $2,250,278 of revenuesJuly 1, 2023. The pharmacy filled approximately 122,000 prescriptions for the three months ended September 30, 2021, an increase in total revenues of $380,548 or 16.9%. Total sales for Global Telesat Communications Ltd. were $1,906,728 for the three months ended September 30, 2022, as compared to $1,498,341 for the three months ended September 30, 2021, an increase of $408,387 or 27.3%. Total sales for Orbital Satcom Corp. were $724,098 for the three months ended September 30, 2022 as compared to $751,937, for the three months ended September 30, 2021, a decrease of $27,839 or 3.7%. The Company attributes the changes in revenue to new product lines, increased inventory, and additional e-commerce storefronts, offset by disruption of sales due to economic sanctions imposed on Russia.2023
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Cost of Sales. During the nine months ended September 30, 2022, cost of sales increased to $7,032,847 compared to $4,195,823, for the nine months ended September 30, 2021, an increase of $2,837,024 or 67.6%. Gross profit margins during the nine months ended September 30, 2022 were 22.5%, as compared to 26.0% for the comparable period in the prior year. During the three months ended September 30, 2022, cost of sales increased to $1,952,072 compared to $1,757,142, for the three months ended September 30, 2021, an increase of $194,930 or 11.1%. Gross profit margins during the three months ended September 30, 2022, were 25.8% as compared to 21.9% for the comparable period in the prior year. As indicated by the results for the three and nine months, our gross profit margins have increased by 3.89% and decreased by 3.4%, respectively. The increase for the quarter was due to increased high margin airtime sales offsetting the decrease for the nine month period ended, September 30, 2022 which continued 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.
Nine Months Ended September 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
(Unaudited) | (Unaudited) | $ Change | % Change | |||||||||||||
Selling, general and administrative | $ | 7,495,601 | $ | 3,434,916 | $ | 4,060,685 | 118 | % | ||||||||
Salaries, wages and payroll taxes | 4,039,307 | 1,957,592 | 2,081,715 | 106 | % | |||||||||||
Professional fees | 1,385,474 | 839,509 | 545,965 | 65 | % | |||||||||||
Depreciation and amortization | 1,200,825 | 348,022 | 852,803 | 245 | % | |||||||||||
Operating expenses | $ | 14,121,207 | $ | 6,580,039 | $ | 7,541,168 | 115 | % | ||||||||
Total operating expenses for the nine months ended September 30, 20222023, were $6,580,039,approximately $14.1 million, an increase of $2,022,785approximately $7.5 million or 44.4%114.6%, from total operating expenses for the nine months ended September 30, 20212022, of $4,557,254. Total operating expenses for the three months ended September 30, 2022 were $2,843,693, an increase of $113,711 or 4.2%, from total operating expenses for the three months ended September 30, 2021 of $2,729,982. approximately $6.6 million. Factors contributing to the decreaseincrease are described below.
Selling, general and administrative (“SG&A”) expenses were $3,434,916approximately $7.5 million and $2,284,456$3.4 million for the nine months ended September 30, 20222023 and 2021,2022, respectively, an increase of $1,150,460approximately $4.1 million or 50.4%. Selling, general and administrative expenses were $1,699,711 and $1,840,760 for the three months ended September 30, 2022 and 2021, respectively, a decrease of $141,049 or 7.7%118.2%. The decrease for the three months ended September 30, 2022, is attributable to a reclass of approximately $103,000 to professional fees from advertising. For the nine months ended September 30, 2022, is attributable to an increase in non-cash stock-based compensation of $642,201, 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, of $74,759 and $84,166, respectively.
Salaries, wages and payroll taxes were $1,957,592 and $1,178,267 for the nine months ended September 30, 20222023, was mainly attributable to the increase in stock-based compensation of approximately $2.6 million, other operating expenses of approximately $0.4 million as it relates to the e-Commerce operations, and 2021, respectively, an increaseoperating expenses of $779,325, or 66.1%. approximately $1.1 million as it relates to the healthcare operations of the Progressive Care acquisition on July 1, 2023, when compared to the same period in 2022.
Salaries, wages and payroll taxes were $651,219approximately $4.0 million and $490,555 for the three months ended September 30, 2022, and 2021, respectively, an increase of $160,664, or 32.8%. The increase is a result of executive management additions, adjusted salaries and an increase in personnel.
Professional fees were $839,509 and $869,127$2.0 million for the nine months ended September 30, 20222023 and 2021, respectively, a decrease of $29,618, or 3.4%. Professional fees were $356,306 and $320,211 for the three months ended September 30, 2022, and 2021, respectively, an increase of $36,095,approximately $2.1 million or 11.3%106.3%. The increase during the three months ended September 30, 2022 as compared to the same period in 2021, is attributable to the quarter reclass of advertising initiatives. For the nine months ended September 30, 2022, the decrease is attributable to 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 $348,022 and $225,404 for the nine months ended September 30, 2023, when compared to the same periods in 2022, was mainly attributable to executive bonus payments, salary increases, and 2021,severance payments of approximately $0.2 million and the healthcare operations as a result of the Progressive Care acquisition as of July 1, 2023, of approximately $1.9 million.
Professional fees were approximately $1.4 million and $0.8 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $122,618approximately $0.6 million or 54.4%65.0%. The increase for the nine months ended September 30, 2023, when compared to the same period in 2022, was mainly attributable to legal fees associated with the capital raise in April 2023, the annual meeting held during the second quarter of 2023, and consulting fees as it relates to the e-Commerce operations of approximately $0.3 million, and legal and consulting fees as it relates to the healthcare operations from Progressive Care acquisition on July 1, 2023, of approximately $0.2 million.
Depreciation and amortization expenses were $136,457approximately $1.2 million and $78,456$0.4 million for the threenine months ended September 30, 20222023 and 2021,2022, respectively, an increase of $58,001approximately $0.9 million or 73.9%245.0%. The increase was primarilymainly attributable to capitalized expenditures for softwaredepreciation and website developmentamortization as it relates to the healthcare operations from Progressive Care acquisition on July 1, 2023, of approximately $0.7 million and equipment and leasehold improvements forapproximately $0.2 million as it relates to the new corporate office space in Florida.e-Commerce operations.
We expect our expenses in each of these areas to continue to increase during fiscal 20222023 and beyond as we expand our operations and begin generating additional revenues under our current business. We are unable at this time to estimate the amount of the expected increases.
Total Other (Income) Expense.
Our total other (income) expense was $231,981, compared to $1,481,974approximately ($0.6 million) and $0.2 million during the nine months ended September 30, 2023 and 2022, and 2021, respectively, a decreasean overall favorable impact of $1,249,993 or 84.3%. Our total other expenseapproximately $0.8 million. The favorable impact was $93,901 comparedattributable to $68,703interest earned, management fees earned during the three months ended September 30, 2022first half of 2023, write off of aged payables, and 2021, respectively. The decrease and increase for the three and nine months ended September 30, 2022, as compared to the prior year, is attributable to the reduction in interest expense from the prior year of $1,448,337, an increase in interest earned of $10,275, offset by an increaseunfavorable fluctuations in foreign exchange rate of $187,787. The decrease in interest expense is relative to the elimination of all debt, except for the balance of $324,472, representing the coronavirus loan debt from the prior year.rates.
Net Loss Before Income Tax & Equity of AffiliateMethod Investment.
We recorded net loss before income tax and equity net loss of affiliate of $2,258,840 and $4,764,784 for the three and nine months ended September 30, 2022 as compared net loss of $2,305,549 and a net lossgain in equity of $4,567,085, for the three and nine months ended September 30, 2021. For the three months ended September 30, 2022 the decrease in the loss and the increase in the lossour affiliate, Progressive Care, of approximately $6.1 million for the nine months ended September 30.30, 2023, as a result of a change in the accounting treatment from equity method to consolidation as of July 1, 2023. See Note 14 – Equity Method Investment. For the nine months ended September 30, 2023 and 2022, iswe recorded a net loss in the equity of our affiliate, Progressive Care, of approximately $1.4 million and $3.5 million, respectively, which was accounted for as an equity method investment.
Net Loss.
We recorded net loss of approximately $2.9 million and $8.2 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease in the net loss was a result of the factors as described above.
Equity in Net Losses of AffiliateComprehensive Loss.
We recorded a net loss in equitycomprehensive losses for foreign currency translation adjustments of affiliate of $3,454,436approximately $0.1 million and $3,454,436,$0.2 million for the three and nine months ended September 30, 2023 and 2022, see Note 7. For the three and nine months ended September 30, 2021, there were no losses or income.respectively. The change was primarily attributed to exchange rate variances.
Net Loss. We recorded a net loss of $5,713,276 and $8,219,220, for the three and nine months ended September 30, 2022. We recorded a net loss of $2,305,549 and $4,567,085, for the three and nine months ended September 30, 2021.
Comprehensive (Loss) Income. We recorded a loss for foreign currency translation adjustments for the three and nine months ended September 30, 2022 of $67,635 and $87,753. For the three and nine months ended September 30, 2021 we recorded income of $55,584 and $42,850.
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. AtAs of September 30, 2022,2023, we had a cash balance of $12,469,607.approximately $26.4 million. Our working capital is $13,378,221was approximately $29.1 million at September 30, 2022.2023.
Our current assets at September 30, 2022 decreased $4,530,091 or 23%2023 increased 106.5% from December 31, 20212022 primarily due to cash received during capital raise in April 2023 and included cash, accounts receivable, VAT receivable, prepaid expenses, unbilled revenue, inventory and other current assets.Progressive Care consolidation as of July 1, 2023..
Our current liabilities at September 30, 2022 decreased $1,314,105 or 47.3%2023 increased approximately $12.6 million from December 31, 2021 and included our accounts payable,2022 primarily due to related party, provision for income taxes, contract liabilities, lease liabilities and other liabilities in the ordinary courseProgressive Care consolidation as of our business.July 1, 2023.
At September 30, 2022, the Company had an accumulated deficit of $30,205,435 working capital of $13,378,221 and net loss of $8,219,220 during the nine months ended September 30, 2022.
As of the date of this report, the Company’s existing cash resources and existing borrowing availability are sufficient to support planned operations for the next 12 months. As a result, management believes that the existing financial resources are sufficient to continue operating activities for at least one year past the issuance date of the financial statements.
For the Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Net change in cash from: | ||||||||
Operating activities | $ | (4,248,304 | ) | $ | (2,731,076 | ) | ||
Investing activities | 5,388,269 | (7,471,118 | ) | |||||
Financing activities | 6,330,491 | 5,534,318 | ||||||
Effect of exchange rate on cash | (15,984 | ) | (130,494 | ) | ||||
Change in cash | 7,454,472 | (4,798,370 | ) | |||||
Cash at end of period | $ | 26,345,704 | $ | 12,469,608 | ||||
Cash Flow from Operating Activities
Net cash flows used by operating activities totaled approximately $4.3 million and $2.7 million for the nine months ended September 30, 2023 and 2022, amounted to $2,731,076respectively, and werechanged by approximately $1.5 million period over period. The unfavorable change of approximately $1.5 million was primarily attributable to ourthe following:
- favorable change in net loss of $8,219,220, totalapproximately $5.3 million;
- unfavorable change in other non-cash items of approximately $4.5 million and include stock-based compensation, amortization, expensedepreciation, loss in equity of $18,750 and depreciation of $329,272, stock based compensation in relation to restricted stock awards $1,343,566 an stock based compensation for the fair value of options granted of $620,199, amortization of right of use of $58,284, share of loss from equity method investment, of 3,454,436 and netgain in equity method investment;
- unfavorable change in operating assets of approximately $6.3 million and mainly a result of increased accounts receivable and inventory due to the acquisitions of Progressive Care as of July 1, 2023;
- favorable change in operating liabilities of $336,363, primarily attributable to an increase in accounts receivableapproximately $4.0 million and mainly a result of $339,258, an increase in inventory of 118,594, an increase in unbilled revenue of $19,937, a decrease in prepaid expense of $37,170, a decrease in VAT receivable of $136,299, a decrease in other current assets of $48,539, an increase in operating lease liabilities of $61,213, an increase inincreased accounts payable due to the acquisition of $23,700, a decrease in contract liabilitiesProgressive Care as of $1,756, and decrease in provision for income taxes of $41,313.July 1, 2023.
Cash Flow from Investing Activities
Net cash flows usedprovided by operating(used in) investing activities were approximately $5.4 million and ($7.5 million) for the nine months ended September 30, 2021 amounted to $2,997,6442023 and were2022, respectively, and changed by approximately $12.9 million period over period. The favorable change of approximately $12.9 million was primarily attributable to our net lossthe following:
- cash acquired in the acquisition of $4,567,085, total amortization expenseProgressive Care of $18,750 and depreciationapproximately $7.4 million;
- non-recurring capital contributions of $206,654, amortization of discount on debt of $1,425,365, amortization of rightapproximately $5.5 million to use of $24,948 gain on extinguishment of debt of $20,832, stock based compensation of $1,321,564 and net changeequity method investee, Progressive Care (approximately $1.5 million in assets and liabilities of $1,421,208, primarily attributable to an increase2023 vs. $7.0 million in accounts receivable of $132,808, an increase in inventory of $621,487, an increase in unbilled revenue of $22,353, an increase in VAT receivable of $446,657, an increase in other current assets of $728, decrease in accounts payable of $168,557, an increase in contract liabilities of $4,252, a decrease in lease liabilities of $24,898, and an increase in provision for income taxes of $37,603.2022).
InvestingCash Flow from Financing Activities
Net cash flows used in investingprovided by financing activities were $7,471,118approximately $6.3 million and $95,598$5.5 million for the nine months ended September 30, 2023 and 2022, respectively, and 2021, respectively. Duringchanged by approximately $0.8 million period over period. The cash provided by financing activities during the nine months ended September 30, 2023 and 2022 and September 30, 2021, we purchased equipment, website development and leaseholds of $471,118 and $95,598, respectively. On September 2, 2022, we purchased an equity method investment of $7,000,000, see Note 7.was primarily attributable to proceeds from capital raises during those periods offset by payments on loans.
Financing Activities
Net cash flows provided by financing activities were $5,534,318 and $19,466,289 for the nine months ended September 30, 2022 and 2021, respectively. Net cash flows provided by financing activities were $5,534,318 for the nine months ended September 30, 2022 and were primarily attributed to proceeds from common stock offering of $5,605,038, offset by repayments of notes payable for $51,104 and repayments of related party payable $19,616.
Net cash flows provided by financing activities were $19,466,289 for the nine months ended September 30, 2021 and were for, proceeds from; a convertible note payable of $350,000, proceeds from related party payable of $34,238, the June Offering, of $14,649,573, proceeds of warrant exercise of $4,629,540 which was offset by repayments of notes payable for $121,848, proceeds of options exercised of $5,000, payments of coronavirus interruption loan of $11,189 and repayments to related party payable of $69,025.
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 guaranteed contract, although we do have obligations under certain sales arrangements including purchase obligations to vendors |
● | 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
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 and common stock issued for services.
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 consolidated 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 September 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 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 $109,765 and $146,935, at September 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.
Investments
The Company applies the equity method of accounting to investments when it has significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company’s proportionate share of the net income resulting from these investments is reported under the line item captioned “equity method investment income” in our condensed consolidated statements of operations. The Company’s equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s income or loss and dividend paid, if any.
The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. Management reviewed the underlying net assets of the investees as of September 30, 2022 and determined that the Company’s proportionate economic interest in the investees indicate that the investments were not impaired. The carrying value of our equity method investment is reported as “Equity method investment in Progressive Care, Inc. and Subsidiaries” on the condensed consolidated balance sheets. Note 7 contains additional information on our equity method investment.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Foreign Currency Translation
The Company’s reporting currency is U.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 nine months ended September 30, 2022, closing rate at 1.1150 US$: GBP, quarterly average rate at 1.176596 US$: GBP and yearly average rate at 1.258384444 US$: GBP, for the three and nine months ended September 30, 2021 closing rate at 1.342642 US$: GBP, quarterly average rate at 1.3784972 US$: GBP and yearly average rate at 1.3853499 US$: GBP, for the year ended 2021 closing rate at 1.353372 US$: GBP, yearly average rate at 1.375083 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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property and equipment
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:
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.
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 September 30, 2022 and September 30, 2021, respectively.
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.
The Company did not identify any 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-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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 is currently evaluating the impact and timing of adoption 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 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 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 4. CONTROLS AND PROCEDURES
Our(a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) we carried out an evaluation, under the supervision and with the participation of our management, is responsible for establishingincluding our Chief Executive Officer (“CEO”) and maintaining adequate internal control over financial reporting asChief Financial Officer (“CFO”), of the effectiveness and design of our disclosure controls and procedures (as defined in Rules 13a-15(f)13a-15(e) and 15d-15(f)15d-15(e) of the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that as of September 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act. OurAct is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
(b) Inherent Limitations on Controls. Management, including the CEO and CFO, does not expect that our disclosure controls and procedures will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is also requiredbased upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to assesserror or fraud will not occur or that all control issues and report oninstances of fraud, if any, within the effectivenessCompany have been detected. The design of our internala control over financial reportingsystem must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
(c) Changes in accordance with Section 404 of the Sarbanes-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 September 30, 2022.
Managementreporting. There has determined that our internal audit function is significantly deficient due to insufficient qualified resources to perform internal audit functions.
Furthermore, 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 be 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 merit attention by those responsible for oversight of the 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 changeschange in our internal control over financial reporting during the nine monthsour fiscal quarter ended September 30, 20222023, that havehas materially affected, or areis reasonably likely to materially affect, our internal controlcontrols 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 all compensation payable under his employment agreement executed in June 2, 2021 employment agreement.2021. The Company’s position is that Mr. Seifert is not owed any additional consideration or 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 affirmativeadvanced 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 whistleblower8, 2022, a 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 respondedwas filed 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 allegedProgressive Care against KeyCentrix, LLC (“KCL”), in the complaint. On July 21, 2022, followingU.S. District Court for the Southern District of Florida, alleging fraudulent inducement, breach of express warranty and breach of implied warranty. The complaint stems from an investigationagreement by KCL to license to Progressive Care certain pharmacy management software known as “Newleaf” for use in the operations of pharmacies operated 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. On September 8, 2022, we received notice from the U.S. Department of Labor that Thomas Seifert had withdrawn his Complaint. Pursuant to applicable Federal Regulations, the matter was closed and the Secretary’s Findings were rescinded. Company.
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 QuarterlyInvestors should carefully consider the risks in the “Risk Factors” in Part 1: Item 1A of our Annual 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.
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 statementyear ended December 31, 2022, 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 registrationon March 31, 2023, and our other filings with the SEC as a “broker”SEC. These risks are not the only ones facing the Company. Additional risks not currently known to us 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 procedurescurrently believe 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.
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 securityimmaterial 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 impactimpair our business operating results, and financial condition.
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. Inoperations. Any of 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.
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 restatementrisks could adversely affect our business, prospects,cash flows, financial condition, and results of operation.operations. The trading price of our common stock could fluctuate due to any of these risks, and investors may lose all or part of their investment. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q. There have been no material changes in our risk factors from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USEAUSE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
On July 22, 2022, the Company issued 200,000 of restricted common stock to eAperion Partners LLC of which Charles M. Fernandez is managing partner, pursuant to his employment agreement dated May 28, 2021. The Company recorded stock-based compensation in the amount of $805,246.None.
On August 4, 2022, the Company issued 15,000 restricted shares to Andrew Cohen, pursuant to a restricted stock award which became fully vested upon his resignation, see Note 13. The award resulted in stock based compensation of $76,950 and was valued as of the date of the award on October 8, 2021.
On September 20, 2022, the Company issued 116,000 restricted shares of common stock to eAperion Partners LLC, of which Charles M. Fernandez is managing partner, pursuant to a restricted stock award, “RSA,” under the Company’s 2020 Equity Incentive Plan. The shares were fully vested upon issuance. The shares were valued at the market close of issuance date of $2.52 per share, resulting in stock-based compensation of $292,320.
On September 28, 2022, the Company issued 20,000 restricted shares to Douglas Ellenoff, pursuant to such award as granted on August 24, 2021, using the fair market value as of date of the award of $5.37 per share, resulting in stock-based compensation of $107,400.
Also, on September 28, 2022, the Company issued 5,000 restricted shares to Paul Thomson, pursuant to such award as granted on August 24, 2021, using the fair market value as of date of the award of $5.37 per share, resulting in stock-based compensation of $26,850.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETYSAFEFTY DISCLOSURES
Not applicable.
Election of Mr. Robert Bedwell as Chief Compliance Officer
On November 2, 2022,14, 2023, the Board unanimously voted to elect Mr. Robert Bedwell as the Chief Compliance Officer of the Company to hold such office until his successor shall have been duly elected and qualified or until his earlier resignation or removal. Mr. Bedwell, 64, previously served as the Director of Administrative Services of PharmCo, LLC (“PharmCoRx”), a wholly-owned subsidiary of Progressive Care, a position he has held since 2021. Previous to that, Mr. Bedwell served as the Controller of PharmCoRx, a position he held from 2017 to 2021. Prior to joining PharmCoRx, Mr. Bedwell was an audit partner and principal with several large regional and national public accounting firms from 1980 to 2017.
On November 7, 2022, in connection with such election, Mr. Bedwell entered into an Employment Agreement with the Company (the “Bedwell Employment Agreement”). The Bedwell Employment Agreement, which was unanimously approved by the Compensation Committee of the Board, has an initial term of three years commencing on November 7, 2022 and may be extended for additional terms of one year each. Under the Bedwell Employment Agreement, Mr. Bedwell will receive an annual base salary of $125,000 and will be eligible for grants of awards under the Company’s Incentive Award Plan as determined by the Compensation Committee and our CEO from time to time with an initial reward under the Bedwell Employment Agreement of stock options for 50,000 shares of the Company’s common stock with a vesting schedule as follows: (1) options for 25,000 shares will become fully vested on the first anniversary of the commencement of Mr. Bedwell’s employment with the Company; (2) options for 10,000 additional shares will become fully vested on the second anniversary of the commencement of Mr. Bedwell’s employment with the Company; and (3) options for an additional 15,000 shares will become fully vested on the third anniversary of the commencement of Mr. Bedwell’s employment with the Company.
There is no arrangement or understanding between Mr. Bedwell and any other person pursuant to which Mr. Bedwell was appointed as our Chief Compliance Officer. In addition, there are no family relationships between Mr. Bedwell and any director, executive officer, or person nominated or chosen by the Company to become a director or executive officer. As part of Mr. Bedwell duties for NextPlat, he will continue monitoring the compliance of RXMD and PharmCoRx, accordingly Progressive Care will pay for 20% of Mr. Bedwell’s annual base salary. As noted above, NextPlat, our Chairman and CEO – Charles M. Fernandez – and our director – Rodney Barreto – have made significant investments in Progressive Care and Messrs. Fernandez and Barreto currently serve on Progressive Care’s board of directors as Chairman and Vice Chairman, respectively, and on November 11, 2022, the Progressive Care board of directors elected Mr. Fernandez as the Chief Executive Officer of Progressive Care.
The foregoing summary of the Bedwell Employment Agreement does not purport to be complete and is subject to, and qualified in its entirety, by reference to the Employment Agreement attached hereto as Exhibit 10.6 which is incorporated herein by reference.
Transition of Paul Thomson, from Executive Vice President and CFO tothe Company's Senior Vice President offor Mergers, Acquisitions and Special Projects, expired and Mr. Thomson retired from the Company.
On November 2, 2022,Rule 10b5-1 Trading Arrangement
During the Board unanimously voted to approve the transition Paul Thomson’s role from Executive Vice President and Chief Financial Officerthree months ended September 30, 2023, no director or officer of the Company to his new roleadopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as Senior Vice Presidenteach term is defined in Item 408(a) of Mergers, Acquisitions and Special Projects effective asRegulation S-K.
| 10.1 | ||
31.1 | ||
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| Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2 | ||
32.1 | ||
101.ins | ||
Inline XBRL Instance Document | ||
101.sch | Inline XBRL Taxonomy Schema Document | |
101.cal | Inline XBRL Taxonomy Calculation Document | |
101.def | Inline XBRL Taxonomy Linkbase Document | |
101.lab | Inline XBRL Taxonomy Label Linkbase Document | |
101.pre | Inline XBRL Taxonomy Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File |
| Portions of the this document have been omitted because they are not material and are the type that the Company treats as private and confidential. |
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: November | NEXTPLAT CORP | |
By: | /s/ Charles M. Fernandez | |
Charles M. Fernandez | ||
Chairman and Chief Executive Officer | ||
( | ||
/s/ | ||
Chief Financial Officer | ||
( | ||