UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ______________to _______________.
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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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
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| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
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| Emerging
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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. ☐
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| Class | Outstanding at November 14, 2022 | |
| Common Stock, $0.0001 par value |
FORM 10-Q
INDEX
| i |
Part I Financial Information
Item 1. 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, 2022 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 OF
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Unbilled revenue | ||||||||
| VAT receivable | ||||||||
| Prepaid expenses – current portion | ||||||||
| Equity method investment | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset | ||||||||
| Intangible assets, net | ||||||||
| Prepaid expenses – long term portion | ||||||||
| Equity method investment | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Contract liabilities | ||||||||
| Note payable coronavirus loans– current portion | ||||||||
| Due to related party | ||||||||
| Lease liabilities - current | ||||||||
| Provision for income taxes | ||||||||
| Stock subscription payable | ||||||||
| Liabilities from discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities: | ||||||||
| Note payable coronavirus loans– long term | ||||||||
| Lease liabilities - long term | ||||||||
| Total Liabilities | ||||||||
| 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 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated (deficit) | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 2 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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 | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Salaries, wages and payroll taxes | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss before other expenses and income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expense | ||||||||||||||||
| Gain on debt extinguishment | ( | ) | ||||||||||||||
| Interest earned | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||||||
| Foreign currency exchange rate variance | ||||||||||||||||
| Total other (income) expense | ||||||||||||||||
| Net loss before income tax expense | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Provision for income taxes | ||||||||||||||||
| Net loss before equity net loss of affiliate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Equity in net losses of affiliate | ( | ) | ( | ) | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive (Loss) Income: | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | ||||||||||||||||
| Weighted number of common shares outstanding – basic & diluted | ||||||||||||||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Nine months Ended September 30, 2022
Common Stock $0.0001 Par Value | Additional Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of common related to offering | ||||||||||||||||||||||||
| Issuance of common related to restricted stock award | ||||||||||||||||||||||||
| Stock based compensation in relation to options granted | - | |||||||||||||||||||||||
| Comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance common stock from convertible debt | ||||||||||||||||||||||||
| Issuance of common related to offering | ||||||||||||||||||||||||
| Issuance of common for over-allotment | ||||||||||||||||||||||||
| Issuance of warrants for over-allotment | - | |||||||||||||||||||||||
| Issuance of common stock from exercise of warrant | ||||||||||||||||||||||||
| Issuance of common stock for exercise of options | ||||||||||||||||||||||||
| Stock based compensation in connection with options granted | - | |||||||||||||||||||||||
| Stock based compensation in connection with restricted stock awards | ||||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||
| Beneficial conversion feature of convertible debt | - | |||||||||||||||||||||||
| Comprehensive income | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| 4 |
For the Three Months Ended September 30, 2022
| Common
Stock $0.0001 Par Value | Additional
Paid in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Stock based compensation in relation to restricted stock award | ||||||||||||||||||||||||
| Stock based compensation in relation to options granted | - | |||||||||||||||||||||||
| Comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of common stock related to exercise of options | ||||||||||||||||||||||||
| Stock based compensation for restricted stock awards | ||||||||||||||||||||||||
| Stock based compensation for options granted | - | |||||||||||||||||||||||
| Issuance of common stock from exercise warrant | ||||||||||||||||||||||||
| Comprehensive income | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
| September 30, 2022 | September 30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) operating activities: | ||||||||
| Depreciation expense | ||||||||
| Amortization of intangible asset | ||||||||
| Amortization of convertible debt, net | ||||||||
| Amortization of right to use | ||||||||
| Stock based compensation in relation to restricted stock awards | ||||||||
| Fair value of options granted | ||||||||
| Stock issued for services | ||||||||
| Share of loss from equity method | ||||||||
| Gain on debt extinguishment | ( | ) | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Unbilled revenue | ( | ) | ( | ) | ||||
| VAT receivable | ( | ) | ||||||
| Prepaid expense | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Provision for income taxes | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of equity method investment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible note payable | ||||||||
| Proceeds from (repayments) to note payable, related party, net | ( | ) | ( | ) | ||||
| Proceeds from exercise of options | ||||||||
| Proceeds from common stock offering | ||||||||
| Proceeds from warrant offering | ||||||||
| Repayments to note payable Coronavirus loans | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrant | ||||||||
| Repayment of note payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate on cash | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash beginning of period | ||||||||
| Cash end of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for | ||||||||
| Interest | $ | $ | ||||||
| Income tax | $ | $ | ||||||
| Non-cash adjustments during the period for | ||||||||
| Beneficial conversion feature on convertible debt | $ | $ | ||||||
| Recognition of operating lease liability | $ | $ | ||||||
| Conversion of convertible debt into common shares | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The unaudited financial statements for the three and 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-party e-commerce storefronts such as Alibaba, Amazon and Walmart. These e-commerce venues form an effective global network serving thousands of consumers, enterprises, and governments. NextPlat has announced its intention to broaden its e-commerce platform and is implementing comprehensive systems upgrade to support this initiative. The Company has also begun the design and development of a next generation platform for digital assets built for Web3 (an internet service built using decentralized blockchains). This new platform (“NextPlat Digital”) is currently in the design and development phase and will enable the use of a range of digital assets, such as non-fungible tokens (“NFTs”), in e-commerce and in community-building activities.
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
| 7 |
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 provision of services and the sale of equipment. Higher margin recurring service revenue from the sale of monthly, annual, and prepaid airtime or messaging plans has historically represented an increasing proportion of our revenue, and we expect that trend to continue as we introduce new products requiring associated airtime or messaging plans.
We provide our products and services directly to end users and reseller networks located both in the United States and internationally through our subsidiaries, U.S. based Orbital Satcom Corp (“Orbital Satcom”) and U.K. based 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.
| 8 |
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,
Global Telesat Communications Limited (“GTC”) was formed under the laws of England and Wales in 2008. On February 19, 2015, we entered into a share exchange agreement with GTC and all of the holders of the outstanding equity of GTC pursuant to which GTC became a wholly owned subsidiary of ours.
On
March 28, 2014, we merged with a newly-formed wholly-owned subsidiary of ours solely for the purpose of changing our state of incorporation
to Nevada from Delaware, effecting a
A wholly owned subsidiary, Orbital Satcom Corp. (“Orbital Satcom”), a Nevada corporation was formed on November 14, 2014.
On January 22, 2015, we changed our name to “Orbital Tracking Corp” from “Great West Resources, Inc.” pursuant to a merger with a newly formed wholly owned subsidiary.
Effective
March 8, 2018, following the approval of a majority of our shareholders, we effected a reverse split of our common stock at a
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.
| 9 |
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 filed with the SEC on March 13, 2021. The Company’s
Board of Directors subsequently approved 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
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.
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 $
Each
share of Series B Preferred Stock votes as a class with 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 $
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
$
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 reduced from
All
information presented in this Quarterly Report on Form 10-Q other than in Company’s consolidated financial statements and the
notes thereto assumes a
| 10 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities and common stock issued for services.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The
Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured
by the Federal Deposit Insurance Corporation (“FDIC”) up to $
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 December 31, 2021, there were no allowances for doubtful accounts.
| 11 |
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 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 $
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, 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
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.
| 12 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is 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 $
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
| 13 |
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:
| Years | ||
| Office furniture and fixtures | ||
| Computer equipment | ||
| Rental equipment | ||
| Leasehold improvements | ||
| Appliques | ||
| Website development |
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.
| 14 |
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.
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 $
The Company continues to account for leases in the prior period financial statements under ASC Topic 840.
| 15 |
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 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.
| September 30, 2022 | September 30, 2021 | |||||||
| Stock Options | ||||||||
| Stock Warrants | ||||||||
| Total | ||||||||
Related Party Transactions
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party, (see Note 12).
Recent Accounting Pronouncements
| 16 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting Pronouncements Recently Adopted
In May 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.
| 17 |
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:
| September 30, 2022 | December 31, 2021 | |||||||
| Finished goods | $ | $ | ||||||
| Less reserve for obsolete inventory | ||||||||
| Total | $ | $ | ||||||
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 September 30, 2022 and the year ended December 31, 2021, the Company recorded
a receivable in the amount of $
NOTE 4 – PREPAID EXPENSES
Prepaid
expenses amounted to $
NOTE 5 – PROPERTY AND EQUIPMENT
At September 30, 2022 and December 31, 2021, property and equipment, net of fully depreciated assets, consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Office furniture and fixtures | $ | $ | ||||||
| Computer equipment | ||||||||
| Rental equipment | ||||||||
| Leasehold improvements | ||||||||
| Appliques | ||||||||
| Website development | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation
expense was $
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 $
| 18 |
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 are included in depreciation and amortization. For the nine months ended September 30, 2022 and 2021, the Company
amortized $
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total | $ |
For
the nine months ended September 30, 2022 and 2021, there were
NOTE 7 – EQUITY METHOD INVESTMENT IN PROGRESSIVE CARE, INC. AND SUBSIDIARIES
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. On August 30, 2022 the Company
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 newly issued units of securities from
Progressive at a price per unit of $, for an aggregate purchase price of $
Pursuant to the SPA, NextPlat’s Chairman and Chief Executive Officer, Charles M. Fernandez and board member, Rodney Barreto, were appointed to Progressive’s Board of Directors as Chairman of the Company’s Board of Directors and Vice Chairman, respectively. 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, entered into a Confidential Purchase and Release Agreement (the “NPA”) with a third-party
lender to Progressive pursuant to which NextPlat agreed to purchase $
As
a result of the SPA and related transactions, the Company paid an aggregate of $
The Company combined its investment in the Series B Preferred Stock, common stock, warrants, and convertible note receivable into one line item 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”.
| 19 |
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:
| Carrying Amount | ||||
| August 30, 2022, beginning balance | $ | |||
| Portion of income from Progressive Care, Inc. and Subsidiaries | ( | ) | ||
| Depreciation expense due to cost basis difference (1) | ( | ) | ||
| Interest earned from convertible note receivable | ||||
| Interest earned from amortization of premium on convertible note receivable | ||||
| Elimination of intercompany interest earned | ( | ) | ||
| September 30, 2022, carrying amount | ||||
| Equity method investment – short term | ( | ) | ||
| Equity method investment – long term | $ | |||
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 nine months ended September 30, 2022 as follows:
For the Three and Nine Months Ended September 30, 2022 | ||||
| Equity in net loss of affiliate | $ | ( | ) | |
| Depreciation expense due to cost basis difference (1) | ( | ) | ||
| Interest earned from convertible note receivable | ||||
| Interest earned from amortization of premium on convertible note receivable | ||||
| Elimination of intercompany interest earned | ( | ) | ||
| Equity in net loss of affiliate | $ | ( | ) | |
| (1) |
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 liabilities consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Rental deposits | ||||||||
| Customer deposits payable | ||||||||
| Accrued wages & payroll liabilities | ||||||||
| VAT liability & sales tax payable | ||||||||
| Pre-merger accrued other liabilities | ||||||||
| Accrued interest | ||||||||
| Accrued other liabilities | ||||||||
| Total | $ | $ | ||||||
| 20 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - CORONAVIRUS LOANS
On
April 20, 2020, the Board of Directors the Company (the “Board”), approved for its wholly owned UK subsidiary, Global Telesat
Communications LTD (“GTC”), to apply for a Coronavirus Interruption Loan, offered by the UK government, for an amount up
to £. On July 16, 2020 (the “Issue Date”), GTC, entered into a Coronavirus Interruption Loan Agreement (“Debenture”)
by and among the Company and HSBC UK Bank PLC (the “Lender”) for an amount of £, or USD $ at an exchange
rate of GBP:USD of . The Debenture bears interest beginning July 16, 2021, at a rate of % per annum over the Bank of England
Base Rate (% as of July 16, 2020), payable monthly on the outstanding principal amount of the Debenture. The Debenture has a term
of years from the date of drawdown, , the “Maturity Date”. The first repayment of £ (exclusive
of interest) was made 13 month(s) after July 16, 2020. . The Debenture is secured
by all GTC’s assets as well as a guarantee by the UK government, with the proceeds of the Debenture are to be used for general
corporate and working capital purposes. The Debenture includes customary events of default, including, among others: (i) non-payment
of amounts due thereunder, (ii) non-compliance with covenants thereunder, (iii) bankruptcy or insolvency (each, an “Event of Default”).
Upon the occurrence of an Event of Default, the Debenture becomes payable upon demand. As of September 30, 2022, and December 31, 2021,
the Company has recorded $ and $ as current portion of notes payable and $
On
May 8, 2020, NextPlat Corp was approved for the US funded Payroll Protection Program, (“PPP”) loan. The loan was for $
and had a term of years, of which the first 6 months are deferred at an interest rate of %. On May 23, 2021, BlueVine, the Company’s
SBA approved mortgage lender and originator, notified the Company, that the loan in the amount of $, had been forgiven. As of December
31, 2021, the Company has recorded $
NOTE 10 - STOCKHOLDERS’ EQUITY
Capital Structure
On March 28, 2014, in connection with the Reincorporation (see Note 1), all share and per share values for all periods presented in the accompanying condensed consolidated financial statements are retroactively restated for the effect of the Reincorporation.
On
March 5, 2016, the Company shareholders voted in favor of an amendment to its Articles of Incorporation to increase the total number
of shares of authorized capital stock to
Effective
March 8, 2018, we conducted a reverse split of our common stock at a
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
| 21 |
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
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 $
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:
Number of Warrants | Weighted Average Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | ( | ) | - | |||||||||
| Forfeited | - | |||||||||||
| Cancelled | ( | ) | - | |||||||||
| Balance outstanding and exercisable at December 31, 2021 | $ | |||||||||||
| Balance at January 1, 2022 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeited | - | |||||||||||
| Cancelled | - | |||||||||||
| Balance outstanding and exercisable at September 30, 2022 | $ | |||||||||||
| 22 |
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 Private Placement of Common Stock
On December 31, 2021, after markets closed, a securities purchase agreement (the “Purchase Agreement”) was circulated to, and signatures were received from, certain institutional and accredited investors (the “December Investors”) in connection with the sale in a private placement by the Company of shares of the Company’s common stock (the “December Offering”). On January 2, 2022, the Company delivered to December Investors a fully executed Purchase Agreement, which was dated December 31, 2021. The purchase price for the common stock sold in the December Offering was $per share, the closing transaction price reported by Nasdaq on December 31, 2021.
The
closing of the December Offering occurred on January 5, 2022. The Company received gross proceeds from the sale of the common stock in
the December Offering of approximately $
In connection with the December Offering, the Company entered into a registration rights agreement with the December Investors (the “Registration Rights Agreement”), pursuant to which, among other things, the Company agreed to prepare and file with the SEC a registration statement to register for resale the shares of the Company’s common stock sold in the Offering.
The shares of common stock offered and sold in the December Offering were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act and corresponding provisions of state securities or “blue sky” laws.
The terms of the transaction disclosed above, including the provisions of the Purchase Agreement and Registration Rights Agreement, were approved by the Board of Directors; and because some of the securities were offered and sold to officers and directors of the Company, such terms were separately reviewed and approved by the Audit Committee of the Board of Directors.
On
January 5, 2022, the Company issued shares of common stock pursuant to a private placement offering at a per share price of
$, resulting in gross proceeds of $
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, with a fair market value of $
per share, on the date of issuance. All shares were fully vested and upon issuance resulted in stock-based compensation of $
On
May 23, 2021, the Company entered a three (
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 September 30, 2022. The value of the award for the
year ended December 31, 2021 was $
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 $
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 $
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 $
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 $
| 23 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS’ EQUITY (continued)
Stock Options
| Number of Options | Weighted Exercise | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance at January 1, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | ( | ) | - | |||||||||
| Forfeited | ( | ) | - | |||||||||
| Cancelled | ( | ) | - | |||||||||
| Balance outstanding and exercisable at December 31, 2021 | $ | |||||||||||
| Balance at January 1, 2022 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeited | ( | ) | - | |||||||||
| Cancelled | - | |||||||||||
| Balance outstanding and exercisable at September 30, 2022 | $ | |||||||||||
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 $and $
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 $
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 £
The
Company employs three individuals who are related to Mr. Phipps. These three individuals earned gross wages totaling $
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 $
Following
the consummation of the Company’s investment in Progressive Care Inc. on September 2, 2022, 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 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 $
| 24 |
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:
| ● | Audit Committee: Rodney Barreto (Committee Chair), Cristina Fernandez, and Lou Cusimano | |
| ● | Compensation Committee: Hector Delgado (Committee Chair), Lou Cusimano, and John Miller | |
| ● | Nominating Committee: Cristina Fernandez (Committee Chair), Lou Cusimano and Rodney Barreto |
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 -year term (subject to the director’s nomination and
election) and provides for a cash retainer of $
| 25 |
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
June 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 $
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
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.
| 26 |
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 (
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 $
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,
| 27 |
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 the Company entered into an employment agreement (the “Carlise Agreement”) with an initial term of one year
The term of the Carlise Agreement will be automatically extended for additional one-year terms unless terminated by the Company or Ms.
Carlise by written notice. Ms. Carlise’s annual base compensation is $. The Carlise Agreement provides for medical plan
coverage and an auto allowance. The Company may increase (but not decrease) her compensation during its term. In addition, Ms. Carlise
will be entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the
Board of Directors. Ms. Carlise is also entitled to participate in any other executive compensation plans adopted by the Board of Directors
and is eligible for such grants of awards under stock option or other equity incentive plans as the Compensation Committee of the Company
may from time to time determine. The Company is required to pay or to reimburse Ms. Carlise for all reasonable out-of-pocket expenses
actually incurred or paid by Ms. Carlise in the course of her employment, consistent with the Company’s policy. Ms. Carlise shall
be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit plans and
all other benefits and plans, including perquisites, if any, 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
Thomson Employment Agreement
On
August 24, 2021, Paul R. Thomson was appointed 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. Thomson and the
Company (the “Thomson Agreement”). The Thomson Agreement has an initial term of three (
In
connection with Mr. Thomson’s employment, and as a material inducement to enter into the Thomson Agreements,
| 28 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 (
In
connection with Mr. Cohen’s employment, and as a material inducement to enter into the Cohen Agreement,
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.
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 $
Lease Agreements
On
December 2, 2021, the Company entered a 62-month lease for its corporate headquarters for
Effective
July 24, 2019, a three-year lease was signed for
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:
| Years Ending December 31, | Minimum Lease Payment | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total undiscounted future non-cancelable minimum lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| Weighted average remaining term | ||||
Amortization
expenses for the nine months ended September 30, 2022, and 2021 were $
| 29 |
NEXTPLAT CORP AND SUBSIDIARIES
FKA: ORBSAT CORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)
At
September 30, 2022, the Company had current and long-term operating lease liabilities of $
Net
rent expense for the nine months ended September 30, 2022 and 2021 were $
Litigation
On June 22, 2021, Thomas Seifert’s employment as the Company’s Chief Financial Officer was terminated for cause. Mr. Seifert asserts that the termination was not for cause and that he is owed compensation payable under his June 2, 2021 employment agreement. The Company’s position is that Mr. Seifert is not owed any additional compensation relating to his prior service with the Company or arising under any employment agreement. The Company and Mr. Seifert are currently engaged in litigation over the matter of his employment and termination. The Company believes it has adequate defenses to Mr. Seifert’s claims and has asserted affirmative claims for relief against Mr. Seifert including, but not limited to, breach of the employment agreement, breach of the fiduciary, fraud in the inducement in connection with the employment agreement, fraudulent misrepresentation, and constructive fraud. The Company does not expect to seek substantial monetary relief in the litigation. This dispute is pending before the District Court for the Southern District of Florida under Case No. 1:21-cv-22436-DPG.
On June 24, 2021, Seifert submitted an online whistleblower complaint to the Occupational Safety and Health Administration (OSHA) alleging that NextPlat engaged in retaliatory employment practices in violation of the Sarbanes-Oxley Act. NextPlat responded by moving to dismiss Seifert’s complaint, citing Seifert’s failure to make a prima facie showing that a protected activity contributed to the adverse action alleged in the complaint. On July 21, 2022, following an investigation by the Regional Administrator for OSHA, Region IV, the Secretary of Labor issued its findings, dismissing Seifert’s complaint on the grounds that the OSHA investigator found that the evidence did not support Seifert’s claims. 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.
NOTE 14 - CONCENTRATIONS
Customers:
Amazon
accounted for
| 30 |
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 nine months ended September 30, 2022 and 2021.
| September 30, 2022 | September 30, 2021 | |||||||||||||||
| Satcom Global | $ | % | $ | % | ||||||||||||
| Globalstar Europe | $ | % | $ | % | ||||||||||||
| Garmin | $ | % | $ | % | ||||||||||||
| Network Innovations | $ | % | $ | % | ||||||||||||
| Cygnus Telecom | $ | % | $ | % | ||||||||||||
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the three months ended September 30, 2022 and 2021.
| September 30, 2022 | September 30, 2021 | |||||||||||||||
| Satcom Global | $ | % | $ | % | ||||||||||||
| Globalstar Europe | $ | % | $ | % | ||||||||||||
| Garmin | $ | % | $ | % | ||||||||||||
| Network Innovations | $ | % | $ | % | ||||||||||||
| Cygnus Telecom | $ | % | $ | % | ||||||||||||
Geographic:
The following table sets forth revenue as to each geographic location, for the nine months ended September 30, 2022 and 2021:
| September 30, 2022 | September 30, 2021 | |||||||||||||||
| Europe | $ | % | % | |||||||||||||
| North America | % | % | ||||||||||||||
| South America | % | % | ||||||||||||||
| Asia & Pacific | % | % | ||||||||||||||
| Africa | % | % | ||||||||||||||
| $ | ||||||||||||||||
The following table sets forth revenue as to each geographic location, for the three months ended September 30, 2022 and 2021:
| September 30, 2022 | September 30, 2021 | |||||||||||||||
| Europe | $ | % | $ | % | ||||||||||||
| North America | % | % | ||||||||||||||
| South America | % | % | ||||||||||||||
| Asia & Pacific | % | % | ||||||||||||||
| Africa | % | % | ||||||||||||||
| $ | $ | |||||||||||||||
NOTE 15 - SUBSEQUENT EVENTS
On October 1, 2022, the Company entered into a Stock Option Agreement with Ms. Maria Cristina Fernandez 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.
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 £
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 $
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 CEO for additional terms of
one year each. Under this agreement, Mr. Thomson will be paid an annual base salary of $
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 $
| 31 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the condensed consolidated financial statements and the notes thereto contained elsewhere in this report. Statements made in this Item 2, “Management’s Discussion and Analysis 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 the Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on September 30, 2022, and the Company’s subsequent public filings with the SEC.
Corporate Information
NextPlat Corp, formerly Orbsat Corp (“NextPlat”), is a Nevada corporation. Our headquarters and principal executive offices are located at 3250 Mary St., Suite 410, Coconut Grove, FL 33133. Our telephone number is (305) 686-3250, and our corporate website is www.nextplat.com. Unless the context requires otherwise, in this report the terms “the Company,” “we,” “us,” and, “our” refer to NextPlat and our wholly owned subsidiaries.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
COVID-19 Update
The impact of the COVID-19 pandemic has rapidly evolved around the globe, causing disruption in the U.S. and global economies. Although the global economy continued reopening in early 2022 and robust economic activity has supported a continued recovery, certain geographies, most notably China, have experienced setbacks.
The uncertainty surrounding the COVID-19 pandemic, including uncertainty regarding new variants of COVID-19 that have emerged and other factors have and may continue to contribute to significant volatility in the global markets. While vaccine availability and uptake has increased, the longer-term macro-economic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our performance, financial condition, and results of operations.
The ultimate magnitude of COVID-19, including the full extent of the material negative impact on our financial and operational results, will depend on future developments, such as the duration and severity of the pandemic, the extent of any additional increases in cases across the United States, and the related length of its impact on the global economy, as well as the timing and availability of effective medical treatments and vaccines, which remain uncertain and cannot be predicted at this time. The resumption of our normal business operations may be delayed or constrained by lingering effects of COVID-19 on our customers, suppliers and/or third-party service providers. Furthermore, the extent to which our mitigation efforts are successful, if at all, is not currently ascertainable. Due to the daily evolution of the COVID-19 pandemic and the responses to curb its spread, we cannot predict the full impact of the COVID-19 pandemic on our business and results of operations, but our business, financial condition, results of operations and cash flows have already been materially adversely impacted, and we anticipate they will continue to be adversely affected by the COVID-19 pandemic and its negative effects on global economic conditions. Any recovery from the COVID-19 pandemic and related economic impact may also be slowed or reversed by a variety of factors, such as any increase in COVID-19 infections. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of its national and, to some extent, global economic impact, including the current recession and any recession that may occur in the future.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The success of our business depends on our global operations, including our supply chain and consumer demand, among other things. As a result of COVID-19, we have experienced shortages in inventory due to manufacturing issues, a reduction in the volume of sales in some parts of our business, such as rental sales and direct website sales, and a reduction in personnel due to lockdown related issues. Our results of operations for the year ended December 31, 2020 reflected this impact. Recently, some governmental agencies in the US and Europe, where we produce the largest percentage of our sales, have lifted certain restrictions. We have incurred strong increases in sales outside of our Amazon marketplaces for the nine months ended September 30, 2022. However due to uncertainties related to variants of COVID-19, we are uncertain as to the continuation of the increases to revenue.
Recent Events
Expanding beyond our current global network of online storefronts serving thousands of consumers, enterprises, and governments, the Company has embarked upon the rollout of a state-of-the-art e-commerce platform to collaborate with businesses to optimize their ability to sell their goods online, domestically, and internationally, and enabling customers and partners to optimize their e-commerce presence and revenue. We intend to develop a next generation platform for digital assets built for Web3, an internet service built using decentralized blockchains. Our new platform (“NextPlat Digital”), which is currently in the design and development phase in collaboration with consultants and contracted developers, will initially enable the use of non-fungible tokens (“NFTs”), in e-commerce and in community-building activities. NextPlat Digital may in the future also enable the posting and use of other digital or “crypto” assets once applicable legal and regulatory requirements are addressed. As currently contemplated, NextPlat Digital may facilitate the creation/minting, purchase and sale of a broad range of non-yield-generating and non-fractionalized NFT products, including, but not limited to, art, music, collectables, digital real estate, video games, game items and certificates of authenticity. We also anticipated developing and deploying NFTs for use in tokenizing data for use in brand loyalty programs.
NextPlat Digital, as currently planned, will be used by us to create both (a) public marketplaces, for us and third-parties, where anyone with a crypto wallet or credit card can buy an NFT from an authorized user, or, if authorized, sell their own NFTs, and (b) private market places that only allow a particular company or entity to sell their own NFTs within a branded market (such as for the promotion of a particular brand or product). We 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 to act as a trading system for those digital assets that such broker-dealer will comply with the applicable “Know Your Customer” (“KYC”) rules and custom and practice, as well as with the applicable Anti-Money Laundering laws and regulations (“AML”) and Combating the Financing of Terrorism (“CFT”), administered and enforced by the U.S. Treasury Financial Crimes and Enforcement Network discussed below, among others. We may have legal exposure for any alleged failures on the part of such licensed broker-dealer to fulfill its obligations under its contracts with us.
With respect to the securities status of an NFT that we propose to post to our platform, we will follow an internally developed model that will permit us to make a risk-based assessment regarding the likelihood that a particular NFT could be deemed a “security” within the meaning of the U.S. federal and/or state securities laws in determining if and how an NFT can be posted on our platform. This process will involve employees trained to identify the indicia of a “security” who will also work with outside legal counsel experienced in crypto asset regulatory matters to make a determination with respect to each NFT, or category of NFT, proposed to be posted on our platform. These processes and procedures are risk based assessments and are not a legal standard or binding on regulators or courts. In the event an NFT or other digital asset is deemed by us, pursuant to the above analysis, to possess a reasonable likelihood of being deemed a security, we will (a) comply with applicable laws and regulations by forming, acquiring or engaging a licensed broker-dealer authorized to act as an trading system for those digital assets, or (b) transact in such digital assets offshore in a way that complies with applicable laws and regulations; or (c) not transact in the subject NFT. We expect our risk assessment policies will continuously evolve to take into account developments in case law, applicable facts, developments in technology, and changes in applicable regulatory schemes.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Irrespective of a particular NFT’s status as a security, we will need to assess whether we needed to comply with other applicable regulations and laws (including but not limited to AML and CFT regulations). If we are deemed to be involved in the exchange or transmission of value that substitutes for currency, or fall under other evolving requirements, we may be deemed to be a “money transmitter” and will be subject to AML and CFT regulations. Depending on the particular attributes of an NFT, the manner in which it is marketed, and the nature of the clientele, we could be subject to other legal and regulatory regimes as well. We will endeavor to comply with all applicable laws in connection with our NextPlat Digital business, but the uncertain application of those laws to our proposed business may create substantial risk to the Company.
When onboarding new users, we intend to utilize third-party tools to proactively screen for high-risk crypto wallets, including explicitly sanctioned addresses and addresses associated with sanctioned entities. Crypto wallets protect the identity of the owner of the wallet, store the owner’s private keys, secure and provide access by the owner to the cryptocurrency owned by it and allow the owner to send, receive, and transact business with cryptocurrencies. Such wallets by their nature obfuscate the identity of the owner of the wallet and limit access to the transaction history of that wallet and its owner. Consequently, crypto wallets and cryptocurrencies may be used by persons seeking to avoid legal oversight and to violate the law. For example, they can be used to launder money and to promote terrorism. The applicable legal requirements and our compliance obligations will vary depending on the nature of the client, the service or product provided and jurisdiction. For example, if we engage, form or acquire a broker dealer in order to post, trade or sell NFTs or other digital assets that are securities, we will attempt to fully comply with all applicable KYC, AML and CFT compliance requirements. If, on the other hand, we facilitate the distribution of free promotional corporate collectable NFTs that are not deemed to be securities, our compliance requirements will be significantly less. In either event there can be no assurance that our efforts to fully comply with applicable law will be successful.
In determining to engage in transactions in an NFT, we will attempt to comply with all applicable laws. However, given the substantial legal uncertainties that may presented by those laws and given the informational constraints presented by crypto wallets we may not be successful in our efforts. As a consequence, we may be exposed to regulatory enforcement and civil or criminal sanction should a legal authority determine that our approach is inadequate or inappropriate, as well as to claims asserting civil liability. Moreover, governmental agencies may seek to apply laws to our NextPlat Digital business that we believe are inapplicable and may seek sanctions relating to our alleged failure to comply with those laws.
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 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. 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, 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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
January 2022 Name Change
On January 18, 2022, the Company 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 shares were fully vested and upon issuance resulted in stock-based compensation of $34,800. Shares were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no general solicitation, and the transaction did not involve a public offering.
On July 22, 2022, pursuant to Mr. Fernandez employment agreement, the “June Agreement”, see Note 13, the Company issued 200,000 restricted shares and recorded stock-based compensation in the amount of $805,246 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 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, 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 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.
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% of the cost was expensed in 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 be in the first quarter of 2023.
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 Sales for the nine months ended September 30, 2022, consisted primarily of sales of satellite phones, tracking devices, accessories and airtime plans. For the nine months ended September 30, 2022, revenues generated were $9,080,083 compared to $5,667,966 of revenues for the nine months ended September 30, 2021, an increase in total revenues of $3,412,117 or 60.2%. Total net sales for Global Telesat Communications Ltd. were $6,449,399 for the nine months ended September 30, 2022, as compared to $3,897,254 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, as 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. Total net sales for Orbital Satcom Corp. 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 sales for the three months ended September 30, 2022, consisted primarily of sales 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 revenues 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.
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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. Total operating expenses for the nine months ended September 30, 2022 were $6,580,039, an increase of $2,022,785 or 44.4%, from total operating expenses for the nine months ended September 30, 2021 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. Factors contributing to the decrease are described below.
Selling, general and administrative expenses were $3,434,916 and $2,284,456 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $1,150,460 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%. 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, 2022 and 2021, respectively, an increase of $779,325, or 66.1%. Salaries, wages and payroll taxes were $651,219 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 for the nine months ended September 30, 2022 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, or 11.3%. 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, 2022 and 2021, respectively, an increase of $122,618 or 54.4%. Depreciation and amortization expenses were $136,457 and $78,456 for the three months ended September 30, 2022 and 2021, respectively, an increase of $58,001 or 73.9%. The increase was primarily attributable to capitalized expenditures for software and website development and equipment and leasehold improvements for the new corporate office space in Florida.
We expect our expenses in each of these areas to continue to increase during fiscal 2022 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 Expense. Our total other expense was $231,981, compared to $1,481,974 during the nine months ended September 30, 2022 and 2021, respectively, a decrease of $1,249,993 or 84.3%. Our total other expense was $93,901 compared to $68,703 during the three months ended September 30, 2022 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 increase 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.
Net Loss Before Income Tax & Equity of Affiliate. 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 loss 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 loss for the nine months ended September 30. 2022, is a result of the factors as described above.
Equity in Net Losses of Affiliate. We recorded a net loss in equity of affiliate of $3,454,436 and $3,454,436, for the three and nine months ended September 30, 2022, see Note 7. For the three and nine months ended September 30, 2021, there were no losses or income.
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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At September 30, 2022, we had a cash balance of $12,469,607. Our working capital is $13,378,221 at September 30, 2022.
Our current assets at September 30, 2022 decreased $4,530,091 or 23% from December 31, 2021 and included cash, accounts receivable, VAT receivable, prepaid expenses, unbilled revenue, inventory and other current assets.
Our current liabilities at September 30, 2022 decreased $1,314,105 or 47.3% from December 31, 2021 and included our accounts payable, due to related party, provision for income taxes, contract liabilities, lease liabilities and other liabilities in the ordinary course of our business.
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.
Operating Activities
Net cash flows used by operating activities for the nine months ended September 30, 2022 amounted to $2,731,076 and were primarily attributable to our net loss of $8,219,220, total amortization expense 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 net change in assets and liabilities of $336,363, primarily attributable to an increase in accounts receivable 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 in accounts payable of $23,700, a decrease in contract liabilities of $1,756, and decrease in provision for income taxes of $41,313.
Net cash flows used by operating activities for the nine months ended September 30, 2021 amounted to $2,997,644 and were primarily attributable to our net loss of $4,567,085, total amortization expense of $18,750 and depreciation of $206,654, amortization of discount on debt of $1,425,365, amortization of right to use of $24,948 gain on extinguishment of debt of $20,832, stock based compensation of $1,321,564 and net change in assets and liabilities of $1,421,208, primarily attributable to an increase 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.
Investing Activities
Net cash flows used in investing activities were $7,471,118 and $95,598 for the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Financing Activities
Net cash flows provided by 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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Reclassification
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Basis of Presentation and Principles of Consolidation
The 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.
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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.
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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:
| Years | ||||
| Office furniture and fixtures | 4 | |||
| Computer equipment | 4 | |||
| Rental equipment | 4 | |||
| Leasehold improvements | 5 | |||
| Appliques | 10 | |||
| Website development | 2 | |||
Intangible assets
Intangible assets include customer contracts purchased and recorded based on the cost to acquire them. These assets are amortized over 10 years. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not consider it necessary to record any impairment charges during the periods ended 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.
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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 management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the 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.
Management 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 changes in our internal control over financial reporting during the nine months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 22, 2021, Thomas Seifert’s employment as the Company’s Chief Financial Officer was terminated for cause. Mr. Seifert asserts that the termination was not for cause and that he is owed compensation payable under his June 2, 2021 employment agreement. The Company’s position is that Mr. Seifert is not owed any additional compensation relating to his prior service with the Company or arising under any employment agreement. The Company and Mr. Seifert are currently engaged in litigation over the matter of his employment and termination. The Company believes it has adequate defenses to Mr. Seifert’s claims and has asserted affirmative claims for relief against Mr. Seifert including, but not limited to, breach of the employment agreement, breach of the fiduciary, fraud in the inducement in connection with the employment agreement, fraudulent misrepresentation, and constructive fraud. The Company does not expect to seek substantial monetary relief in the litigation. This dispute is pending before the District Court for the Southern District of Florida under Case No. 1:21-cv-22436-DPG.
On June 24, 2021, Seifert submitted an online whistleblower complaint to the Occupational Safety and Health Administration (OSHA) alleging that NextPlat engaged in retaliatory employment practices in violation of the Sarbanes-Oxley Act. NextPlat responded by moving to dismiss Seifert’s complaint, citing Seifert’s failure to make a prima facie showing that a protected activity contributed to the adverse action alleged in the complaint. On July 21, 2022, following an investigation by the Regional Administrator for OSHA, Region IV, the Secretary of Labor issued its findings, dismissing Seifert’s complaint on the grounds that the OSHA investigator found that the evidence did not support Seifert’s claims. 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.
Item 1A. Risk Factors.
This Quarterly Report on Form 10-Q should be read in conjunction with our 2021 Form 10-K, which describes various material risks and uncertainties to which we are or may become subject. These risks and uncertainties could, directly or indirectly, adversely affect our business, results of operations, financial condition, liquidity, or cash flows and could cause our actual results to differ materially from our past results or the results contemplated by any forward-looking statements we make.
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Material changes from the risk factors set forth in our 2021 Form 10-K are set forth below:
Whether a particular non-fungible token (NFT) or other digital or “crypto” asset is a “security” is subject to a high degree of uncertainty, and if we are unable to properly characterize an NFT or other digital asset, we may be subject to regulatory scrutiny, inquiries, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.
The SEC and its staff have taken the position that certain digital or “crypto” assets (which includes NFTs) fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given digital asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular digital asset as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict the direction or timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially impact the views of the SEC and its staff.
Several foreign jurisdictions have taken a broad-based approach to classifying digital assets as “securities,” while certain other foreign jurisdictions have adopted a narrower approach. As a result, certain digital assets may be deemed to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations, or directives that affect the characterization of digital assets as “securities.”
The classification of a digital asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer and sale of such assets. For example, a digital asset that is a security in the United States may generally only be offered or sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that effect transactions in digital assets that are securities in the United States may be subject to registration with the SEC as a “broker” or “dealer.” Platforms that bring together purchasers and sellers to trade digital assets that are securities in the United States are generally subject to registration as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as an alternative trading system (ATS) in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities may be subject to registration with the SEC as a clearing agency. Foreign jurisdictions may have similar licensing, registration, and qualification requirements.
With respect to the securities status of an NFT that we propose to post to our platform, we will follow an internally developed model that will permit us to make a risk-based assessment regarding the likelihood that a particular NFT could be deemed a “security” within the meaning of the U.S. federal and/or state securities laws in determining if and how an NFT can be posted on our platform. This process will involve employees trained to identify the indicia of a “security” who will also work with outside legal counsel experienced in crypto asset regulatory matters to make a determination with respect to each NFT, or category of NFT, proposed to be posted on our platform. These processes and procedures are risk-based assessments and are not a legal standard or binding on regulators or courts. In the event an NFT or other digital asset is deemed by us, pursuant to the above analysis, to possess a reasonable likelihood of being deemed a security, we will (a) comply with applicable laws and regulations by forming, acquiring or engaging a licensed broker-dealer authorized to act as an trading system for those digital assets, or (b) transact in such digital assets offshore in a way that complies with applicable laws and regulations; or (c) not transact in the subject NFT. Regardless of our conclusions, we could be subject to legal or regulatory action in the event the SEC, a state or foreign regulatory authority, or a court were to determine that an NFT posted and sold on our platform is a “security” under applicable laws. Because our platform is not registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to facilitate the offer and sale of NFTs on our platform, we will only permit posting on our platform of those NFTs for which we determine there are reasonably strong arguments to conclude that the NFT is not a security. We believe that our process reflects a comprehensive and thoughtful analysis and is reasonably designed to facilitate consistent application of available legal guidance to digital assets to facilitate informed risk-based business judgment. However, we recognize that the application of securities laws to the specific facts and circumstances of digital assets may be complex and subject to change, and that a posting determination does not guarantee any conclusion under the U.S. federal securities laws. We expect our risk assessment policies will continuously evolve to take into account developments in case law, applicable facts, developments in technology, and changes in applicable regulatory schemes.
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There can be no assurances that we will properly characterize any given NFT as a security or non-security for purposes of determining whether our platform will allow the posting of such NFT, or that the SEC, foreign regulatory authority, or a court, if the question was presented to it, would agree with our assessment. If the SEC, state or foreign regulatory authority, or a court were to determine that NFTs offered or sold on our platform are securities, we would not be able to offer such NFTs until we are able to do so in a compliant manner. A determination by the SEC, a state or foreign regulatory authority, or a court that an NFT posted and sold on our platform was a security may also result in us determining that it is advisable to remove NFTs from our platform that have similar characteristics to the NFT that was determined to be a security. In addition, we could be subject to judicial or administrative sanctions for failing to offer or sell the NFT in compliance with the registration requirements, or for acting as a broker, dealer, or national securities exchange without appropriate registration. Such an action could result in injunctions, cease and desist orders, as well as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm. Customers that purchased such NFTs on our platform and suffered losses could also seek to rescind a transaction that we facilitated as the basis that it was conducted in violation of applicable law, which could subject us to significant liability. We may also be required to cease facilitating transactions in other similar NFTs, which could negatively impact our business, operating results, and financial condition.
We are subject to payments-related regulations and risks.
We may provide regulated services in certain jurisdictions because we enable customers to keep account balances with us and transfer money to third parties, and because we may provide services to third parties to facilitate payments on their behalf. In these jurisdictions, we may be subject to requirements for licensing, regulatory inspection, bonding and capital maintenance, the use, handling, and segregation of transferred funds, consumer disclosures, and authentication. We are also subject to, or voluntarily comply with, a number of other laws and regulations relating to payments, money laundering, international money transfers, know-your-customer requirements (KYC), privacy and information security, and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to additional requirements and civil and criminal penalties or forced to cease providing certain services.
The uncertain application of a myriad of state and federal laws to our NextPlat Digital business may expose us to regulatory enforcement and civil or criminal sanction should a legal authority determine that our approach to compliance is inadequate or inappropriate.
The legal status of NFTs under a myriad of state and federal laws and regulatory regimes (including without limitation, securities, banking, and commodities laws) is highly uncertain and unresolved, and the applicability of various of those regimes to any NFTs that we may propose to post on our platform is also unresolved. Our creation and operation of NextPlat Digital will present a number of new regulatory and legal compliance obligations for the Company, including the potential need to comply with “Know Your Customer” (“KYC”) rules and custom and practice, as well as with the applicable Anti-Money Laundering laws and regulations (“AML”) and Combating the Financing of Terrorism (“CFT”), among others. As a result of the uncertain legal status of digital assets we may have legal exposure for our failure to adequately comply with legal regimes that are known to us. In addition governmental agencies may seek to apply laws to our NextPlat Digital business that we believe are inapplicable, and may seek sanctions relating to our alleged failure to comply with those laws.
Our transaction of digital asset business involving the use of crypto wallets and cryptocurrencies may expose us to allegations of violation of applicable KYC, AML and CFT and other compliance requirements.
When onboarding new users, we intend to utilize third-party tools to proactively screen for high-risk crypto wallets, including explicitly sanctioned addresses and addresses associated with sanctioned entities. The applicable legal requirements and our compliance obligations will vary depending on the nature of the client, the service or product provided and jurisdiction. For example, if we engage, form or acquire a broker dealer in order to post, trade or sell NFTs or other digital assets that are securities, we will attempt to fully comply with all applicable KYC, AML and CFT compliance requirements. Given the substantial legal uncertainties that may presented by those laws and given the informational constraints presented by crypto wallets we may be exposed to regulatory enforcement and civil or criminal sanction, as well as to claims asserting civil liability.
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Ownership of digital assets is pseudonymous, and the supply is often unknown. Individuals or entities with substantial holdings may engage in large-scale sales or distributions, either on non- market terms or in the ordinary course, which could disproportionately and negatively affect the market, result in a reduction in the price of the digital asset and materially and adversely affect the price of our common stock.
Generally, there is no registry showing which individuals or entities own a digital asset or the quantity that is owned by any particular person or entity. There are no regulations in place that would prevent a large holder of a digital asset from selling it. To the extent such large holders engage in large-scale sales or distributions, either on non-market terms or in the ordinary course, it could negatively affect the market for the digital asset and result in a reduction in the price. This, in turn, could materially and adversely affect the price of our stock, our business, prospects, financial condition, and operating results.
Because there has been limited precedent set for financial accounting for digital assets, the determinations that we have made for how to account for digital assets transactions may be subject to change.
Because there has been limited precedent set for the financial accounting for digital assets and related revenue recognition and no official guidance has yet been provided by the Financial Accounting Standards Board or the SEC, it is unclear how companies may in the future be required to account for cryptocurrency transactions and assets and related revenue recognition. A change in regulatory or financial accounting standards could result in the necessity to change the accounting methods we currently intend to employ in respect of our anticipated revenues and assets and restate any financial statements produced based on those methods. Such a restatement could adversely affect our business, prospects, financial condition and results of operation.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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.
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 SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Election of Mr. Robert Bedwell as Chief Compliance Officer
On November 2, 2022, 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.
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Transition of Paul Thomson from Executive Vice President and CFO to Senior Vice President of Mergers, Acquisitions and Special Projects
On November 2, 2022, the Board unanimously voted to approve the transition Paul Thomson’s role 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 effective as of November 14, 2022.
In connection with this transition, Mr. Thomson entered into a new Employment Agreement with the Company effective as of November 14, 2022 (the “2022 Thomson Employment Agreement”). The 2022 Thomson Employment Agreement which was unanimously approved by the Compensation Committee of the Board, has an initial term of one year and may be extended by our CEO for additional terms 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.
The foregoing summary of the 2022 Thomson 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 10.7 which is incorporated herein by reference.
Election of Ms. Cecile Munnik as Chief Financial Officer
On November 2, 2022, the Board unanimously voted to elect Ms. Cecile Munnik to replace Mr. Thomson as the Chief Financial Officer of the Company, effective as of November 14, 2022, to hold such office until her successor shall have been duly elected and qualified or until her earlier resignation or removal. Ms. Munnik, [45], also currently serves as the Chief Financial Officer of Progressive Care, a position she has held since October 2020. She has over fifteen years of accounting and finance experience. She has served in finance and accounting leadership positions for companies and business units with annual revenues ranging from $100M to $3B, and demonstrated expertise in US GAAP, SEC Reporting (10-K, 10-Q), Sarbanes-Oxley, Public Accounting, Mergers & Acquisitions, Internal Controls/Process Efficiencies, ERPs, and Strategy Planning for private and public entities. Prior to joining Progressive Care, she has held several senior management positions. Ms. Munnik served as Director of Asset Management at Unified Women’s Healthcare, a single-specialty management services organization to support Ob-Gyn practices from November 2018 through April 2020. She joined The Service Companies as Director of Finance in May 2017 through October 2018. Prior to The Service Companies, she worked at Lennox International for eleven years. She joined Lennox in June 2006 as Sr. Internal Auditor and left in May 2017 as Manager of Financial Planning and Analysis. Ms. Munnik has a bachelor’s degree in accounting from the University of Pretoria (South Africa) and is a Certified Public Accountant (CPA) and Chartered Accountant (CA). She serves on the board of Damascus Road Partners, which is a group of social enterprise investors who invest charitable capital to sustainably address human suffering.
On November 14, 2022, in connection with such appointment, Ms. Munnik entered into an Employment Agreement with the Company (the “Munnik Employment Agreement”). The Munnik Employment Agreement, which was unanimously approved by the Compensation Committee of the Board, has an initial term of three years commencing on November 14, 2022 and may be extended for additional terms of one year each. Pursuant to the Munnik Employment Agreement, that until June 20, 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 the Munnik 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 Ms. Munnik’s employment with the Company; (2) options for 10,000 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 15,000 shares will become fully vested on the third anniversary of the commencement of Ms. Munnik’s employment with the Company.
There is no arrangement or understanding between Ms. Munnik and any other person pursuant to which Ms. Munnik was appointed as our Chief Financial Officer. In addition, there are no family relationships between Ms. Munnik and any director, executive officer, or person nominated or chosen by the Company to become a director or executive officer. Until July 30, 2023, Ms. Munnik will continue to serve as the Chief Financial Officer of Progressive Care. 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.
The foregoing summary of the Munnik 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 10.8 which is incorporated herein by reference.
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ITEM 6. EXHIBITS
| + | Management contract or compensatory plan. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: November 14, 2022 | NEXTPLAT CORP | |
| By: | /s/ Charles M. Fernandez | |
| Charles M. Fernandez | ||
| Chairman and Chief Executive Officer | ||
| (principal executive officer) | ||
| /s/ Paul R. Thomson | ||
| Chief Financial Officer | ||
| (principal financial officer) | ||
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