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 months ending March 31, 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 NextPlat Corp F/K/A/ Orbsat Corp (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. and Global Telesat Communications Ltd. All material intercompany balances and transactions have been eliminated
in consolidation.
.
Description
of Business
NextPlat
Corp, a Nevada corporation (the “Company”), was formerly Orbsat Corp (“NextPlat”).
The business of NextPlat has been, and is currently, 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 a 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.
The
Company was originally incorporated in 1997 in Florida. On April 21, 2010, the Company merged with and into a wholly-owned subsidiary
for the purpose of changing its state of incorporation to Delaware, effecting a 2:1 forward split of its common stock, and changing its
name to EClips Media Technologies, Inc. On April 25, 2011, the Company changed its name to Silver Horn Mining Ltd. pursuant to a merger
with a wholly owned subsidiary.
Global
Telesat Communications Limited (“GTC”) was formed under the laws of England and Wales in 2008. On February 19, 2015, we entered
into a share exchange agreement with GTC and all of the holders of the outstanding equity of GTC pursuant to which GTC became a wholly
owned subsidiary of ours.
On
March 28, 2014, we merged with a newly-formed wholly-owned subsidiary of ours solely for the purpose of changing our state of incorporation
to Nevada from Delaware, effecting a 1:150 reverse split of our common stock, and changing our name to Great West Resources, Inc. in
connection with the plans to enter into the business of potash mining and exploration. During late 2014, we abandoned our efforts to
enter the potash business.
A
wholly-owned subsidiary, Orbital Satcom Corp. (“Orbital Satcom”), 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 ratio of 1 for 150. On August 19, 2019, we effected a reverse split of our common stock at a ratio of 1 for 15. As a result of the reverse split,
our common stock now has the CUSIP number: 68557F100. All share and per share, information in the accompanying consolidated financial
statements and footnotes has been retroactively restated to reflect these reverse splits.
Also,
on August 19, 2019, we changed our name to “Orbsat Corp” from “Orbital Tracking Corp.” pursuant to a merger with
a newly formed wholly owned subsidiary.
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 has filed a Certificate of Change to its Amended
and Restated Articles of Incorporation to effect a reverse stock split of its issued and outstanding common stock, at a ratio of 1-for-5.
The effective time of the reverse stock split was 12:01 a.m. ET on May 28, 2021. The Company’s common stock began trading on a
split-adjusted basis commencing upon market open on May 28, 2021. The common stock has been assigned a new CUSIP number, 68557F 209.
The warrants were assigned the CUSIP number, 68557F 118. No fractional shares of common stock were issued as a result of the reverse
stock split. Stockholders of record who would otherwise be entitled to receive a fractional share were received a whole share.
On
January 18, 2022, the Company filed a Certificate of Amendment of the Amended and Restated Articles of Incorporation of the Company with
the Secretary of State of the State of Nevada in order to change the Company’s 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.
All
information presented in this Quarterly Report on Form 10-Q other than in Company’s consolidated financial statements and the notes
thereto assumes a 1-for-5 reverse stock split of Company’s outstanding shares of common stock and unless otherwise indicated, all
such amounts and corresponding conversion price or exercise price data set forth in this Quarterly Report on Form 10-Q have been adjusted
to give effect to such assumed reverse stock split.
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 $250,000. All cash amounts in excess of $250,000, $21,657,935, are unsecured.
To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the
financial institution in which it holds deposits.
Accounts
receivable and allowance for doubtful accounts
The
Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses in its
existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary
based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account
balances deemed to be uncollectible are 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 March 31, 2022, and December 31, 2021, there were no
allowances for doubtful accounts.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories
are valued at the lower of cost or net realizable value, using the first-in first-out cost method. The Company assesses the valuation
of its inventories and reduces the carrying value of those inventories that are obsolete 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 $172,950 and $146,935, at March 31, 2022 and December 31, 2021, respectively. Prepaid expenses include prepayments
in cash for rent, insurance, pre-payments associated with the Company’s new office and software license fees which are being amortized
over the terms of the respective agreement. The current portion consists of costs paid for future services which will occur within a
year.
Foreign
Currency Translation
The
Company’s reporting currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries, GTCL, is maintained using
the appropriate local currency, Great British Pound, as the functional currency. All assets and liabilities are translated into U.S.
Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated
at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of
stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange
rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.
The
relevant translation rates are as follows: for the three months ended March 31, 2022, closing rate at 1.3138 US$: GBP, quarterly average
rate at 1.3419173 US$: GBP, for the three months ended March 31, 2021, closing rate at 1.3783 US$: GBP, quarterly average rate at 1.379068
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.
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 March 31, 2022
and December 31, 2021, we had contract liabilities of approximately $30,364
and $36,765,
respectively.
Cost
of Product Sales and Services
Cost
of sales consists primarily of materials, airtime and overhead costs incurred internally and amounts incurred to contract manufacturers
to produce our products, airtime and other implementation costs incurred to install our products and train customer personnel, and customer
service and third-party original equipment manufacturer costs to provide continuing support to our customers. There are certain costs
which are deferred and recorded as prepaids, until such revenue is recognized. Refer to revenue recognition above as to what constitutes
deferred revenue.
Shipping
and handling costs are included as a component of costs of product sales in the Company’s consolidated statements of operations
because the Company includes in revenue the related costs that the Company bills its customers.
Intangible
assets
Intangible
assets include customer contracts purchased and recorded based on the cost to acquire them. These assets are amortized over 10 years.
Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events
or changes in circumstances indicate that the carrying amount may no longer be recoverable.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property
and Equipment
Property
and equipment are carried at historical cost less accumulated depreciation. Depreciation is based on the estimated service lives of the
depreciable assets and is calculated using the straight-line method. Expenditures that increase the value or productive capacity of assets
are capitalized. Fully depreciated assets are retained in the property and equipment, and accumulated depreciation accounts until they
are removed from service. When property and equipment are retired, sold or otherwise disposed of, the asset’s carrying amount and
related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Repairs and maintenance
are expensed as incurred.
The
estimated useful lives of property and equipment are generally as follows:
SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
| |
Years | |
Office
furniture and fixtures | |
| 4 | |
Computer
equipment | |
| 4 | |
Rental
equipment | |
| 4 | |
Appliques | |
| 10 | |
Website
development | |
| 2 | |
Impairment
of long-lived assets
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted
future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value. The Company did not consider it necessary to record any impairment charges during the periods
ended March 31, 2022 and March 31, 2021, respectively.
Accounting
for Derivative Instruments
Derivatives
are required to be recorded on the balance sheet at fair value. These derivatives, including embedded derivatives in the Company’s
structured borrowings, are separately valued and accounted for on the Company’s balance sheet. Fair values for exchange traded
securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined
using market-based pricing models incorporating readily observable market data and requiring judgment and estimates.
The
Company did not identify any assets or liabilities that are required to be presented on the consolidated balance sheets at fair value
in accordance with the accounting guidance. The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued
expenses approximate their estimated fair market value based on the short-term maturity of the instruments.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock
Based Compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the
consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period).
The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date
fair value of the award.
Pursuant
to ASC Topic 718, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement
date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount
of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at
the reporting date. Further, ASC Topic 718, provides guidance about which changes to the terms or conditions of a share-based payment
award require an entity to apply modification accounting in Topic 718, such as the repricing of share options, which would revalue those
options and the accounting for the cancellation of an equity award whether a replacement award or other valuable consideration is issued
in conjunction with the cancellation. If not, the cancellation is viewed as a replacement and not a modification, with a repurchase price
of $0.
Income
Taxes
The
Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”)
which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach
require the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets
for which management believes it is more likely than not that the net deferred asset will not be realized.
The
Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there
may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance
with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax
positions that meet the more likely than not recognition threshold is measured at the largest amount of tax benefit that is more than
50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with
tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits
in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon
examination.
The
Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded
a liability for uncertain tax benefits.
The
Company has adopted ASC 740-10-25, “Definition of Settlement,” which provides guidance on how an entity should determine
whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a
tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished.
For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position
is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations
remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities,
generally for three years after they are filed.
Leases
Effective
January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition
of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right of use
asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the
Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the
right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the
right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and
the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded
when incurred.
In
calculating the right of use asset and lease liability, the Company has elected to combine lease and non-lease components. The Company
excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes
rent expense on a straight-line basis over the lease term.
At
March 31, 2022 and December 31, 2021, the Company had aggregated current and long-term operating lease liabilities of $11,045
and $19,763,
respectively, and right of use assets of $13,840
and $22,643,
respectively.
The
Company continues to account for leases in the prior period financial statements under ASC Topic 840.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Research
and Development
The
Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research
and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred.
Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed
when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs
related to both present and future products are expensed in the period incurred. For the three months ended March 31, 2022 and the March
31, 2021, there were no
expenditures on research and development.
Earnings
per Common Share
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.
The
following are dilutive common stock equivalents during the year ended:
SCHEDULE OF DILUTIVE COMMON STOCK EQUIVALENTS
| |
March
31, 2022 | | |
March
31, 2021 | |
| |
| | |
| |
Convertible
notes payable (1) | |
| - | | |
| 87,697 | |
Stock
Options | |
| 929,701 | | |
| 7,809 | |
Stock
Warrants | |
| 2,530,092 | | |
| 1,000 | |
Total | |
| 3,459,793 | | |
| 96,506 | |
(1) | 87,697 shares of
our common stock issuable upon conversion of $1,186,176 of Convertible Notes Payable as of March 31, 2021 not accounting for 4.99% beneficial
ownership limitations. |
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
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.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 - INVENTORIES
At
March 31, 2022 and December 31, 2021, inventories consisted of the following:
SCHEDULE OF INVENTORIES
| |
March
31, 2022 | | |
December
31, 2021 | |
Finished
goods | |
$ | 1,473,192 | | |
$ | 1,019,696 | |
Less
reserve for obsolete inventory | |
| - | | |
| - | |
Total | |
$ | 1,473,192 | | |
$ | 1,019,696 | |
For
the three months ended March 31, 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 three months ended March 31, 2022 and the year ended December 31, 2021, the Company recorded
a receivable in the amount of $458,373
and $491,417,
respectively, for amounts available to reclaim
against the tax liability from UK and EU countries. Subsequently to March 31, 2022, the Company has received a total of £33,978
or $44,640,
using an exchange rate close of 1.31380
GBP:USD, in regard to this receivable.
NOTE
4 – PREPAID EXPENSES
Prepaid
expenses amounted to $172,950 and $146,935, at March 31, 2022 and December 31, 2021, respectively. Prepaid expenses include prepayments
in cash for rent, insurance, pre-payments associated with the Company’s new office 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.
NOTE
5 - PROPERTY AND EQUIPMENT
At
March 31, 2022 and December 31, 2021, property and equipment, net of fully depreciated assets, consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
March
31, 2022 | | |
December
31, 2021 | |
Office
furniture and fixtures | |
$ | 16,472 | | |
$ | 16,969 | |
Computer
equipment | |
| 66,400 | | |
| 67,458 | |
Rental
equipment | |
| 51,738 | | |
| 53,296 | |
Appliques | |
| 2,160,096 | | |
| 2,160,096 | |
Website
development | |
| 314,099 | | |
| 247,541 | |
| |
| | | |
| | |
Less
accumulated depreciation | |
| (1,583,609 | ) | |
| (1,502,501 | ) |
| |
| | | |
| | |
Total | |
$ | 1,025,196 | | |
$ | 1,042,859 | |
Depreciation
expense was $93,319 and $67,450 for the three months ended March 31, 2022 and 2021, respectively. For the year ended December 31, 2021,
depreciation expense was $292,102.
NOTE
6 – INTANGIBLE ASSETS
On
December 10, 2014, the Company entered the satellite voice and data equipment sales and service business through the purchase of certain
contracts from Global Telesat Corp. (“GTC”). These contracts permit the Company to utilize the Globalstar, Inc. and Globalstar
LLC (collectively, “Globalstar”) mobile satellite voice and data network. The purchase price for the contracts of $250,000
was paid by the Company under an asset purchase agreement by and among the Company, its wholly owned subsidiary, Orbital Satcom, GTC
and World Surveillance Group, Inc.
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 three months ended March 31, 2022 and 2021, the Company
amortized $6,250 and $6,250,
respectively. Future amortization of intangible
assets is as follows:
SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS
| |
| | |
2022 | |
$ | 18,750 | |
2023 | |
| 25,000 | |
2024 | |
| 25,000 | |
Total | |
$ | 68,750 | |
For
the three months ended March 31, 2022 and 2021, there were no additional expenditures on research and development.
NOTE
7 - ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
Accounts
payable and accrued other liabilities consisted of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED OTHER LIABILITIES
| |
March
31, 2022 | | |
December
31, 2021 | |
Accounts
payable | |
$ | 1,190,017 | | |
$ | 846,380 | |
Rental
deposits | |
| 4,927 | | |
| 2,030 | |
Customer
deposits payable | |
| 61,802 | | |
| 59,733 | |
Accrued
wages & payroll liabilities | |
| 44,347 | | |
| 20,107 | |
VAT
liability & sales tax payable | |
| 12,715 | | |
| 6,203 | |
Pre-merger
accrued other liabilities | |
| 88,448 | | |
| 88,448 | |
Accrued
interest | |
| - | | |
| 138 | |
Accrued
other liabilities | |
| 13,289 | | |
| 40,305 | |
Total | |
$ | 1,415,545 | | |
$ | 1,063,344 | |
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 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 £250,000.
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 £250,000,
or USD $338,343
at an exchange rate of GBP:USD of 1.3533720.
The Debenture bears interest beginning July 16, 2021, at a rate of 3.99%
per annum over the Bank of England Base Rate (0.1%
as of July 16, 2020), payable monthly on the outstanding principal amount of the Debenture. The Debenture has a term of 6
years from the date of drawdown, July
15, 2026, the “Maturity Date”. The
first repayment of £4,166.67
(exclusive of interest) was made 13 month(s)
after July 16, 2020. Voluntary
prepayments are allowed with 5 business days’ written notice and the amount of the prepayment is equal to 10% or more of the limit
or, if less, the balance of the debenture. 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 March 31, 2022, and
December 31, 2021, the Company has recorded $65,690
and $56,391
as current portion of notes payable and $218,967
and $253,757
as notes payable long term, respectively.
On
May 8, 2020, NextPlat Corp was approved for the US funded Payroll Protection Program, (“PPP”) loan. The loan was for $20,832
and had a term of 2
years, of which the first 6 months are deferred
at an interest rate of 1%.
On May 23, 2021, BlueVine, the Company’s SBA approved mortgage lender and originator, notified the Company, that the loan in the
amount of $20,832,
had been forgiven. As of December 31, 2021, the Company has recorded $20,832
as forgiveness of debt.
NOTE
9 - STOCKHOLDERS’ EQUITY
Capital
Structure
On
March 28, 2014, in connection with the Reincorporation (see Note 1), all share and per share values for all periods presented in the
accompanying condensed consolidated financial statements are retroactively restated for the effect of the Reincorporation.
On
March 5, 2016, the Company shareholders voted in favor of an amendment to its Articles of Incorporation to increase the total number
of shares of authorized capital stock to 800,000,000 shares consisting of (i) 750,000,000 shares of common stock and (ii) 50,000,000
shares of preferred stock from 220,000,000 shares consisting of (i) 200,000,000 shares of common stock and (ii) 20,000,000 shares of
preferred stock.
Effective
March 8, 2018, we conducted a reverse split of our common stock at a ratio of 1 for 150. All share and per share information in the accompanying
condensed consolidated financial statements and footnotes has been retroactively restated to reflect the reverse split.
On
July 24, 2019, the Company filed a Certificate of Change (the “Certificate of Change”) with the Nevada Secretary of State.
The Certificate of Change provides for (i) a 1-for-15 reverse split (the “Reverse Split”) of the Company’s common stock,
$0.0001 par value per share, and the Company’s preferred stock, $0.0001 par value per share, (ii) a reduction in the number of
authorized shares of common stock in direct proportion to the Reverse Split (i.e. from 750,000,000 shares to 50,000,000 shares), and
(iii) a reduction in the number of authorized shares of preferred stock in direct proportion to the Reverse Split (i.e. from 50,000,000
shares to 3,333,333 shares). No fractional shares will be issued in connection with the Reverse Split. Stockholders who otherwise would
be entitled to receive fractional shares of common stock or preferred stock, as the case may be, will have the number of post-Reverse
Split shares to which they are entitled rounded up to the nearest whole number of shares. No stockholders will receive cash in lieu of
fractional shares. The Reverse Split was approved by FINRA on August 19, 2019.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 - STOCKHOLDERS’ EQUITY (continued)
On
May 28, 2021, the Company effected a reverse stock split of its common stock at a ratio of 1-for-5 (the “Reverse Split”).
No fractional shares of common stock were issued as a result of the Reverse Split. Stockholders of record who were otherwise entitled
to receive a fractional share received a whole share. The conversion or exercise prices of Company’s issued and outstanding convertible
securities, stock options and warrants will be adjusted accordingly. All information presented in this Quarterly Report on Form 10-Q,
assumes a 1-for-5 reverse stock split of Company’s outstanding shares of common stock, and unless otherwise indicated, all such
amounts and corresponding conversion price or exercise price data set forth in this Quarterly Report on Form 10-Q have been adjusted
to give effect to such assumed reverse stock split.
Listing
on the Nasdaq Capital Market
Our
common stock and warrants have been trading on the Nasdaq Capital Market under the symbols “NXPL” and “NXPLW,”
respectively, since January 21, 2022. Prior to January 21, 2022, our common stock and warrants were traded on the Nasdaq Capital Market
under the symbols “OSAT” and “OSATW,” respectively.
The
authorized capital of the Company consists of 50,000,000 shares of common stock, par value $0.0001 per share and 3,333,333 shares of
preferred stock, par value $0.0001 per share. As of March 31, 2022, and December 31, 2021, there were and 9,293,096 and 7,053,146 shares
of common stock and 0 shares of preferred stock issued and outstanding, respectively.
Preferred
Stock
As
of March 31, 2022, there were 3,333,333 shares of Preferred Stock authorized.
As
of March 31, 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.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 - STOCKHOLDERS’ EQUITY (continued)
Warrants
As
of March 31, 2022, there were 2,836,092
registered warrants to purchase common
stock authorized of which 2,530,092
registered warrants were issued and outstanding,
at an exercise price of $5.00
and unregistered underwriter warrants of 144,000
issued and outstanding, at an exercise price
of $5.50.
The warrants expire in June of 2026.
A
summary of the status of the Company’s total outstanding warrants and changes during the year ended December 31, 2021 and the three
months ended March 31, 2022 is as follows:
SCHEDULE OF OUTSTANDING STOCK WARRANTS ACTIVITIES
| |
Number
of Warrants | | |
Weighted Average
Exercise Price | | |
Weighted Average Remaining Contractual Life (Years) | |
Balance
at January 1, 2021 | |
| 800 | | |
$ | 300.00 | | |
| 1.37 | |
Granted | |
| 3,456,000 | | |
| 5.00 | | |
| - | |
Exercised | |
| (925,908 | ) | |
| (5.00 | ) | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | |
Cancelled | |
| (800 | ) | |
| (300.00 | ) | |
| - | |
Balance
outstanding and exercisable at December 31, 2021 | |
| 2,530,092 | | |
$ | 5.00 | | |
| 4.42 | |
| |
| | | |
| | | |
| | |
Balance
at January 1, 2022 | |
| 2,530,092 | | |
$ | 5.00 | | |
| 4.42 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | |
Cancelled | |
| - | | |
| - | | |
| - | |
Balance
outstanding and exercisable at March 31, 2022 | |
| 2,530,092 | | |
$ | 5.00 | | |
| 4.18 | |
Common
Stock
As
of March 31, 2022, there were 50,000,000 shares of common stock authorized and 9,293,096 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 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.
On
January 5, 2022, the Company issued 2,229,950
shares of common stock pursuant to a private
placement offering at a per share price of $3.24,
resulting in gross proceeds of $7,225,038.
Legal and registration fees amounted to $220,000,
resulting in net proceeds of $7,005,038.
Prior to the private placement close, proceeds of $1,400,000, were received and recorded as a stock subscription payable, for the
year ended December 31, 2021.
Restricted
Stock Award
On
January 21, 2022, the Company issued 10,000
shares of common stock in connection with restricted
stock awards, 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.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 - STOCKHOLDERS’ EQUITY (continued)
Stock
Options
A
summary of the status of the Company’s outstanding stock options and changes during the three months ended March 31, 2022 is as
follows:
SCHEDULE
OF OUTSTANDING STOCK OPTIONS ACTIVITIES
| |
Number
of Options | | |
Weighted
Average Exercise Price | | |
Weighted
Average Remaining Contractual Life (Years) | |
Balance at January 1, 2021 | |
| 600,009 | | |
$ | 2.35 | | |
| 9.91 | |
Granted | |
| 400,000 | | |
| | | |
| | |
Exercised | |
| (19,200 | ) | |
| | | |
| | |
Forfeited | |
| (917 | ) | |
| | | |
| | |
Cancelled | |
| (50,000 | ) | |
| | | |
| | |
Balance
outstanding and excercisable at December 31, 2021 | |
| 929,892 | | |
$ | 3.53 | | |
| 7.36 | |
| |
| | | |
| | | |
| | |
Balance
at January 1, 2022 | |
| 929,892 | | |
$ | 3.53 | | |
| 7.36 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Forfeited | |
| (191 | ) | |
| - | | |
| - | |
Cancelled | |
| - | | |
| - | | |
| - | |
Balance
outstanding and excercisable at March 31, 2022 | |
| 929,701 | | |
$ | 3.42 | | |
| 7.12 | |
NOTE
10 - RELATED PARTY TRANSACTIONS
As
of March 31, 2022, the accounts payable due to related party includes advances for inventory and services due to David Phipps of $47,457
and Charles Fernandez of $7,588.
Total related party payments due as of March 31, 2022 and December 31, 2021 were $55,045
and $35,308,
respectively. Those related party payables are non-interest bearing and due on demand.
The
Company’s UK subsidiary, GTC had an over-advance line of credit with HSBC, for working capital needs, which was not renewed by
the Company on December 31, 2021. The over-advance limit was £25,000
or $33,834
at an exchange rate of GBP:USD 1.353372,
with interest at 5.50%
over Bank of England’s base rate or current rate of 6.25%
variable. The advance was guaranteed by David Phipps, the Company’s President and Chief Executive Officer of Global Operations.
The Company uses an American Express account for Orbital Satcom Corp and an American Express account for GTC, both in the name of David
Phipps who personally guarantees the balance owed.
The
Company employs three individuals who are related to Mr. Phipps. These three individuals earned gross wages totaling $33,078
and $19,699
for the three months ended March 31, 2022 and
2021, respectively.
NOTE
11 - COMMITMENTS AND CONTINGENCIES
COVID-19
In
March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) a global pandemic prompting
government-imposed quarantines, suspension of in-person attendance of academic programs, and cessation of certain travel and business
closures. The United States has entered a recession as a result of the COVID-19 pandemic, which may prolong and exacerbate the negative
impact on us. Although we expect the availability of vaccines and various treatments with respect to COVID-19 to have an overall positive
impact on business conditions in the aggregate over time, the exact timing of these positive developments is uncertain. In December 2020,
the United States began distributing two vaccines that, in addition to other vaccines under development, are expected to help to reduce
the spread of the coronavirus that causes COVID-19 once they are widely distributed. If the vaccines prove less effective than currently
understood by the scientific community and the United States Food and Drug Administration, or if there are problems with the acceptance,
availability, timing or other difficulties with widely distributing the vaccines, the pandemic may last longer, and could continue to
impact our business for longer, than we currently expect. In response to COVID-19, governmental authorities have implemented numerous
measures to try to contain the virus, such as travel bans and restrictions, prohibitions on group events and gatherings, shutdowns of
certain businesses, curfews, shelter in place orders and recommendations to practice social distancing. Although many governmental measures
have had specific expiration dates, some of those measures have already been extended more than once, and there is considerable uncertainty
regarding the duration of such measures and the implementation of any potential future measures, especially if cases increase again across
the United States, with the potential for additional challenges resulting from the emergence of new variants of COVID-19, some of which
may be more transmissible than the initial strain. Such measures have impacted, and may continue to affect, our workforce, operations,
suppliers and customers. We reduced the size of our workforce following the onset of COVID-19 and may need to take additional actions
to further reduce the size of our workforce in the future; such reductions incur costs, and we can provide no assurance that we will
be able to rehire our workforce in the event our business experiences a subsequent recovery. We took steps to curtail our operating expenses
and conserve cash. We may elect or need to take additional remedial measures in the future as the information available to us continues
to develop, including with respect to our workforce, relationships with our third-party vendors, and our customers. There is no certainty
that the remedial measures we have implemented to date, or any additional remedial steps we may take in the future, will be sufficient
to mitigate the risks posed by COVID-19. Further, such measures could potentially materially adversely affect our business, financial
condition and results of operations and create additional risks for us. Any escalation of COVID-19 cases across many of the markets we
serve could have a negative impact on us. Specifically, we could be adversely impacted by limitations on our employees to perform their
work due to illness caused by the pandemic or local, state, or federal orders requiring our stores to close or employees to remain at
home; limitation of carriers to deliver our product to customers; product shortages; limitations on the ability of our customers to conduct
their business and purchase our products and services; and limitations on the ability of our customers to pay us in a timely manner.
These events could have a material, adverse effect on our results of operations, cash flows and liquidity.
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 three
months ended March 31, 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
January 7, 2022, the Board appointed Rodney Barreto as a new director to the Board,
effective January 20, 2022. No decision has been made with respect to the naming of Mr. Barreto to any regular committees of the Board.
In
connection with Mr. Barreto’s appointment to the Board, the Company executed a Director Services Agreement (the “Director
Agreement”) with Mr. Barreto on January 11, 2022. The Director Agreement has a two-year term (subject to the director’s nomination
and election) and provides for a cash retainer of $48,000 per year, plus an equity award of 20,000 shares of restricted stock, half of
which will be issued and vest on the day of grant, with the remaining half vesting and being issued on the first anniversary of the grant
date. The Director Agreement also contains customary confidentiality and indemnification provisions and require the Company to maintain
a specified amount of director and officer insurance. There are no arrangements or understandings between Mr. Barreto and any other person
pursuant to which Mr. Barreto was selected as a director
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 - 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 serve as 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 $350,000. The Company may increase (but not decrease) his compensation during its term.
In addition, Mr. Phipps is entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation
Committee of the Board of Directors (the “Compensation Committee”). Mr. Phipps is also entitled to participate in
any other executive compensation plans adopted by the Board of Directors, and is eligible for such grants of awards under stock option
or other equity incentive plans as the Compensation Committee may from time to time determine (the “Share Awards”). Share
Awards will be subject to the applicable Plan terms and conditions, provided, however, that Share Awards will be subject to any additional
terms and conditions as are provided in the granting documents or in any award certificate(s), which shall supersede any conflicting
provisions governing Share Awards provided under the equity incentive plan. The Company is required to pay or to reimburse Mr. Phipps
for all reasonable out-of-pocket expenses actually incurred or paid by Mr. Phipps in the course of his employment, consistent with the
Company’s policy. Mr. Phipps will be entitled to participate in such pension, profit sharing, group insurance, hospitalization,
and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior
employees. The 2021 Phipps Employment Agreement may be terminated based on death or disability of Mr. Phipps, for cause or without
good reason, for cause or with good reason, and as a result of the change of control of the Company. The 2021 Phipps Employment
Agreement also contains certain provisions that are customary for agreements of this nature, including, without limitation, non-competition
and non-solicitation covenants, indemnification provisions, etc. On August 7, 2021, the 2021 Phipps Employment Agreement was amended
in order to, among other things, (i) increase Mr. Phipps’ compensation to include a car allowance of $1,000 a month and (ii) clarify
Mr. Phipps position to be President of NextPlat Corp and the Chief Executive Officer of Global Operations.
Fernandez
Employment Agreements
On
May 23, 2021, the Company entered into a three (3) year Employment Agreement (the “May Agreement”) with Mr. Charles M.
Fernandez to serve as Chairman of the Board.
However,
two weeks later on June 2, 2021, the Company entered
into a new employment agreement (the “June Agreement”) with Mr. Fernandez, which superseded and replaced “the
May Agreement.” The June Agreement has an initial term of 5
years effective on May 28, 2021. Under the June Agreement, Mr. Fernandez will serve as the Chairman and Chief Executive Officer
of the Company. The June Agreement will be automatically extended for additional one-year terms unless terminated by the Company or Mr.
Fernandez by written notice. Mr. Fernandez’s annual base compensation under the June Agreement is $350,000
per year. The Company may increase (but not decrease)
his compensation during the June Agreement’s term. In addition, Mr. Fernandez is entitled to receive an annual cash bonus if the
Company meets or exceeds criteria adopted by the Compensation Committee. Mr. Fernandez is also entitled to participate in
any other executive compensation plans adopted by the Board and is eligible for such grants of Share Awards. Share Awards will be subject
to the applicable Plan terms and conditions, provided, however, that Share Awards will be subject to any additional terms and conditions
as are provided therein or in any award certificate(s), which will supersede any conflicting provisions governing Share Awards provided
under the equity incentive plan. The Company is required to pay or to reimburse Mr. Fernandez for all reasonable out-of-pocket expenses
actually incurred or paid by Mr. Fernandez in the course of his employment, consistent with the Company’s policy.
Mr.
Fernandez is entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health and benefit
plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior employees. The June Agreement
may be terminated based on death or disability of Mr. Fernandez, for cause or without good reason, for cause or with good reason, as
a result of the change of control of the Company and at the option of Mr. Fernandez with or without cause. The June Agreement also contains
certain provisions that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation
covenants, indemnification provisions, etc.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
11 - COMMITMENTS AND CONTINGENCIES (continued)
The
Company will also reimburse Mr. Fernandez for any and all premium payments made by him to obtain and continue personal catastrophe and
disability insurance coverages for himself, which policy will have policy limits not to exceed one hundred percent (100%)
of his base salary per annum at any given time. In addition, the Company will pay for any and all travel-related expenses incurred by
Mr. Fernandez and/or his immediate family members, not to exceed $10,000
per fiscal year, regardless of whether or not
such expenses are incurred by Mr. Fernandez in connection with services or duties to be performed by him as an employee of the Company.
The Company will also pay for any and all fees and costs incurred by Mr. Fernandez in connection with professional services provided
to him, not to exceed $10,000
per year, including, without limitation, services
provided to the Company by attorneys, accountants, financial planners and the like, regardless of whether or not such services are provided
to Mr. Fernandez in connection with his employment with the Company.
In
addition, the June Agreement (which repeats, but not duplicates, a grant of restricted stock made under the May Agreement), Mr. Fernandez
received an award of restricted stock with a grant date fair value equal to $3,000,000 determined at the per unit offering price in the
June Offering ($5 per Unit) (the “RSA”), which RSA will vest 1/3 at each of the three anniversaries of the grant date. The
Grant Date for the RSA is May 28, 2021, as determined pursuant to the May Agreement. Notwithstanding the vesting schedule, full vesting
will occur upon a Change in Control, as that term is defined in the Restricted Stock Agreement pursuant to which the RSA was made (the
“May Restricted Stock Agreement”). The Company at its sole expense is obligated to register for reoffer and resale by Mr.
Fernandez the securities granted to him pursuant to the May Restricted Stock Agreement.
If
Mr. Fernandez’s employment is terminated for any reason at any time by the Company prior to the full vesting of the RSA without
“Cause” (as that term is defined in the June Agreement), the RSA will vest and Mr. Fernandez will receive all right, title
and interest in the balance of the securities granted to him in the RSA.
During
the term of the June Agreement and so long as Mr. Fernandez is employed by the Company, he may nominate two directors to the Company’s
Board of Directors. The appointment of these directors to the Board is subject to approval by the Board of Directors.
On
August 7, 2021, the June Agreement was amended in order to, among other things, increase Mr. Fernandez’s compensation by (i) providing
for medical plan coverage for Mr. Fernandez and his family at the expense of the Company, and (ii) providing for an auto allowance $1,000
per month.
Ellenoff
Employment Agreement
On
August 24, 2021, Douglas S. Ellenoff was appointed to the positions of Chief Business Development Strategist of the “Company”
and Vice Chairman of the Board of Directors of the Company. The appointment was made on the approval and recommendation of the Nominating
Committee of the Board. Mr. Ellenoff was not appointed to any committees of the Board.
In
connection with Mr. Ellenoff’s appointment to the position of Chief Business Development Strategist of the Company, Mr. Ellenoff
and the Company entered into a three year Employment Agreement, dated August 24, 2021 (the “Ellenoff Agreement”). Mr.
Ellenoff will be nominated and renominated to serve on the Board during the term of the agreement. Under the terms of the Ellenoff Agreement,
Mr.
Ellenoff will receive, in lieu of cash compensation: (i) a restricted stock award of 100,000 shares of Common Stock of the Company, 40,000
were issued within 5 business days of the execution of the Ellenoff Employment Agreement and vest immediately, and the remaining
60,000 of which will be issued and vest at the rate of 20,000 shares at the end of each of the next three annual anniversaries of his
employment, provided that Mr. Ellenoff serves on the Board at any time during such year; and (ii) options to purchase a total of 1,500,000
shares of the Company’s Common Stock, 300,000 of which were within 5 business days of the execution of the Ellenoff
Employment Agreement and vested immediately, 150,000 of which will vest on each of the next three annual anniversaries of the
commencement of his employment, and the remaining 750,000 of which will vest at the rate of 250,000 per year on each of the first three
anniversaries of the commencement of his employment if during each such year Mr. Ellenoff introduces the Company to twelve (12) or more
potential Business Transactions (as defined in the Ellenoff Agreement and which transactions need not be consummated); provided
that the Company’s Chief Executive Officer may, in his sole discretion, waive the vesting requirement in any given year.
Such options have an exercise price of $5.35
per share and will terminate 5
years after they vest. These equity awards to
Mr. Ellenoff were material to induce Mr. Ellenoff to enter into the Ellenoff Agreement and were issued outside of a shareholder
approved stock or option plan pursuant to the Nasdaq “inducement grant” exception (Nasdaq Listing Rule 5635(c)(4)).
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
11 - 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 $180,000.
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 1
year to 3
years (the “Carlise Amendment”).
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
11 - COMMITMENTS AND CONTINGENCIES (continued)
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 (3) years and will be automatically
extended for additional 1-year term unless terminated by the Company or Mr. Thomson by written notice. Mr. Thomson’s annual base
compensation is $250,000. The Company may increase (but not decrease) his compensation during its term. In addition, Mr. Thomson will
be entitled to receive an annual cash bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board.
Mr. Thomson is also entitled to participate in any other executive compensation plans adopted by the Board and is eligible for such grants
of awards under stock option or other equity incentive plans as the Compensation Committee of the Company may from time to time determine
(the “Share Awards”).
In
connection with Mr. Thomson’s employment, and as a material inducement to enter into the Thomson Agreements, Mr.
Thomson received (i) immediately vested options to purchase 25,000 shares of Common Stock at a per share price of $5.35, and having a
term of 5 years; and (ii) a restricted stock grant of 25,000 shares of Common Stock, 10,000 of which vest immediately, and the remaining
15,000 of which will vest at the rate of 5,000 shares at the end of each of the next three annual anniversaries of his employment. These
equity awards to Mr. Thomson were issued outside of a shareholder approved stock or option plan pursuant to the Nasdaq “inducement
grant” exception (Nasdaq Listing Rule 5635(c)(4)). On October 7, 2021, the Board of Directors of the Company (the “Board”)
appointed Paul R. Thomson, the Executive Vice President of the Company, to the additional position of Chief Financial Officer of the
Company effective October 9, 2021. As Chief Financial Officer, Mr. Thomson became the Company’s principal financial officer,
effective October 9, 2021. On October 8, 2021, on the approval and recommendation of the Compensation Committee of the Board (the “Compensation
Committee”), and following subsequent approval of the Board, the Company entered into an amendment to the Company’s current
employment agreement with Mr. Thomson to reflect his new title of “Executive Vice President and Chief Financial Officer”
effective October 9, 2021 (the “Thomson Amendment”).
Cohen
Employment Agreement
On
October 7, 2021, the Board appointed Andrew Cohen as Senior Vice President of Operations of the Company, effective October 8, 2021. In
connection with Mr. Cohen’s appointment, the Company entered into an employment agreement, dated October 8, 2021 (the “Cohen
Agreement”), that sets forth the terms of his employment.
The
Cohen Agreement has an initial term of three (3) years and will be automatically extended for additional 1-year terms unless terminated
by the Company or Mr. Cohen by written notice. Mr. Cohen’s annual base compensation is $250,000. The Company may increase (but
not decrease) his compensation during its term. In addition, Mr. Cohen will be entitled to receive an annual cash bonus if the Company
meets or exceeds criteria adopted by the Compensation Committee of the Board. Mr. Cohen is also entitled to participate in any other
executive compensation plans adopted by the Board and is eligible for such grants of awards under stock option or other equity incentive
plans as the Compensation Committee may from time to time determine. The Company is required to pay
or to reimburse Mr. Cohen for all reasonable out-of-pocket expenses actually incurred or paid by Mr. Cohen in the course of his employment,
consistent with the Company’s policy. Mr. Cohen will be entitled to participate in such pension, profit sharing, group insurance,
hospitalization, and group health and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides
to its senior employees. The Cohen Agreement may be terminated based on, among other things, the death or disability of Mr. Cohen, for
cause, for good reason, and as a result of the change of control of the Company. The Cohen Agreement also contains certain provisions
that are customary for agreements of this nature, including, without limitation, non-competition and non-solicitation covenants.
In
connection with Mr. Cohen’s employment, and as a material inducement to enter into the Cohen Agreement, Mr. Cohen received (i)
immediately vested options to purchase 25,000 shares of Common Stock at a per share price of $5.35, and having a term of 5 years; and
(ii) a restricted stock grant of 25,000 shares of Common Stock, 10,000 of which vest immediately, and the remaining 15,000 of which will
vest at the rate of 5,000 shares at the end of each of the next three annual anniversaries of his employment. These equity awards to
Mr. Cohen were issued outside of a shareholder approved stock or option plan pursuant to the Nasdaq “inducement grant” exception
(Nasdaq Listing Rule 5635(c)(4)).
Lease
Agreement
On
December 2, 2021, the Company entered into a 62-month lease for 4,141 square feet of office space for $186,345 annually. The rent increases
3% annually. The space is not available for occupancy until the second quarter of 2022, at which time rent will commence, as well as
adjusting the right of asset and the corresponding operating lease liability to include this lease.
Effective
July 24, 2019, a three-year lease was signed for 2,660 square feet for £25,536 annually, for our facilities in Poole, England,
“UK lease”, for £2,128 per month, or USD $2,856 per month at the yearly average conversion rate of 1.3419173. The Poole
lease will expire July 2022 and we may seek to expand to a larger facility.
The
UK lease does not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees.
Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not have
any leases classified as financing leases.
Amortization expenses
for the three months ended March 31, 2022, and 2021 were $8,803 and $7,563, respectively.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 - COMMITMENTS AND CONTINGENCIES (continued)
At
March 31, 2022, the Company had current and long-term operating lease liabilities of $11,045 and right of use assets of $13,840.
Net
rent expense for the three months ended March 31, 2022 and 2021 were $8,516
and $6,384,
respectively.
Litigation
On
June 22, 2021, Thomas Seifert’s employment as the Company’s Chief Financial Officer was terminated for cause. Mr. Seifert
asserts that the termination was not for cause and that he is owed all compensation payable under his employment agreement executed in
June 2021. The Company’s position is that Mr. Seifert is not owed any additional consideration or compensation relating to his
prior service with the Company or arising under any employment agreement. The Company and Mr. Seifert are currently engaged in litigation
over the matter of his employment and termination. The Company believes it has adequate defenses to Mr. Seifert’s claims and has
advanced claims 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.
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
12 - CONCENTRATIONS
Customers:
Amazon
accounted for 45.9% and 53.6% of the Company’s revenues during the three months ended March 31, 2022 and 2021, respectively. No
other customer accounted for 10% or more of the Company’s revenues for either period.
NEXTPLAT
CORP AND SUBSIDIARIES
FKA:
ORBSAT CORP
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – 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 three
months ended March 31, 2022 and 2021.
SCHEDULE OF CONCENTRATION RISK
| |
March
31, 2022 | | |
| | |
March
31, 2021 | | |
| |
| |
| | |
| | |
| | |
| |
Globalstar
Europe | |
$ | 92,799 | | |
| 3.1 | % | |
$ | 140,829 | | |
| 10.1 | % |
Garmin | |
$ | 415,965 | | |
| 14.0 | % | |
$ | 236,243 | | |
| 16.9 | % |
Network
Innovations | |
$ | 320,516 | | |
| 10.8 | % | |
$ | 129,931 | | |
| 9.3 | % |
Cygnus
Telecom | |
$ | 940,914 | | |
| 31.7 | % | |
$ | 132,519 | | |
| 9.5 | % |
Satcom Global | |
$ | 282,830 | | |
| 9.5 | % | |
$ | 239,805 | | |
| 17.2 | % |
Geographic:
The
following table sets forth revenue as to each geographic location, for the three months ended March 31, 2022 and 2021:
SCHEDULE OF REVENUE FROM EACH GEOGRAPHIC LOCATION
| |
March
31, 2022 | | |
| | |
March
31, 2021 | | |
| |
| |
| | |
| | |
| | |
| |
Europe | |
$ | 2,899,398 | | |
| 81.0 | % | |
$ | 1,012,258 | | |
| 69.0 | % |
North
America | |
| 437,216 | | |
| 12.2 | % | |
| 308,072 | | |
| 21.0 | % |
South
America | |
| 11,773 | | |
| 0.3 | % | |
| 7,718 | | |
| 0.5 | % |
Asia
& Pacific | |
| 196,169 | | |
| 5.5 | % | |
| 105,932 | | |
| 7.2 | % |
Africa | |
| 33,222 | | |
| 0.9 | % | |
| 27,448 | | |
| 1.9 | % |
| |
$ | 3,577,778 | | |
| | | |
$ | 1,461,428 | | |
| | |
NOTE
13 - SUBSEQUENT EVENTS
None.