Item 7. Management’s Discussion and Analysis
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Notice Regarding Forward Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including those relating to our liquidity, our belief that we will not have sufficient cash and borrowing capacity to meet our working capital needs for the next 12 months without further financing, our expectations regarding acquisitions and new lines of business, gross profit, gross margins and capital expenditures. Additionally, words such as “expects,” “anticipates,” “intends,” “believes,” “will,” “would,” “plan,” “vision” and similar words are used to identify forward-looking statements.
Some or all the results anticipated by these forward-looking statements may not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include, but are not limited to, the Risk Factors which appear in our filings and reports made with the Securities and Exchange Commission (the “SEC”), our lack of working capital, the value of our securities, the impact of competition, the continuation or worsening of current economic conditions, technology and technological changes, a potential decrease in consumer spending and the condition of the domestic and global credit and capital markets. Additionally, these forward-looking statements are presented as of the date this Form 10-K is filed with the SEC. We do not intend to update any of these forward-looking statements.
This discussion should be read in conjunction with the other sections of this Report, including “ Risk Factors, ” “ Description of Business ” and the Financial Statements attached hereto pursuant and the related exhibits. The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Report.
The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this annual report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.
Overview
e-Commerce Operations:
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. 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 upgrades to support this initiative.
e-Commerce transaction volumes at the Company’s owned and operated websites in the UK and United States continued to grow throughout the year setting monthly performance records.
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Healthcare Operations:
Through our wholly owned subsidiaries, we currently own and operate five pharmacies, which generate most of our pharmacy revenues, which is derived from dispensing medications to our patients. We also provide patient health risk reviews and free same-day and next-day delivery.
In addition, our healthcare operations provide Third Party Administration (“TPA”), data management, COVID-19 related diagnostics and vaccinations, prescription pharmaceuticals, compounded medications, telepharmacy services, anti-retroviral medications, medication therapy management, the supply of prescription medications to long-term care facilities, medication adherence packaging, contracted pharmacy services for 340B covered entities under the 340B Drug Discount Pricing Program, and health practice risk management. Our healthcare operations are focused on improving the lives of patients with complex chronic diseases through a patient and provider engagement and their partnerships with payors, pharmaceutical manufacturers, and distributors. We offer a broad range of solutions to address the dispensing, delivery, dosing, and reimbursement of clinically intensive, high-cost drugs.
Our pharmacies also provide contracted pharmacy services for 340B covered entities under the 340B Drug Discount Pricing Program. Under the terms of these agreements, our pharmacies act as a pass-through for reimbursements on prescription claims adjudicated on behalf of the 340B covered entities in exchange for a dispensing fee per prescription. These fees vary by the covered entity and the level of services we provide.
Our healthcare operations are focused on complex chronic diseases that generally require multiyear or lifelong therapy, which drives recurring revenue and sustainable growth. Our pharmacy services revenue growth is from expanding their services, new drugs coming to market, new indications for existing drugs, volume growth with current clients, and additions of new customers due to their focus on higher patient engagement, benefit of free delivery to the patient, and clinical expertise. The pharmacies also expanded revenue growth through the signing of new contract pharmacy service and data management contracts with 340B covered entities.
Our healthcare operations also provide data management and TPA services for 340B covered entities, pharmacy analytics, and programs to manage HEDIS Quality Measures including Medication Adherence. These offerings cater to the need for frontline providers to understand best practices, patient behaviors, care management processes, and the financial mechanisms behind these decisions. ClearMetrX provides data access, and actionable insights that providers and support organizations can use to improve their practice and patient care. ClearMetrX’s TPA services include management of wholesale accounts, patient eligibility with regard to the 340B drug program, development and review of 340B policies and procedures, and management of receivables.
Business Acquisition of Progressive Care, LLC (formerly Progressive Care Inc.)
On August 30, 2022, NextPlat entered into a Securities Purchase Agreement (the “SPA”) between NextPlat and Progressive Care Inc. (“Progressive Care”), under which NextPlat, its Executive Chairman and Chief Executive Officer, Charles M. Fernandez, board member, Rodney Barreto, and certain other investors invested an aggregate of $8.3 million into Progressive Care. In connection with the SPA, NextPlat purchased 3,000 newly issued Units of Progressive Care valued at $6 million, with each Unit comprised of one share of Progressive Care’s Series B Convertible Preferred Stock, $0.001 par value, and one Investor Warrant to purchase a share of Series B Convertible Preferred Stock at an exercise price of $2,000 The Investor Warrants may also be exercised, in whole or in part, by means of a cashless exercise. The Convertible Preferred Stock has a stated value of $2,000 per share and each Preferred Stock share has the equivalent voting rights of 500 common stock shares (after giving effect to the Reverse Stock Split described below). Each share of Series B Convertible Preferred Stock is convertible at any time at the option of the holder into shares of Progressive Care Common Stock shares determined by dividing the stated value by the conversion price which is $4.00 (after giving effect to the Reverse Stock Split described below). Also, pursuant to the SPA, Messrs. Fernandez and Barreto were nominated for election to Progressive Care’s Board of Directors.
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In addition, on August 30, 2022, NextPlat Corp, Messrs. Fernandez and Barreto, and certain other investors (collectively, the “NextPlat Investors”) purchased from Iliad Research 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 $2.8 million. Upon the completion the purchase of the Note, the NextPlat Investors and Progressive Care entered into a Modification Agreement pursuant to which the Note was amended and restated with modified terms, including a modified conversion price of $4.00 per share of common stock (after giving effect to the Reverse Stock Split described below), and a mandatory conversion upon the later to occur of (a) the completion of the Progressive Care’s reverse stock split, and (b) the listing of Progressive Care’s common stock on a national exchange, including the Nasdaq Capital Market, the Nasdaq Global Market, or the New York Stock Exchange (the “A&R Note”). As consideration for their entry into the Debt Modification Agreement, Progressive Care issued 105,000 shares of its common stock to the NextPlat Investors, of which NextPlat, Messrs. Fernandez and Barreto, received 45,653, 18,261, and 18,261 shares, respectively.
On September 13, 2022, the Progressive Care Board of Directors appointed Charles M. Fernandez as Chairman of the Board of Directors and Rodney Barreto as the Vice Chairman of the Board of Directors.
On November 11, 2022, Progressive Care’s Board appointed Mr. Fernandez to serve as the new Chief Executive Officer of Progressive Care.
On December 29, 2022, Progressive Care filed a Certificate of Amendment to Articles of Incorporation (the “Amendment to Articles”) with the Secretary of State of the State of Delaware. Pursuant to the Amendment to Articles, each 200 shares of Progressive Care’s common stock outstanding was converted into one share of common stock (the “Reverse Stock Split”) and the number of shares of common stock that Progressive Care is authorized to issue was reduced to 100 million (the “Reduction in Authorized Stock”). The Reverse Stock Split and the Reduction in Authorized Stock were approved by the Progressive Care Board of Directors and the shareholders.
On May 5, 2023, NextPlat entered into a Securities Purchase Agreement (the “SPA”) with Progressive Care, pursuant to which NextPlat purchased 455,000 newly issued units of securities from Progressive Care (the “Units”) at a price per Unit of $2.20 for an aggregate purchase price of $1 million (the “Unit Purchase”). Each Unit consisted of one share of common stock, par value $0.0001 per share, of Progressive Care and one warrant to purchase a share of common stock (the “PIPE Warrants”). The PIPE Warrants have a three-year term and are immediately exercisable. Each PIPE Warrant is exercisable at $2.20 per share of common stock. On May 9, 2023, the Companies closed the transactions contemplated in the SPA. Progressive Care received cash proceeds of $880,000, net of placement agent commission of $70,000 and legal fees of $50,000.
Simultaneous with the closing of the Unit Purchase on May 9, 2023, Progressive Care entered into a Debt Conversion Agreement (the “DCA”) with the NextPlat Investors relating to the A&R Note. Pursuant to the DCA, the NextPlat Investors agreed to convert the total approximately $2.9 million of outstanding principal and accrued and unpaid interest under the A&R Note to Progressive Care common stock at a conversion price of $2.20 per share (the “Debt Conversion”). Of the total 1,312,379 shares of Progressive Care common stock issued pursuant to the Debt Conversion, NextPlat received 570,599 shares, Charles M. Fernandez received 228,240 shares, and Rodney Barreto received 228,240 shares. In addition, each of the NextPlat Investors also received a warrant to purchase one share of Progressive Care common stock for each share of Progressive Care common stock they received upon conversion of the A&R Note (the “Conversion Warrants”). The Conversion Warrants have a three-year term and were immediately exercisable. Each Conversion Warrant is exercisable at $2.20 per share of Common Stock. In addition, Progressive Care issued 330,000 warrants to certain existing Progressive Care investors to induce them to approve the Unit Purchase (the “Inducement Warrants”). Charles M. Fernandez and Rodney Barreto received Inducement Warrants to purchase 190,000 and 30,000 shares of Common Stock, respectively. The Inducement Warrants have a three-year term and were immediately exercisable. Each Inducement Warrant is exercisable at $2.20 per share of Progressive Care common stock.
On July 1, 2023, NextPlat, along with Messrs. Fernandez and Barreto, exercised certain common stock purchase warrants issued by Progressive Care (the “RXMD Warrants”) and were issued shares of Progressive Care common stock. NextPlat exercised RXMD Warrants on a cashless basis and was issued 402,269 shares of Progressive Care common stock. NextPlat also exercised RXMD Warrants on a cash basis and paid consideration in the amount of $506,000 and was issued 230,000 shares of Progressive Care common stock. Mr. Fernandez exercised RXMD Warrants on a cashless basis and was issued 211,470 shares of Progressive Care common stock. Mr. Barreto exercised RXMD Warrants on a cashless basis and was issued 130,571 shares of Progressive Care common stock. At the time of exercise, all of the above RXMD Warrants were in-the-money. After the exercise of the RXMD Warrants, NextPlat and Messrs. Fernandez and Barreto collectively owned approximately 53% of Progressive Care’s voting common stock.
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Also, on July 1, 2023, NextPlat and entered into a voting agreement with Messrs. Fernandez and Barreto whereby at any annual or special shareholders meeting of Progressive Care’s stockholders, and whenever the holders of Progressive Care’s common stock act by written consent, Messrs. Fernandez and Barreto agreed to vote all of the shares of Progressive Care common stock (including any new shares acquired after the date of the voting agreement or acquired through the conversion of securities convertible into Progressive Care common stock) that they own, directly or indirectly, in the same manner that NextPlat votes its shares of Progressive Care common stock. The voting agreement is irrevocable and perpetual in term.
As a result of the common stock purchase warrant exercises and the entry into the voting agreement, NextPlat concluded that there was a change in control in Progressive Care. As of July 1, 2023, NextPlat has the right to control more than 50 percent of the voting stock of Progressive Care through the concurrent common stock purchase warrant exercises and voting agreement noted above. Beginning on July 1, 2023, the Company changed the accounting method for its investment in Progressive Care, which prior to July 1, 2023 had been accounted for as an equity method investment to consolidation under the voting interest model in FASB ASC Topic 805. Therefore, Progressive Care became a consolidated subsidiary of the Company on July 1, 2023.
On April 12, 2024, NextPlat entered into a Merger Agreement and Plan of Reorganization (the “Merger Agreement”) with Progressive Care Inc, and Progressive Care LLC, a Nevada limited liability company and a direct, wholly owned subsidiary of NextPlat (“Merger Sub”). Pursuant to the terms of the Merger Agreement, upon the approval of NextPlat’s and Progressive Care’s shareholders, Progressive Care would merge with and into Merger Sub (the “Merger”), with Merger Sub being the surviving entity of the Merger. The result of which being that Progressive Care would become a wholly-owned subsidiary of NextPlat.
On September 13, 2024, the shareholders of each of NextPlat and Progressive Care approved the Merger Agreement and the transactions contemplated thereby.
On October 1, 2024, at 12:01 Eastern time, the Merger became effective and Progressive Care merged with and into Mergers Sub and thereby became a wholly owned subsidiary of NextPlat. In connection with the Merger, each share of Progressive Care common stock that was issued and outstanding immediately prior to the effective time of the Merger was converted into 1.4865 shares of NextPlat common stock, and each warrant to purchase Progressive Care common stock that was outstanding and unexercised immediately prior to the effective time of the Merger automatically converted into a warrant to purchase shares of NextPlat common stock with each such warrant having and being subject to the same terms and conditions (including vesting and exercisability terms) as were applicable to such Progressive Care warrant immediately before the effective time.
Business Acquisition of Outfitter Satellite, Inc.
On March 25, 2024, the Company entered into a Stock Purchase Agreement with James T. McKinley, pursuant to which the Company agreed to purchase all of the issued and outstanding shares of common stock of Outfitter Satellite, Inc. (“Outfitter”). The closing of the transaction occurred on April 1, 2024.
Outfitter provides consumers, commercial and government customers, with advanced satellite-based connectivity solutions from leading brands, including Iridium, Inmarsat and Globalstar.
Distribution of Our Products Through Alibaba
On July 13, 2021, we announced that our Global Telesat Communications (“GTC”) unit entered into an agreement with Alibaba.com, the B2B (Business-to-Business) e-commerce website owned and operated by Alibaba Group Holding Limited, also known as Alibaba Group (NYSE: BABA; HKEX: 9988), a Chinese multinational technology company specializing in e-commerce, retail, internet, and technology. GTC is a Gold-level Supplier on Alibaba.com, the world’s largest Business-to-Business (B2B) e-commerce website. Under the agreement, GTC significantly expanded its 24/7/365 e-commerce presence with the launch of its latest global storefront on Alibaba.com on which it offers a range of satellite IoT and connectivity products. These include our specialized satellite tracking products, some of which operate using the Company’s many ground station-based network processors and can be used to track and monitor the location of cars, trucks, trailers, boats, containers, animals, and other remote assets. We currently list approximately 500 products on Alibaba.com. The agreement will continue on a year-to-year basis. Additionally, we have an agreement with Tmall.com, a subsidiary of Alibaba, which allows us to list and sell our range of OPKO healthcare products. We will also sell our Florida Sunshine vitamins through Tmall.com.
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Critical Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, estimated asset lives, impairments and bad debts. These estimates and assumptions are affected by management’s applications of accounting policies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies, grouped by our activities, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. For additional information, see Item 8 of Part II, “Financial Statements and Supplementary Data – Note 3 – Summary of Significant Accounting Policies.”
Revenue Recognition and Unearned Revenue
e-Commerce Operations:
The Company recognizes revenue from satellite services when earned, as services are rendered or delivered to customers. Equipment sales revenue is recognized when the equipment is delivered to and accepted by the customer. Only equipment sales are subject to warranty. Historically, the Company has not incurred significant expenses for warranties. Equipment sales which have been prepaid, before the goods are shipped are recorded as contract liabilities and once shipped and delivered 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.
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.
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Healthcare Operations:
We recognize product sales from prescriptions dispensed to patients (customers) at the time the drugs are physically delivered to a customer or when a customer picks up their prescription, which is the point in time when control transfers to the customer. 340B dispensing fees are a component of 340B contract revenue, which are recognized at the time the drugs are received by the patient, by either delivery or customer pick up. Payments are received directly from the customer at the point of sale, or the customers’ insurance provider is billed electronically. For third-party medical insurance and other claims, authorization is obtained to ensure payment from the customer’s insurance provider before the medication is dispensed to the customer. Authorization is obtained for these sales electronically and a corresponding authorization number is issued by the customer’s insurance provider.
Pharmacy benefit manager (“PBM”) fees, including direct and indirect remuneration (“DIR”) fees, are assessed by payers and charged at the time of the settlement of a pharmacy claim. DIR fees are fees charged by PBMs to pharmacies for network participation as well as periodic reimbursement reconciliations. Through December 31, 2023, the Company accrued an estimate of PBM fees, including DIR fees, which are assessed or expected to be assessed by payers at some point after adjudication of a claim, as a reduction of prescription revenue at the time revenue is recognized. Changes in the estimate of such fees are recorded as an adjustment to revenue when the change becomes known. Effective January 1, 2024, all PBMs began charging DIR fees at the time of the settlement of a pharmacy claim.
We record unearned revenue for prescriptions that are filled but not yet delivered at period-end. Billings for most prescription orders are with third-party payers, including Medicare, Medicaid, and insurance carriers. Customer returns are nominal. Prescription revenues exceeded 80% of total revenue for all periods presented.
We recognize revenue from TPA services as we satisfy the services under the TPA contract with a 340B covered entity. TPA services provided to covered entities include consulting services, accounting and reconciliation of contract pharmacy billings, and various compliance services.
Billings for most prescription orders are with third-party payers, including Medicare, Medicaid, and insurance carriers. Customer returns are nominal.
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.
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation. (Topic 718). This update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issues to non-employees (for example, service providers, external legal counsel, suppliers, etc.). The ASU expanded the scope of ASC 718, Compensation - Stock Compensation, which previously only included share-based payments issued to employees, to also includes share-based payments issues to non-employees for goods and services. Consequently, the accounting for share-based payment to non-employees and employees will be substantially aligned. This standard became effective for the financial statements issued by public companies for the annual and interim periods beginning after December 15, 2018. Management adopted this standard on January 1, 2019.
The Company estimated the fair value of stock options granted using the Black-Scholes option-pricing formula. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The Company’s determination of the fair value using the option-pricing model is affected by the stock price as well as assumptions regarding the number of highly subjective variables.
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Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of over the value assigned to net tangible and identifiable intangible assets. We perform the required annual impairment tests of goodwill at the end of each fiscal year on our reporting unit. To determine the fair value of the reporting unit, we use a discounted cash flow model with market-based support as our valuation technique to measure the fair value for our reporting unit. The discounted cash flow model uses five-to-ten-year forecasted cash flows plus a terminal value based on a multiple of earnings or by capitalizing the last period’s cash flows using a perpetual growth rate. Our significant assumptions in the discounted cash flow models include, but are not limited to: the weighted average cost of capital (“WACC”), revenue growth rates, including perpetual revenue growth rates, and operating margin percentages of the reporting unit’s business. We consider the current market conditions when determining assumptions. The total forecasted cash flows are discounted based on ranges included in assumptions regarding our WACC. Lastly, we reconcile the aggregate fair values of our reporting units to our market capitalization, which include a reasonable control premium based on market conditions. The use of estimates and the development of assumptions results in uncertainties around forecasted cash flows.
A change in any of these estimates and assumptions used in the annual test, a degradation in the overall markets served by these reporting units, among other factors, could have a negative material impact to the fair value of the reporting units and could result in a future impairment charge. There can be no assurance that our future goodwill impairment testing will not result in a charge to earnings. This impairment charge could have a negative material impact on our results of operations.
Acquired intangible assets other than goodwill are amortized over their useful lives unless the lives are determined to be indefinite. For intangible assets purchased in a business combination, the estimated fair values of the assets received are used to establish their recorded values. Valuation techniques consistent with the market approach, income approach, and/or cost approach are used to measure fair value. Goodwill and other indefinite-lived intangible assets are assessed annually for impairment in the fourth fiscal quarter and in interim periods if events or changes in circumstances indicate that the assets may be impaired.
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, assumptions used to calculate stock-based compensation, fair value of net assets acquired in business combinations, common stock, warrants and options issued for services, net realizable value of accounts receivables and other receivables, the useful lives of property and equipment and intangible assets determining the potential impairment of long-lived assets and goodwill, the estimate of the fair value of the lease liability and related right of use assets, pharmacy benefit manager (“PBM”) fee estimates, inventory reserve estimates, and the estimates of the valuation allowance on deferred tax assets and corporate income taxes.
Effect of Exchange Rate on Results
The Company’s reporting currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries, GTC, is maintained using the appropriate local currency, Great British Pound, as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.
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Results of Operations
The results of operations for the year ended December 31, 2024, include the full year results for Progressive Care compared to the results of operations for the prior year ended December 31, 2023, which include results of operations for Progressive Care for the period from the date of acquisition, July 1, 2023, to December 31, 2023.
Our revenues were as follows (in thousands):
Years Ended December 31,
2024
2023
$ Change
% Change
Revenue, net
$
65,483
$
37,756
$
27,727
73
%
Cost of revenue
49,254
26,445
22,809
86
%
Gross profit
16,229
11,311
4,918
43
%
Operating expenses
39,853
34,539
5,314
15
%
Loss before other income
(23,624
)
(23,228
)
(396
)
2
%
Other income
(570
)
(937
)
367
(39
)%
Loss before income taxes and equity in net loss of affiliate
(23,054
)
(22,291
)
(763
)
3
%
Income taxes
(71
)
(28
)
(43
)
154
%
Loss before equity in net loss of affiliate
(23,125
)
(22,319
)
(806
)
4
%
Gain on remeasurement of fair value of equity interest in affiliate prior to acquisition
—
11,352
(11,352
)
(100
)%
Equity in net loss of affiliate
—
(1,440
)
1,440
(100
)%
Net loss
(23,125
)
(12,407
)
(10,718
)
86
%
Net loss attributable to noncontrolling interest
9,100
8,629
471
5
%
Net loss attributable to NextPlat Corp
$
(14,025
)
$
(3,778
)
$
(10,247
)
271
%
For the years ended December 31, 2024 and 2023, we recognized overall revenue from operations of approximately $65.5 million and $37.8 million, respectively, an overall increase of approximately $27.7 million for the year ended December 31, 2024, when compared to the year ended December 31, 2023. The increase in revenue was primarily attributable to an increase of approximately $24.9 million from the Healthcare Operations reportable segment as a result of the Progressive Care acquisition on July 1, 2023, and approximately $2.8 million as it relates to the e-Commerce Operations reportable segment as a result of the acquisition of Outfitter.
Gross profit margins for the years ended December 31, 2024 and 2023 were approximately 24.8% and 30.0%, respectively. The decrease in gross profit margin was primarily attributable to the Healthcare Operations reportable segment as it continues to experience pressures from medication price increases along with reimbursement rates not keeping pace with those increases.
Our loss before other income increased by approximately $0.4 million for the year ended December 31, 2024, when compared to the year ended December 31, 2023, as a result of the increase in operating expenses of approximately $5.3 million, offset by the increase in gross profit of approximately $4.9 million. The increase in operating expenses included non-recurring expenses and losses that are not indicative of our regular operations, including impairment losses of approximately $13.7 million and $13.9 million for the years ended December 31, 2024 and 2023, respectively, and approximately $3.4 million of non-recurring professional fees and other expenses associated with litigation and our merger with Progressive Care in the current year. Without those non-recurring items, loss before other income would have been approximately $6.6 million for the year ended December 31, 2024 compared to $9.3 million for the year ended December 31, 2023.
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Revenue
Our revenues were as follows (in thousands):
Years Ended December 31,
2024
2023
Dollars
% of Revenue
Dollars
% of Revenue
$ Change
% Change
Sales of products, net:
e-Commerce revenue
$
13,791
21
%
$
10,977
29
%
$
2,814
26
%
Pharmacy prescription and other revenue, net of PBM fees
41,308
63
%
21,412
57
%
19,896
93
%
Sub total
55,099
84
%
32,389
86
%
22,710
70
%
Revenues from services:
Pharmacy 340B contract revenue
10,384
16
%
5,367
14
%
5,017
93
%
Revenues, net
$
65,483
100
%
$
37,756
100
%
27,727
73
%
Revenues, net for the year ended December 31, 2024, consisted of e-Commerce sales of satellite phones, tracking devices, accessories, and airtime plans, pharmacy prescription revenue, and 340B contract revenues. For the year ended December 31, 2024, overall revenues were approximately $65.5 million compared to $37.8 million for the year ended December 31, 2023, an increase of approximately $27.7 million or 73.4%.
Total e-Commerce revenues were approximately $13.8 million and $11.0 million for the years ended December 31, 2024 and 2023, respectively, an increase of approximately $2.8 million mainly due to the Outfitter acquisition on April 1, 2024.
Total pharmacy prescription and 340B contract revenues were approximately $51.7 million and $26.8 million for the years ended December 31, 2024 and 2023, respectively. The increase is due to the full year results for Progressive Care included in the 2024 period versus six months results during the same period in 2023 due to the Progressive Care acquisition occurring on July 1, 2023. The pharmacy filled approximately 514,000 prescriptions for the year ended December 31, 2024, compared to approximately 489,000 prescriptions for the year ended December 31, 2023 (prescription count for the year ended December 31, 2023 includes prescriptions filled prior to the acquisition of Progressive Care that occurred on July 1, 2023).
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Operating Expenses
Our operating expenses were as follows (in thousands):
Years Ended December 31,
2024
2023
$ Change
% Change
Selling, general and administrative
$
7,860
$
9,910
$
(2,050
)
(21
)%
Salaries, wages and payroll taxes
11,441
6,643
4,798
72
%
Impairment loss
13,653
13,895
(242
)
(2
)%
Professional fees
4,401
1,981
2,420
122
%
Depreciation and amortization
2,498
2,110
388
18
%
Total operating expenses
$
39,853
$
34,539
$
5,314
15
%
Total operating expenses for the year ended December 31, 2024, were approximately $39.9 million, an increase of approximately $5.3 million or 15.4%, from total operating expenses for the year ended December 31, 2023, of approximately $34.5 million. Factors contributing to the increase are described below.
Selling, general and administrative expenses were approximately $7.9 million and $9.9 million for the years ended December 31, 2024 and 2023, respectively, a decrease of approximately $2.1 million or 20.7%. The decrease for the year ended December 31, 2024, was mainly attributable to a decrease in stock-based compensation of approximately $3.8 million due to non-recurring grants fully vested, offset by an increase of approximately $1.5 million relating to operating expenses of the Healthcare Operations as a result of the Progressive Care acquisition on July 1, 2023 and approximately $0.4 million relating to the Outfitter acquisition on April 1, 2024.
Salaries, wages and payroll taxes were approximately $11.4 million and $6.6 million for the years ended December 31, 2024 and 2023, respectively, an increase of approximately $4.8 million or 72.2%. The increase was mainly attributable to the Healthcare Operations as a result of the Progressive Care acquisition as of July 1, 2023, of approximately $5.0 million, and approximately $0.3 million as it relates to the Outfitter acquisition on April 1, 2024, offset by a decrease in e-Commerce Operations salaries and wages of approximately $0.5 million.
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The Company performed a goodwill impairment test during the year ended December 31, 2024 and it was determined that the carrying amount of goodwill exceeded its fair value resulting in the Company recording a non-cash impairment charge of approximately $0.7 million, recorded in the Healthcare Operations reporting segment. As of December 31, 2024, there was no remaining goodwill as it relates to the Healthcare Operations reporting segment. Refer to Note 12. Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, and inputs used in the fair value measurements.
The Company performed a long-lived assets impairment test as it relates to the Healthcare Operations reporting segment during the year ended December 31, 2024 and it was determined that the carrying amount of the asset group exceeded its fair value resulting in the Company recording a non-cash impairment charge to certain long-lived assets, primarily intangible assets, of approximately $12.8 million during the year ended December 31, 2024. Refer to Note 12. Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, inputs used in the fair value measurements, and the changes in intangible assets for the period.
The Company recorded approximately $0.1 million of impairment loss related to the write-down of a right-of-use asset as a result of taking the leased equipment out of service and not returning to service in the future. This was recorded in the Healthcare Operations reporting segment for the year ended December 31, 2024.
Professional fees were approximately $4.4 million and $2.0 million for the years ended December 31, 2024 and 2023, respectively, an increase of approximately $2.4 million or 122.2%. The increase was mainly attributable to the settlement of litigation and associated legal fees with the e-Commerce Operations of approximately $1.3 million, legal and consulting fees as it relates to the merger of Progressive Care of approximately $0.6 million, and other professional and accounting fees associated with the Healthcare Operations of approximately $0.5 million. Management does not expect these increases in professional fees to be recurring expenses in the foreseeable future.
Depreciation and amortization expenses were approximately $2.5 million and $2.1 million for the years ended December 31, 2024 and 2023, respectively, an increase of approximately $0.4 million or 18.4%. The increase was attributable to a full year of depreciation and amortization as it relates to the Healthcare Operations reportable segment of approximately $0.5 million compared to six months of depreciation and amortization in the prior year related to the Healthcare Operations reportable segment from the Progressive Care acquisition on July 1, 2023.
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Total Other Income
Our total other income decreased by approximately $0.4 million for the year ended December 31, 2024 when compared to the same period in 2023, and was mainly due to an increase of interest received of approximately $0.1 million, a change in foreign currency rates of approximately $0.2 million, and gain on disposal of property and equipment of approximately $0.1 million, which was offset by the non-recurring write off of aged payables of approximately $0.3 million in the prior year.
Equity Method Investment
Prior to the Progressive Care acquisition in July 2023, our investment in Progressive Care was accounted for by the equity method of accounting, and we recorded a net loss in the equity of Progressive Care of approximately $1.4 million, and a gain on the remeasurement of fair value of equity method investment in Progressive Care of approximately $11.4 million. Effective July 1, 2023, Progressive Care became a consolidated subsidiary of the Company, which resulted in a change in the accounting treatment from equity method to consolidation.
Net Loss
We recorded net losses of approximately $23.1 million and $12.4 million for the years ended December 31, 2024 and 2023, respectively. The change in the net loss was a result of the factors described above.
Comprehensive Loss
We recorded comprehensive losses for foreign currency translation adjustments of approximately $3,000 and $22,000 for the years ended December 31, 2024 and 2023, respectively. The change was primarily attributable to exchange rate variances.
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. As of December 31, 2024, we had a cash balance of approximately $20.0 million. Our working capital was approximately $23.3 million at December 31, 2024.
As of the date of this report, the Company’s existing cash resources 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.
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Table of Contents
The following table summarizes our cash flows (in thousands):
Years Ended December 31,
2024
2023
Net change in cash from:
Operating activities
$
(5,464
)
$
(3,596
)
Investing activities
(953
)
5,199
Financing activities
72
5,860
Effect of exchange rate on cash
(2
)
(47
)
Change in cash
(6,347
)
7,416
Cash at end of year
$
19,960
$
26,307
Cash Flow from Operating Activities
Net cash flows used by operating activities totaled approximately $5.5 million and $3.6 million for the years ended December 31, 2024 and 2023, respectively, and changed by approximately $1.9 million period over period. The unfavorable change of approximately $1.9 million was primarily attributable to the following:
●
an increase in cash received from e-Commerce Operations of approximately $2.8 million due to year-over-year sales increase; an increase in cash received from Healthcare Operations of approximately $40.9 million was mainly due to the full year results of Progressive Care included in 2024 versus six months results during 2023 as a result of the acquisition as of July 1, 2023;
●
an increase in cash received from interest income and other sources of approximately $0.4 million and primarily represents the full year of interest income on money market accounts in 2024 versus five months in 2023;
●
an increase in cash paid for inventory purchases and other costs of revenue of approximately $43.6 million, which was mainly due to the full year results of Progressive Care included in 2024 versus six months results during 2023 as a result of the acquisition as of July 1, 2023, Outfitter acquisition as of April 1, 2024, and an increase in inventory purchases for e-Commerce Operations as a result of increased sales;
●
an increase in cash paid for salaries and related expenses of approximately $4.8 million, offset by a decrease in cash paid for other recurring operational expenses of approximately $6.2 million, and mainly due to the full year results of Progressive Care included in 2024 versus six months results during 2023 as a result of the acquisition as of July 1, 2023, and Outfitter acquisition as of April 1, 2024;
●
an increase in cash paid for income taxes of approximately $0.1 million;
●
and an increase in cash paid for merger costs and other non-recurring expenses of approximately $3.4 million.
Cash Flow from Investing Activities
Net cash flows (used in) provided by investing activities were approximately ($1.0 million) and $5.2 million for the years ended December 31, 2024 and 2023, respectively. The cash outflow in 2024 was attributable to the acquisition of Outfitter, compared to the cash inflow in 2023 due to the acquisition of Progressive Care.
Cash Flow Financing Activities
Cash provided by financing activities of approximately $0.1 for the year ended December 31, 2024 was primarily attributable to the exercise of warrants and capital contributions of non-controlling interest, offset by repayment of notes payable. Cash provided by financing activities of approximately $5.9 million for the year ended December 31, 2023 was primarily attributable to the proceeds from a capital raise and exercise of warrants, offset by repayment of notes payable.
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April 2023 Private Placement of Common Stock
On April 5, 2023, the Company entered into a securities purchase agreement with an accredited investor (the “Investor”) for the sale by the Company in a private placement of 3,428,571 shares of the Company’s common stock, $0.0001 par value per share (the “Common Stock”). The offering price of the Common Stock was $1.75 per share, the closing price of the Common Stock on April 4, 2023. On April 11, 2023, the Private Placement closed. Upon the closing of the Private Placement, the Company received gross proceeds of approximately $6.0 million. The Company sold the Common Stock to the Investor in reliance on the exemption from registration afforded 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 Investor represented that it is acquiring the Common Stock for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. Accordingly, the Common Stock has not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
Acquisition of Progressive Care Inc.
See the section above entitled “ - Overview - Business acquisition of Progressive Care, Inc. ”
Off-balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Consistent with the rules applicable to “Smaller Reporting Companies” we have omitted information required by this Item.