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 of 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
We
are a provider of satellite-based hardware, airtime and related services both in the United States and internationally. We sell equipment
and airtime for use on all of the major satellite networks including Globalstar, Inmarsat, Iridium and Thuraya and operate a short-term
rental service for customers who desire to use our equipment for a limited time period. Our acquisition of GTC in February 2015 expanded
our global satellite-based infrastructure and business, which was first launched in December 2014 through the purchase of certain contracts.
39
March 2021 Financing
On
March 5, 2021, the Company entered into a Note Purchase Agreement (the “March 2021 NPA”) by and between the Company and one
individual accredited investor (the “Lender”). Pursuant to the terms of the March 2021 NPA, the Company sold a convertible
promissory note with a principal amount of $350,000 (the “March 2021 Note”). The March 2021 Note was a general, unsecured
obligation of the Company and bears simple interest at a rate of 7% per annum and matures on the third anniversary of the date of issuance
(the “Maturity Date”), to the extent that the March 2021 Note and the principal amount and any interest accrued thereunder
have not been converted into shares of the Company’s common stock. In the event that any amount due under the March 2021 Note was
not paid as and when due, such amount will accrue interest at the rate of 12% per year, simple interest, non-compounding, until paid.
The Company may not pre-pay or redeem the March 2021 Note other than as required by the Agreement. The Noteholder had an optional right
of conversion such that a Noteholder may elect to convert his March 2021 Note, in whole or in part, outstanding as of such time, into
the number of fully paid and non-assessable shares of the Company’s common stock as determined by dividing the indebtedness under
the March 2021 Note price equal to the lesser of (a) $7.50 per share, and (b) a 30% discount to the price of the common stock in the
qualified transaction. Following an event of default, the conversion price shall be adjusted to be equal to the lower of: (i) the then
applicable conversion price or (ii) the price per share of 85% of the lowest traded price for the Company’s common stock during
the 15 trading days preceding the relevant conversion. In addition, subject to the ownership limitations, if a qualified transaction
is completed, without further action from the Noteholder, on the closing date of the qualified transaction, 50% of the principal amount
of this March 2021 Note and all accrued and unpaid interest shall be converted into Company common stock at a conversion price equal
to the 30% discount to the offering price in such qualified transaction, which price shall be proportionately adjusted for stock splits,
stock dividends or similar events. A “Qualified Transaction” refers the completion of the public offering of the Company’s
securities stock with gross proceeds of at least $10,000,000 pursuant to which the Company’s securities become registered pursuant
to Section 12(b) of the Securities Exchange Act of 1934, as amended, or a merger with a company listed on the Nasdaq or Canadian stock
exchanges, as amended. The Noteholder is granted registration rights and pre-emptive rights. In addition, the March 2021 NPA 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. The Company’s issuance of the March 2021 Note under the terms of the March 2021 NPA was made pursuant
to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on Section
4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. The investor in the March 2021 Note is an
“accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities Act. There were no discounts
or brokerage fees associated with this offering. The Company used the offering proceeds for working capital and general corporate purposes.
Listing
on the Nasdaq Capital Market
Our
shares have been listed on the Nasdaq Capital Market since May 28, 2021. 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.
Reverse
Stock Split
We
effected a reverse stock split of our common stock at a ratio of 1-for-5 as of 12:01 a.m. Eastern Time, on May 28, 2021. No fractional
shares were issued in connection with the reverse stock split and all such fractional interests were rounded up to the nearest whole
number of shares of common stock. The conversion or exercise prices of our issued and outstanding convertible securities, stock options
and warrants will be adjusted accordingly. All information presented in this Annual Report on Form 10-K, unless otherwise
indicated herein, assumes a 1-for-5 reverse stock split of our outstanding shares of common stock, and unless otherwise indicated, all
such amounts and corresponding conversion price or exercise price data set forth herein have been adjusted to give effect to such assumed
reverse stock split.
40
June
Public Offering
On
May 28, 2021, Company, entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC (the “Underwriter”),
pursuant to which the Company agreed to issue and sell to the Underwriter in an underwritten public offering (the “June Offering”)
2,880,000 units consisting of one share of common stock and one warrant exercisable for one share of common stock at a public offering
price of $5.00 per unit (after giving effect to a 1-for-5 reverse stock split, discussed above) for aggregate gross proceeds of approximately
$14,400,000 before deducting underwriting discounts, commissions, and other offering expenses. The common stock and warrants were immediately
separable and were issued separately. The common stock and warrants began trading on the Nasdaq Capital Market, on May 28, 2021, under
the symbols “OSAT” and “OSATW,” respectively. In addition, the Company granted the Underwriter a 45-day option
to purchase an additional 432,000 shares of common stock and/or warrants to purchase up to an aggregate of 432,000 shares of common stock,
in any combination thereof, at the public offering price per security, less the underwriting discounts and commissions, to cover over-allotments,
if any. The June Offering closed on June 2, 2021.
In
connection with closing of the June Offering, the Underwriter partially exercised its overallotment option and purchased an additional
432,000 warrants at $0.01 per warrant for additional gross proceeds to the Company of $4,320. On June 28, 2021, the Underwriter, upon
the exercise in full of the balance of its over-allotment option, purchased 432,000 additional shares of the common stock for additional
gross and net proceeds after deducting underwriting discounts of $2,160,000 and $1,983,225, respectively.
We
have issued to the Underwriter warrants to purchase up to a total of 144,000 shares of common stock (5% of the shares of common
stock included in the Units, excluding the over-allotment, if any) (the “Underwriter Warrants”). The Underwriter Warrants
are exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days from the effective
date of the registration statement and expire five years from the effective date of the offering, which period is in compliance
with FINRA Rule 5110(e). The Underwriter Warrants are exercisable at a per share price equal to $5.50 per share, or 110% of the public
offering price per unit in the offering. The Underwriter Warrants have been deemed compensation by FINRA and are therefore subject to
a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriter (or permitted assignees under Rule 5110(e)(2)) will not sell,
transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging,
short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying
securities for a period of 180 days from the effective date of the registration statement. In addition, the warrants provide for certain
piggyback registration rights. The piggyback registration rights provided will not be greater than five years from the effective date
of the registration statement in compliance with FINRA Rule 5110(g)(8). We will bear all fees and expenses attendant to registering the
securities issuable on exercise of the Underwriter Warrants. The exercise price and number of shares issuable upon exercise of the Underwriter
Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization,
reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances
of shares of common stock at a price below the warrant exercise price.
The
June Offering of common stock and warrants, and the underwriter’s exercise of the over-allotment option in connection
therewith, resulted in total gross proceeds of approximately $16,560,000, before deducting underwriting discounts, commissions, and
other offering expenses.
Distribution
of Our Products Through Alibaba
On
July 13, 2021, we announced that our Global Telesat Communications (“GTC”) unit has 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 will 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. Although we currently have a limited range of products
available through the Alibaba storefront due to supply chain constrictions, we plan to ultimately have up to 500 products and connectivity
services available on Alibaba.com. The agreement will continue on a year-to-year basis.
41
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.
January
2022 Name Change
On
January 18, 2022, the Company filed a Certificate of Amendment of the Amended and Restated Articles of Incorporation of the Company with
the Secretary of State of the State of Nevada in order to change the Company’s corporate name from Orbsat Corp to NextPlat Corp.
This name change was effective as of January 21, 2022. The name change was approved by the Company’s stockholders at the 2021 annual
meeting of stockholders held on December 16, 2021.
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 and expenses. These estimates and assumptions are affected by management’s applications of accounting
policies. Critical accounting policies for our company include accounting for stock-based compensation.
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 $0.
42
Use
of Estimates
In
preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended.
Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to,
the assumptions used to calculate stock-based compensation, derivative liabilities and common stock issued for services.
Effect
of Exchange Rate on Results
The
Company’s reporting currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries, GTC, is maintained using
the appropriate local currency, Great British Pound, as the functional currency. All assets and liabilities are translated into U.S.
Dollars at balance sheet date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated
at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of
stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange
rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.
The
relevant translation rates are as follows: for the year ended December 31, 2021, closing rate at 1 . 353372 US$: GBP, yearly average
rate at 1.375083 US$: GBP for the year ended December 31, 2020, closing rate at 1.3665 US$: GBP, yearly average rate at 1.286618 US$:
GBP
For
the year ended December 31, 2021, GTC represents 68.8% of total company sales and as such, currency rate variances have an impact on
results. The net effect on revenues were impacted by the differences in exchange rate from yearly average exchange of 1.286618 to 1.375083.
Had the yearly average rate remained, sales would have been lower by $459,458. GTC comparable sales in GBP, its home currency, increased
34.0% or £984,146, from £2,890,408 to £3,874,554 for the year ended December 31, 2021, as compared to December 31,
2020.
For
the year ended December 31, 2020, GTC represents 64.1% of total company sales and as such, currency rate variances have an impact on
results. The net effect on revenues were impacted by the differences in exchange rate from yearly average exchange of 1.276933 to 1.286618.
Had the yearly average rate remained, sales would have been lower by $35,347. GTC comparable sales in GBP, its home currency, decreased
8.0% or £251,733, from £3,142,634 to £2,890,901 for the year ended December 31, 2020, as compared to December 31, 2019.
Results
of Operations
Net
Revenue. For the years ended December 31, 2021, and 2020, revenues generated were approximately $7,739,910 and $5,689,796, an increase
of $2,050,114 or 36.0%. Revenues were derived primarily from the sales of satellite phones, locator beacons, IoT GPS trackers, terminals,
accessories and additional and recurring airtime plans. Comparable sales for Orbital Satcom Corp. increased 22.4% or $441,132, from $1,970,944
to $2,412,076. Comparable sales for GTC increased 43.3% or $1,608,982, from $3,718,851 to $5,327,833. The overall sales increase is attributable
to increased sales through Amazon storefronts and product selections, which constituted 63.6% and 73.3% of our total sales for
the years ended December 31, 2021, and 2020, respectively.
43
Approximately
63.6% of our products are sold on Amazon and are subject to Amazon’s terms of service and various other Amazon seller policies
that apply to third parties selling products on Amazon’s marketplace. Amazon’s terms of service provide, among other things,
that it may terminate or suspend its agreement with any seller or any of its services being provided to a seller at any time and for
any reason. In addition, if Amazon determines that any seller’s actions or performance, including ours, may result in violations
of its terms or policies, or create other risks to Amazon or to third parties, then Amazon may in its sole discretion withhold any payments
owed for as long as Amazon determines any related risk to Amazon or to third parties persist. Further, if Amazon determines that any
seller’s, including our, accounts have been used to engage in deceptive, fraudulent or illegal activity, or that such accounts
have repeatedly violated its policies, then Amazon may in its sole discretion permanently withhold any payments owed. In addition, Amazon
in its sole discretion may suspend a seller account and product listings if Amazon determines that a seller has engaged in conduct that
violates any of its policies. Any limitation or restriction on our ability to sell on Amazon’s platform could have a material impact
on our business, results of operations, financial condition and prospects. We also rely on services provided by Amazon’s fulfillment
platform which provides for expedited shipping to the consumer, an important aspect in the buying decision for consumers. Any inability
to market our products for sale with delivery could have a material impact on our business, results of operations, financial condition
and prospects. Failure to remain compliant with the fulfillment practices on Amazon’s platform could have a material impact on
our business, results of operations, financial condition and prospects.
Cost
of Sales. During the years ended December 31, 2021, and 2020, cost of revenues increased to $5,880,187 compared to $4,464,476 for
the year ended December 31, 2020, an increase of $1,415,711 or 31.7%. We expect our cost of revenues to increase during fiscal 2022 and
beyond, as we expand our operations and begin generating additional revenues under our current business. However, we are unable at this
time to estimate the amount of the expected increases. Gross profit margins during the year ended December 31, 2021, and 2020 were 24.0%
and 21.5%, respectively. The increase in margin was attributable to new product lines with higher margins.
Operating
Expenses. Total operating expenses for the year ended December 31, 2021 were $8,482,056, an increase of $5,222,856, or 160.3%, from
total operating expenses for the year ended December 31, 2020, of $3,259,200.
Selling,
general and administrative expenses were $1,369,936 and $694,361 for the years ended December 31, 2021 and 2020, respectively, representing
an increase of $675,575 or 97.3%. The increase is primarily attributable to an increase in medical premiums of $38,441, due to additional
employees, premiums related to D&O insurance of $143,575, and a general increase in variable expenses which fluctuate
as sales increase.
Salaries,
wages and payroll taxes were $1,838,531 and $769,391 for the year ended December 31, 2021 and 2020, respectively, representing an
increase of $1,069,140, or 139.0%. The increase was attributable to an increase in officers, personnel and increased payroll to meet
legal minimum in the UK.
Stock-based
compensation for the year ended December
31, 2021 and 2020 were non-cash expenses. For the years ended December 31, 2021 and 2020, the Company recorded $3,758,424 and $904,900
for stock-based compensation, an increase of $2,853,524 or 315.3%. For the year ended December 31, 2021, the expense was for recruiting
and retaining executive management as well as increasing the number of directors, which resulted in an amount of $2,481,071 for
awards of restricted stock and $1,277,353 related to the grant of options. For the year ended December 31, 2020, the expense was for
the issuance of 2,752,000 fully vested options to purchase shares of the Company’s stock to management and a director with an average
exercise price of $0.24 and the issuance of 30,000 shares of the Company’s stock to consultants valued at $74,000.
Professional
fees were $1,198,063 and $595,622 for the years ended December 31, 2021 and 2020, respectively, representing an increase of $602,441
or 101.1%. For the year ended December 31, 2021, the increase in professional fees were primarily for; legal and other fees related to
the public company expenses of $358,781, director fees of $97,791, associated with the addition of four independent directors, and
capital raising professional fees of $145,869. For the year ended December 31, 2020, the increase was primarily due to an increase
in fees to consultants of $143,406 and fees for investor relations of $17,500, relating to equity raising services, offset by a decrease
of; legal expenses of $26,770, accounting fees of $21,205 and a reduction of public company expense of $8,564.
Depreciation
and amortization expenses were $317,102 and $294,926 for the years ended December 31, 2021 and 2020, respectively, representing an
increase of $22,176, or 7.5%. The increase was attributable to increase in fixed assets.
We
expect our expenses in each of these areas to continue to increase during fiscal 2022 and beyond as we expand our operations and begin
generating additional revenues under our current business. However, we are unable at this time to estimate the amount of the expected
increases.
44
Total
Other (Income) Expense. Our total other expenses were $1,485,329 and $729,495 during the years ended December 31, 2021 and 2020,
respectively, representing an increase of $755,834 or 103.6%. The increase was attributable to the Company’s increase
in interest expense of $445,276 due to convertible notes payable, exchange rate variances and gain on extinguishment of debt in 2020
of $269,261.
Net
Loss before Income Taxes . We recorded net loss before income tax of $8,107,662 for the year ended December 31, 2021 as compared to
a net loss of $2,763,375, for the year ended December 31, 2020. The increase is a result of the factors as described above.
Provision
for Income Taxes and Income Tax Expense . For the years ended December 31, 2021 and 2020, the Company recorded income tax expense
of $0 and $0, respectively.
Net
Loss . We recorded net loss after income tax of $8,107,662 for the year ended December 31, 2021 as compared to a net loss of $2,763,375
for the year ended December 31, 2020. The increase is a result of the factors as described above.
Comprehensive
Loss . We recorded a gain (loss) for foreign currency translation adjustments for the year ended December 31, 2021 and 2020 of $46,068
and $(40,680), respectively. The fluctuations of the increase/decrease are primarily attributable to exchange rate variances. Comprehensive
loss for the year ended December 31, 2021 was $8,061,594 as compared to loss of $2,804,055 for the year ended December 31, 2020.
Liquidity
and Capital Resources
Since
inception we have incurred and continue to incur significant losses from operations. Historically, cash flow from operations has not
been sufficient to further the growth of the Company’s core business. The combined proceeds from the June Offering of $16,560,000
and December Offering of $7,225,038 provides sufficient cash resources for the Company to meet its operating needs. Furthermore, the
available cash resources permit investment to expand existing business, investments in expanding our e-commerce platforms, and the development
of digital asset initiatives. Should these initiatives and results from operations not prove successful, we will need to raise additional
capital through debt facilities, and/or public or private equity or debt financings to continue operations. The Company can provide
no assurance as to the successful conclusion of the financings.
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate
on an ongoing basis. At December 31, 2021, we had a cash balance of $17,267,978 and working capital is $16,594,207. We
reported a net increase in cash for the year ended December 31, 2021, as compared to December 31, 2020, of $16,539,216 primarily as a
result of net cash proceeds received proceeds from the June Public Offering.
We
believe that our existing working capital and our future cash flows from operating activities will provide sufficient cash to enable
us to meet our operating needs for the next twelve months.
Recent
Financing Activities
December 2021 Offering
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.
For
the year ended December 31, 2021, the Company received gross proceeds of $1,400,000 of the $7,225,038, pursuant to the December Offering,
see Note 19 Subsequent events. On January 5, 2022, the Company received an additional $5,825,038, resulting in the issuance of 2,229,950
shares of the Company’s common stock, eliminating the stock subscription payable as well as, the closing of the offering.
Listing
on the Nasdaq Capital Market
Our
shares have been listed on the Nasdaq Capital Market since May 28, 2021. 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.
45
Reverse
Stock Split
We
effected a reverse stock split of our common stock at a ratio of 1-for-5 as of 12:01 a.m. Eastern Time, on May 28, 2021. No fractional
shares were issued in connection with the reverse stock split and all such fractional interests were rounded up to the nearest whole
number of shares of common stock. The conversion or exercise prices of our issued and outstanding convertible securities, stock options
and warrants will be adjusted accordingly. All information presented in this Annual Report on Form 10-K, unless otherwise
indicated herein, assumes a 1-for-5 reverse stock split of our outstanding shares of common stock, and unless otherwise indicated, all
such amounts and corresponding conversion price or exercise price data set forth herein have been adjusted to give effect to such assumed
reverse stock split.
June
Public Offering
On
May 28, 2021, Company, entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC (the “Underwriter”),
pursuant to which the Company agreed to issue and sell to the Underwriter in an underwritten public offering (the “June Offering”)
2,880,000 units consisting of one share of common stock and one warrant exercisable for one share of common stock at a public offering
price of $5.00 per unit (after giving effect to a 1-for-5 reverse stock split, discussed above) for aggregate gross proceeds of approximately
$14,400,000 before deducting underwriting discounts, commissions, and other offering expenses. The common stock and warrants were immediately
separable and were issued separately. The common stock and warrants began trading on the Nasdaq Capital Market, on May 28, 2021, under
the symbols “OSAT” and “OSATW,” respectively. In addition, the Company granted the Underwriter a 45-day option
to purchase an additional 432,000 shares of common stock and/or warrants to purchase up to an aggregate of 432,000 shares of common stock,
in any combination thereof, at the public offering price per security, less the underwriting discounts and commissions, to cover over-allotments,
if any. The June Offering closed on June 2, 2021.
In
connection with closing of the June Offering, the Underwriter partially exercised its overallotment option and purchased an additional
432,000 warrants at $0.01 per warrant for additional gross proceeds to the Company of $4,320. On June 28, 2021, the Underwriter, upon
the exercise in full of the balance of its over-allotment option, purchased 432,000 additional shares of the common stock for additional
gross and net proceeds after deducting underwriting discounts of $2,160,000 and $1,983,225, respectively.
We
have also agreed to issue to the Underwriter (or its permitted assignees) warrants to purchase up to a total of 144,000 shares of common
stock (5% of the shares of common stock included in the Units, excluding the over-allotment, if any) (the “Underwriter Warrants”).
The Underwriter Warrants are exercisable at any time, and from time to time, in whole or in part, during the period commencing
180 days from the effective date of the registration statement and expire five years from the effective date of the offering,
which period is in compliance with FINRA Rule 5110(e). The Underwriter Warrants are exercisable at a per share price equal to $5.50 per
share, or 110% of the public offering price per unit in the offering. The Underwriter Warrants have been deemed compensation by FINRA
and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriter (or permitted assignees under Rule
5110(e)(2)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will
they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition
of the warrants or the underlying securities for a period of 180 days from the effective date of the registration statement. In addition,
the warrants provide for certain piggyback registration rights. The piggyback registration rights provided will not be greater than five
years from the effective date of the registration statement in compliance with FINRA Rule 5110(g)(8). We will bear all fees and expenses
attendant to registering the securities issuable on exercise of the Underwriter Warrants. The exercise price and number of shares issuable
upon exercise of the Underwriter Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary
cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares
will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
The
June Offering of common stock and warrants, and the underwriter’s exercise of the over-allotment option in
connection therewith, resulted in total gross proceeds of approximately $16,560,000 before
deducting underwriting discounts, commissions, and other offering expenses.
March
2021 Financing
On
March 5, 2021, the Company entered into a Note Purchase Agreement by and between the Company and one individual accredited investor where
the Company sold a convertible promissory note with a principal amount of $350,000 (the “March 2021 Note”). The Noteholder
had an optional right of conversion such that the Noteholder may elect to convert his Note, in whole or in part, outstanding as of such
time, into the number of fully paid and non-assessable shares of the Company’s common stock as determined by dividing the indebtedness
under the March 2021 Note by a price equal to the lesser of (a) $1.50 per share, and (b) a 30% discount to the price of the common stock
in the qualified transaction, subject to certain adjustments.
46
For
the years ended December 31, 2021, and 2020, we amortized the discount on the debt to interest expense of $1,425,365 and $538,087, resulting
in a balance of unamortized notes payable of $0 and $331,171, respectively.
For
the year ended December 31, 2021, the Holders converted a total of $1,644,268 of the convertible debt to 1,345,468 shares of common shares.
December
2020 Financing
On
December 1, 2020, the Company entered into a Note Purchase Agreement by and among the Company and certain lenders where the Company sold
an aggregate principal amount of $244,000 of its convertible promissory notes (the “December 2020 Notes”). The December 2020
Note holders had an optional right of conversion such that a Noteholder may elect to convert his December 2020 Note, in whole or in part,
outstanding as of such time, into the number of fully paid and non-assessable shares of the Company’s common stock as determined
by dividing the outstanding indebtedness by $0.25, subject to certain adjustments.
August
2020 Financing
On
August 21, 2020, the Company entered into a Note Purchase Agreement by and among the Company and certain lenders where the Company sold
an aggregate principal amount of $933,000 of its convertible promissory notes (the “August 2020 Notes”). The August 2020
Note holders had an optional right of conversion such that a Noteholder may elect to convert his August 2020 Note, in whole or in part,
outstanding as of such time, into the number of fully paid and non-assessable shares of the Company’s common stock as determined
by dividing the outstanding indebtedness by $0.20, subject to certain adjustments.
Paycheck
Protection Program Loan
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 was 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. For the year ended December 31, 2020, the Company recorded $15,624
as current portion of notes payable and $5,208 as notes payable long term.
COVID-19
UK Loan
On
April 20, 2020, the Board of Directors the Company, 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) will be 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 December 31, 2021, and 2020, the Company has recorded $56,391
and $41,831 as current portion of notes payable and $253,757 and $320,626 as notes payable long term, respectively.
47
Amazon
Line of Credit
On
October 9, 2019, Orbital Satcom Corp., entered into a short-term loan agreement for $29,000, with Amazon. The one-year term loan was
paid monthly, had an interest rate of 9.72%, with late payment penalty interest of 11.72%. For the years ended December 31, 2021, and
2020, the Company recorded interest expense of $0 and $952, respectively. The short-term line of credit balance as of December 31, 2021,
and 2020, was $0, respectively.
HSBC
Over-advance
The
Company’s UK subsidiary, GTC had an over-advance line of credit with HSBC, for working capital needs. The over advanced was not
renewed by the Company on December 31, 2021. The over-advance limit was £25,000 or $34,377 at an exchange rate of 1.375083, 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 has 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.
Our
current assets at December 31, 2021 increased 1,311.54% to $19,374,956, from $1,372,467 or an increase of $18,002,489, from December
31, 2020. The increases included cash of $16,539,216, net accounts receivable of $172,805, inventory of $658,274, unbilled revenue of
$24,866, VAT receivable of $491,417, prepaid expenses current portion of $95,284, and other current assets of $20,627. Prepaid
expenses primarily represent costs for the Coconut Grove, FL office, which is expected to be operational during April 2022.
Our
current liabilities at December 31, 2021 increased to $2,780,749 from $1,516,525 for an increase of $1,264,224, or 83.36% from December
31, 2020. The increase is primarily related to the stock subscription payable of $1,400,000, applied towards the January 5, 2022, private
placement of common stock, of approximately $7.2 million. See Note 19 - Subsequent Events.
Operating
Activities
Net
cash flows used in operating activities for the year ended December 31, 2021 amounted to $4,092,090 and were attributable to our
net loss of $8,107,662 and gain from debt extinguishment of $20,832, offset by depreciation and amortization expense of $317,102, right
of use of $32,963, amortization debt discount of convertible debt of $1,425,365, stock-based compensation related to the fair value of
options granted of $1,277,353 and stock-based compensation related to issuance of restricted stock awards of $2,481,071. Changes
in operating assets and liabilities were reflected by increases in accounts receivable of $172,805, unbilled revenue of $24,866, inventory
of $658,274, prepaid and other current assets of $165,778, VAT receivable of $491,417, and lease liabilities of $32,936, and offset
by increases in accounts payable and accrued expenses of $10,741, provision for income taxes of $37,824, and contract liabilities
of $61.
Net
cash flows used in operating activities for the year ended December 31, 2020 amounted to $836,980 and were attributable to; our net loss
of $2,763,375, gain from debt extinguishment of $269,261, offset by; depreciation and amortization expense of $294,926, right of use
of $28,073 stock-based compensation of $74,000, amortization debt discount of convertible debt of $956,554, and the fair value of options
issued of $830,900. Changes in operating assets and liabilities were reflected by decreases in accounts receivable of $67,322, inventory
of $4,876, prepaid and other current assets of $85,686, and offset by increases in accounts payable and accrued expenses of $111,616,
provision for income taxes of $2,899, contract liabilities of $4,503, and lease liability of $28,158.
Investing
Activities
Net
cash flows used in investing activities were $229,307 and $34,903 for the years ended December 31, 2021 and 2020, respectively. For the
year ended December 31, 2021, we purchased equipment, capitalized software and website development of $229,307. For the year ended December
31, 2020, we purchased equipment and websites upgrades of $34,903.
48
Financing
Activities
Net
cash flows provided by financing activities were $20,817,317 and $1,565,963 for the years ended December 31, 2021 and 2020, respectively.
During the year ended December 31, 2021, we had proceeds from convertible notes payable of $350,000, the June Offering of $14,061,984,
warrant exercise of $4,629,539, and over-allotments of common stock and warrants of $1,987,589, proceeds from options exercise
of $5,000, which was offset by repayments from; notes payable for $121,848, coronavirus loan of $28,195 and repayments to related
party payable of $66,752. During the year ended December 31, 2020, we had proceeds from related party for $50,989, convertible debt $1,177,000
and proceeds from notes payable of 362,457. For the year ended December 31, 2020, we had repayments of the Amazon line of credit of $24,483.
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 into 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.